The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:

~~Stock Yards Bancorp, inc. and subsidiary~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~The ac~~companying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements. The consolidated unaudited financial statements

Basis of Stock Yards Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.

Presentation – The ~~unaudited~~ consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly-owned subsidiary, ~~Stock Yards Bank & Trust~~ ~~Company (“Bank”). Significant~~SYB&T. All significant inter-company transactions and accounts have been eliminated in consolidation. All companies are collectively referred to as “Bancorp” or the “Company.”

The Bank, chartered in 1904, is a Louisville, Kentucky-based, state-chartered non-member financial institution that provides services in the Louisville, Kentucky, Indianapolis, Indiana and Cincinnati, Ohio MSAs through 42 full service banking center locations.

As a result of its acquisition of KSB on May 1, 2019, Bancorp became the 100% successor owner of KBST, an unconsolidated finance subsidiary. As permitted under the terms of KBST’s governing documents, Bancorp redeemed the TPS at the par amount of approximately $4 million on June 17, 2019.

Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses through commercial lending, retail lending, deposit services, treasury management services, private banking, online banking, mobile banking, merchant services, international banking, correspondent banking and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer.

WM&T provides custom-tailored financial planning, investment management, retirement planning and trust and estate services in all markets in which Bancorp operates.

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31,2019. For further information, refer to the consolidated financial statements and footnotes thereto included in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.

Significant Accounting Policies - In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of related revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to determination of the allowance for loan losses, valuation of available-for sale securities, other real estate owned and income tax assets, and estimated liabilities and expense.

A description of ~~other~~ significant accounting policies is presented in ~~the notes to Consolidated Financial Statements~~Bancorp’s Annual Report on Form 10-K for the year ended December 31, ~~2016 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.~~2018.

~~Interim results~~Critical Accounting Policies - An allowance has been established to provide for probable losses on loans that may not be fully repaid. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries. Loans are typically charged off when management deems them uncollectible and after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries could occur. Periodically, loans are partially charged off to the ~~three~~ ~~and nine-month periods ended September 30, 2017 are not necessarily indicative~~net realizable value based upon the evaluation of ~~results for the entire year.~~related underlying collateral, including Bancorp’s expectation of resolution.

The allowance ~~for loan losses~~methodology is ~~management~~’s estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

~~Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp~~’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. Since application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change. The provision for loan losses reflects an allowance methodology driven by risk ratings, historical losses, ~~specific loan loss allocations,~~ and qualitative factors. ~~Assumptions include many~~The level of the September 30, 2019 allowance reflected a number of factors, ~~such as changes in borrowers’ financial condition~~including credit quality metrics which ~~can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative~~were generally consistent with prior periods, and expansion of ~~future losses. In the first quarter of 2017, Bancorp extended~~ the historical look-back period ~~used~~from 32 to ~~capture Bancorp’s historical loss ratios from 24~~36 quarters ~~to 28 quarters.~~in March of 2019. This ~~extension~~expansion of the historical period was applied to all classes and segments of the portfolio. ~~The expansion~~Expansion of the look-back period for ~~the~~ historical loss rates used in the quantitative allocation caused ~~management to~~ review of the overall methodology for ~~the~~ qualitative factors to ensure ~~Bancorp was~~we were appropriately capturing ~~the~~ risk not addressed in the quantitative historical loss ~~rates used in the quantitative allocation, resulting in the same expansion of the look-back period for the qualitative factors.~~rate. Management believes ~~the~~ extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. ToBased on the ~~extent~~look-back period extension, the allowance level increased approximately $2.0 million for 2019. Key indicators of loan quality continued to trend at levels consistent with prior periods, however management recognizes that ~~management’s assumptions prove incorrect, results from operations could be materially affected by a higher or lower provision for loan losses. The accounting policy related~~due to the cyclical nature of local economies, these trends will likely normalize over the long term. Additional information regarding Bancorp’s methodology for evaluating the adequacy of the allowance can be read in Bancorp’s Annual Report on Form 10-K.

Accounting Standards Updates–Generally, if an issued-but-not-yet-effective ASU with an expected immaterial impact to Bancorp has been disclosed in prior SEC filings, it will not be re-disclosed.

The following ASU was issued prior to September 30, 2019 and is considered relevant to Bancorp’s financial statements.

In June 2016, FASB issued ASU 2016-13,CECL. This ASU significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The guidance is effective for ~~loan losses is applicable~~annual and interim reporting periods beginning after December 15, 2019. Bancorp expects to recognize a one-time cumulative-effect adjustment to the ~~commercial banking~~allowance. Interagency guidance issued in December 2018 allows for a three year phase-in of the cumulative-effect adjustment for regulatory capital reporting.

As a result of this ASU, Bancorp expects to increase its allowance. Bancorp has formed a committee to oversee its transition to the CECL methodology. Bancorp has devoted internal resources and purchased a third party software solution to analyze, compute and report upon the CECL disclosure requirements. In addition, Bancorp has analyzed loan-level data and is determining its CECL loan segmentation and initial segment calculation methodologies. Bancorp continues to analyze forecast scenarios and stress test the volatility of ~~Bancorp.~~the model. The Company expects to quantify the approximate January 1, 2020 impact ~~and any associated risks related to~~of this ~~policy on Bancorp’s business operations are discussed~~ASU upon its consolidated financial statements in the ~~“Allowance~~filing of its 2019 Annual Report on Form 10-K.

Recently Adopted Accounting Standards - Bancorp adopted ASU 2016-02,Leases and related amendments using an alternative transition method, effective January 1, 2019 and upon adoption recorded $17 million in right-of-use lease assets and $18 million of operating lease liabilities on its balance sheet. Prior periods have not been restated. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and other liabilities on the consolidated balance sheet. Bancorp elected all applicable practical expedients, including the option to expense short-term leases, which are defined as leases with a term of one year or less. Bancorp also elected not to separate lease components from non-lease components.

The adoption of this ASU did not have a meaningful impact on Bancorp's performance metrics, including regulatory capital ratios and ROA. Additionally, Bancorp does not believe that the adoption of this ASU by its clients will have a significant impact on Bancorp's ability to underwrite credit when client financial statements are presented inclusive of the requirements of this ASU. See the Footnote titled “Leases” for ~~Loan Losses” section below.~~additional information on lease activities.

On May 1, 2019, Bancorp completed its acquisition of KSB, for $28 million in cash. The acquisition expands the Company’s market area into nearby Nelson County, Kentucky, while growing its customer base in Louisville, Kentucky.

The following table provides a summary of the assets acquired and liabilities assumed as recorded by KSB, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, recast adjustments to those previously reported preliminary fair values, and the fair values of those assets and liabilities as recorded by the Bancorp. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary resultant fair values shown in the following table continue to be evaluated by management and may be subject to further recast adjustments.

(1) - Bancorp’s acquisition of KSB closed on May 1, 2019. The fair value adjustments reported are preliminary estimates based on information obtained subsequent to May 1, 2019 and through September 30, 2019. Management is continuing to evaluate each of its estimates and may provide additional recast adjustments in future periods based on this continuing evaluation. To the extent that additional recast adjustments are posted in future periods, the resultant fair values and the amount of goodwill recorded by Bancorp ~~inc. and subsidiary~~ will change.

~~Bancorp’s allowance calculation includes allocations~~Goodwill of approximately $12 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to ~~loan portfolio segments at~~ be recorded in the KSB acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to Bancorp’s Commercial Banking segment and is not expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the KSB acquisition will change.

Based upon the proximity to existing branch locations, Bancorp closed three acquired full service branch locations in the third quarter of 2019, while retaining the associated customer relationships. The sale of two of these locations was consummated prior to September 30, ~~2017~~2019 with a recast to Goodwill posted. The remaining building is considered held for ~~qualitative factors including, among other factors, local economic and business conditions in each~~sale as of ~~our primary markets, quality and experience of lending staff and management, exceptions~~September 30, 2019.

Prior year pro-forma financial statements are not presented due to lending policies, levels of and trends in past due loans and loan classifications, concentrations of credit such as collateral type, trends in portfolio growth, changes in value of underlying collateral for collateral-dependent loans, effect of other external factors such as the ~~national economic and business trends, quality and depth~~immateriality of the ~~loan review function,~~transaction. Revenue (defined as net interest income and ~~management’s judgement of current trends~~non-interest income) attributed to KSB totaled $1.5 million and ~~potential risks. Bancorp utilizes~~$2.6 million for the ~~sum of all allowance amounts derived as described above as the appropriate level of allowance for loan~~three and lease losses. Changes in criteria used in this evaluation or availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan losses based on their judgments and estimates.nine months ended September 30, 2019.

~~The amortized~~All of Bancorp’s securities are classified as AFS. Amortized cost, unrealized gains and losses, and fair value of securities ~~available-for-sale~~ follow:

~~Corporate equity~~At September 30, 2019 and December 31, 2018, there were no holdings of debt securities ~~consist~~ of ~~common stock~~any one issuer, other than the U.S. government and its agencies, in ~~a publicly-traded business development~~ ~~company.~~an amount greater than 10% of stockholders’ equity.

There were no0 gains or losses on sales or calls of securities ~~classified as held to maturity as of~~ ~~September 30, 2017 or December 31, 2016.~~

~~Bancorp sold no securities~~ ~~during the three or~~ nine month periods ending September 30, ~~2016~~2019 and 2018. Securities acquired from KSB, totaling $12 million, were sold immediately following the acquisition with 0 gain or ~~2017. One security was called prior to maturity~~loss realized in the ~~third quarter of 2017 resulting in the receipt of a pre-payment penalty. The penalty~~ income ~~was classified as a realized gain on the call of available for sale securities.~~statement.

A summary of ~~the~~ ~~available-for-sale investment~~ securities AFS by contractual maturity ~~groupings as of September 30, 2017 is shown below.~~follows:

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay ~~obligations. In addition to equity securities, the~~obligations with or without prepayment penalties. The investment portfolio includes ~~agency mortgage-backed securities,~~MBSs, which are guaranteed by agencies such as ~~the~~ FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral.

Bancorp pledges portions of its investment securities portfolio to secure public fund deposits, cash balances of certain wealth management and trust accounts, and securities sold under agreements to repurchase. ~~The~~Securities with a carrying value of ~~these~~$295 million and $355 million were pledged ~~securities was approximately $329.7 million~~ at September 30, ~~2017~~ 2019 and ~~$380.4 million at~~ December 31, ~~2016.~~2018, to secure accounts of commercial depositors in cash management accounts, public deposits, and uninsured cash balances for WM&T accounts.

Securities with unrealized losses at September 30, ~~2017~~ 2019 and December 31, ~~2016, not recognized~~2018, aggregated by investment category and length of time securities have been in ~~the statements of income are as~~a continuous unrealized loss position follows:

Applicable dates for determining when securities are in an unrealized loss position are September 30, ~~2017~~ 2019 and December 31, ~~2016.~~ 2018. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve months, but is not in the ~~“investments with an unrealized loss of less~~“Less than 12 months” category above.

Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in value below amortized cost is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.

Unrealized losses on ~~Bancorp~~’sBancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is due to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach ~~their~~ maturity ~~date~~ and/or the interest rate environment returns to conditions similar to when these securities were purchased. These investments consist of 52 and 117 separate investment positions as of September 30, 2019 and December 31, 2018. Because management does not intend to sell the ~~investments,~~securities, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost, ~~bases,~~ which may be at maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at September 30, ~~2017.~~2019.

FHLB stock ~~and other securities are investments~~represents an investment held by Bancorp which ~~are~~ is not readily marketable and ~~are~~is carried at ~~cost. This category includes Federal Home Loan Bank~~cost adjusted for identified impairment. Impairment is evaluated on an annual basis in the fourth quarter. No impairment has been recorded in the past and not future impairment is expected. Holdings of ~~Cincinnati (FHLB)~~FHLB stock ~~which~~ isare required for access to FHLB ~~borrowing.~~advances.

C~~omposition~~Composition of loans, net of deferred fees and costs, by ~~primary~~ loan portfolio class follows:

~~The following table presents the balance~~ ~~of the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of September 30, 2017 and December 31, 2016.~~

~~The considerations by Bancorp in computing its allowance for loan losses are determined based on various risk characteristics of each loan segment. Relevant risk characteristics are as follows:~~

~~Bancorp has~~Loans to directors and their related interests, including loans ~~that were acquired~~to companies for which ~~there was, at acquisition, evidence~~directors are principal owners and executive officers totaled $45 million and $53 million, as of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. The carrying amount of those loans is included in the balance sheet amounts of loans at September 30, ~~2017~~ 2019 and December 31, ~~2016. Changes in the fair value adjustment for acquired impaired loans are shown in the following table:~~2018.

~~The following tables present loans individually evaluated for impairment as of September 30, 2017 and December 31, 2016.~~

~~Differences between recorded investment amounts and unpaid principal balance amounts are due to partial~~ ~~charge-offs and interest paid on non-accrual loans which have occurred over the life of loans. Unpaid principal balance is reduced by these items to arrive at the recorded investment in the loan.~~

~~Impaired loans include non-accrual loans and accruing loans accounted for as troubled debt restructurings (TDR~~s), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest. Bancorp had loans totaling $261 thousand past due more than 90 days and still accruing interest at September 30, 2017, compared with $438 thousand at December 31, 2016.

The following table ~~presents~~summarizes loans acquired in the ~~recorded investment in non-accrual loans~~Company’s May 1, 2019 KSB acquisition, recasted as of September 30, ~~2017 and December 31, 2016.~~2019.

In the course of working with borrowers, Bancorp may elect to restructure contractual terms of certain loans. Troubled debt restructurings (TDRs) occur when, for economic or legal reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider.

At ~~September~~ The Bank acquired PCI loans on May 1, 2019 related to the KSB acquisition and also during 2013 associated with the TBOC acquisition. PCI loans are accounted for under ASC 310-30, ~~2017 Bancorp had $949 thousand~~Loans and Debt Securities Acquired with Deteriorated Credit Quality. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets.

Management utilized the following criteria in determining which loans were classified as TDRs, all of which were accruing interest consistent with their modified terms. One residential real estate loan with a recorded investment of $12 thousand was modified and classified as a TDR in the three-month period ended September 30, 2017. Interest due and unpaid was capitalized into the principal balance resulting in the TDR classification. A specific reserve was establishedPCI loans for the entire recorded investment of this loan. One additional loan, a commercial loan with a recorded investment of $35 thousand at September 30, 2017, was modified and classified as a TDR previously in the nine-month period ended September 30, 2017. The pre and post-modification balance for this loan was $39 thousand. The monthly payment amount of this loan was modified to enable the borrower to fulfill the loan agreement. A specific reserve was established for the entire recorded investment of this loan.its KSB acquisition:

At ~~September 30, 2016 Bancorp had $999 thousand of accruing loans~~● Loans classified as ~~TDR. Bancorp did not modify~~non-accrual when acquired

● Loans past due 90 days or ~~classify any additional loans as TDR during the three or nine month periods ended September 30, 2016.~~more when acquired

~~No loans classified~~The following table reconciles the contractually required and ~~reported as~~ TDRs within the twelve months prior to September 30, 2017 defaulted during the three or nine-month periods ended September 30, 2017. Likewise, no loans classified and reported as troubled debt restructured within the twelve months prior to September 30, 2016 defaulted during the three-month or nine-month periods ended September 30, 2016. Loans accounted for as TDRs include modifications from original terms such as those due to bankruptcy proceedings, certain modificationscarrying amounts of amortization periods or extended suspension of principal payments due to customer financial difficulties. Loans accounted for as TDRs are individually evaluated for impairment and, at September 30, 2017, had a total allowance allocation of $142 thousand, compared with $207 thousand at December 31, 2016.all PCI loans:

At ~~September 30, 2017 and December 31, 2016, Bancorp did not have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.~~

At ~~September 30, 2017 formal foreclosure proceedings were in process on two loans with a total recorded investment of $75 thousand.~~

The following table presents ~~aging~~a rollforward of the ~~recorded investment in loans as of~~ ~~September 30, 2017 and December 31, 2016.~~accretable amount on all PCI loans:

Consistent with regulatory guidance, Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans included all risk-rated loans other than those classified as ~~other assets especially mentioned,~~OAEM, substandard, and doubtful, which are defined below:

Internally assigned risk grades of loans by loan portfolio class classification category follows:

The following table presents the activity in the allowance by loan portfolio class:

~~As of~~ ~~September 30, 2017 and December 31, 2016, the internally assigned risk grades of loans by category were as follows:~~

The considerations by Bancorp ~~inc.~~in computing its allowance are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:

For owner occupied residential and ~~subsidiary~~owner-occupied CRE, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy as reflected by increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this overall loan category.

Impaired loans include non-accrual loans and loans past due 90 days-or-more accruing interest in addition to a nominal amount TDRs, which also continue to accrue interest.

The following table presents the recorded investment in non-accrual and loans past due 90-days-or-more and still accruing interest:

In the course of working with borrowers, Bancorp may elect to restructure the contractual terms of certain loans. TDRs occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider. Bancorp did not recognize new TDRs, nor did any TDRs default, in the three and nine months periods ended September 30, 2019 and 2018. Detail of outstanding TDRs included in total non-performing loans follows:

As of September 30, 2019 formal foreclosure proceedings were in process on 1-4 family residential mortgage loans with a total recorded investment of $140,000, as compared with $528,000 as of December 31, 2018.

The following tables present the balance in the recorded investment in loans and by portfolio loan class and based on impairment evaluation method:

The following table’s present loans individually evaluated for impairment by loan portfolio class:

Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the lives of certain loans.

The following table presents the aging of the recorded investment in loans by portfolio class:

US Goodwill, recorded on the acquisition date of an entity, represents $11.9 million related to the May 1, 2019 KSB acquisition and $682,000 related to the 1996 purchase of a bank in southern Indiana. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. During this measurement period, Bancorp may record subsequent recast adjustments to goodwill for provisional amounts recorded at the acquisition date.

GAAP requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. ~~Evaluations have resulted in no indication~~Impairment exists when a reporting unit’s carrying value of ~~impairment.~~goodwill exceeds its fair value. Bancorp’s annual goodwill impairment test is conducted as of December 31 of each year or more often as situations dictate. The goodwill balance at September 30, 2019 relates entirely to the Commercial Banking segment of Bancorp. At December 31, 2018, Bancorp’s Commercial Banking reporting unit had positive equity and Bancorp ~~currently has goodwill~~elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair value. Therefore, Bancorp did not complete the two-step impairment test as of December 31, 2018.

Changes in the ~~amount~~carrying value of ~~$682 thousand from the 1996 acquisition of an Indiana bank. This~~ goodwill ~~is assigned to the commercial banking segment of Bancorp.~~follows:

The Company recorded a ~~gross~~ core deposit intangible ~~totaling~~assets of $1.5 million and $2.5 million ~~as a result~~in association with its May 1, 2019 KSB and 2013 TBOC acquisitions. See the Footnote titled “Acquisition of ~~its 2013 acquisition~~King Bancorp, Inc.” for further details.

Changes in the net carrying amount of ~~THE BANCorp, Inc. This intangible is being amortized over the expected life of the underlying deposits to which the intangible is attributable. At September 30, 2017, the unamortized~~ core deposit ~~intangible was $1.3 million, as compared to $1.4 million at December 31, 2016.~~intangibles follow:

MSRs, a component of other assets, are initially recognized at fair value when mortgage loans are sold with servicing retained. The MSRs are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing carrying value to fair value. Estimated fair values of MSRs at ~~both~~ September 30, ~~2017~~ 2019 and December 31, ~~2016~~ 2018 were ~~$2.7~~$3 million and $4 million.

Total outstanding principal balances of loans serviced for others were ~~$350.1~~$324 million and ~~$372.2~~$328 million at September 30, ~~2017,~~ 2019, and December 31, ~~2016, respectively.~~2018.

In March 2019, the Kentucky Legislature passed HB354 requiring financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021. Historically, the franchise tax, a component of non-interest expenses, was assessed at 1.1% of net capital and averaged $2.5 million annually over the prior two year-end periods. The Kentucky corporate income tax will be assessed at 5% of Kentucky taxable income and will be included as a component of current and deferred state income tax expense. Associated with this change, during the first quarter of 2019, Bancorp established a Kentucky state deferred tax asset related to existing temporary differences estimated to reverse after the effective date of the law change. Bancorp recorded a corresponding state tax benefit, net of federal impact of $1.3 million, or approximately $0.06 per diluted share for the first quarter 2019. While this is positive in the short-term, Bancorp anticipates an unfavorable impact of approximately $200,000 per year beginning in 2021.

~~Changes~~In April 2019, the Kentucky legislature passed HB458 allowing banks and their holding companies to be combined together for Kentucky tax return filings. The combined filing will allow Bancorp’s holding company net operating losses to offset against net revenue generated by the Bank and reduce Bancorp’s tax liability. Bancorp recorded a state tax benefit associated with this change of $2.4 million in the ~~net carrying amount~~second quarter of ~~MSRs~~2019, or approximately $0.11 per diluted share for the ~~nine months ended September 30, 2017 and 2016 are shown in the following table:~~second quarter of 2019.

An analysis of the difference between statutory and effective income tax rates ~~for the~~ ~~nine months ended September 30, 2017 and 2016~~ follows:

~~State~~Currently, state income tax expense represents taxes owed into the state of Indiana. ~~State income taxes in~~ Kentucky and Ohio state bank taxes are currently based on capital levels, and are recorded as other non-interest expense.See preceding section regarding 2019 changes in Kentucky tax law.

~~Bancorp~~’s results for the first nine months of 2017 reflect implementation of Accounting Standards Update 2016-09, which provides guidance for the recognition of excess tax benefits or deficiencies related to share-based payment awards. Effective for fiscal years beginning after December 15, 2016, ASU 2016-09 changes the way these benefits and deficiencies are recorded. Prior to 2017 they were recorded in additional paid-in capital, and therefore did not affect earnings. Beginning in 2017, these amounts are being recorded as tax expense or benefit in the income statement. For the three and nine month periods ending September 30, 2017 Bancorp recorded benefits of $241 thousand and $1.4 million, respectively, within the provision for income tax expense for such awards.

US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. If recognized, tax benefits would reduce tax expense and accordingly, increase net income. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current year tax positions, expiration of open income tax returns due to statutes of limitation, changes in ~~management~~’smanagement’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or elimination of uncertain tax positions. As of September 30, ~~2017~~ 2019 and December 31, ~~2016,~~ 2018, the gross amount of unrecognized tax benefits was immaterial to the consolidated financial statements of the Company. Federal and state income tax returns are subject to examination for the years after ~~2012.~~2015.

The composition of the Bank’s deposits ~~outstanding at September 30, 2017 (unaudited) and December 31, 2016 is as~~ follows:

~~Maturities of time deposits~~ ~~of more than $250,000, outstanding at September 30, 2017, are summarized as follows:~~Deposits totaling $125.5 million were acquired on May 1, 2019, associated with the KSB acquisition.

~~Securities sold under agreements to repurchase, which~~SSUAR represent ~~excess funds from~~a funding source of Bancorp and are primarily used by commercial customers ~~as part of a~~in conjunction with collateralized corporate cash management ~~service, totaled $71.9 million~~accounts. Such repurchase agreements are considered financing agreements and ~~$67.6 million at~~ mature within one business day from the transaction date. At September 30, ~~2017 and December 31, 2016, respectively. Bancorp enters into sales of securities under agreement to repurchase at a specified future date. At September 30, 2017,~~ 2019, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities which were owned and controlled by ~~and under the control of~~ Bancorp.

Bancorp had outstanding ~~borrowings~~ 57 separate advances totaling ~~$50.1~~$82 million ~~and $51.1 million at~~ as of September 30, ~~2017 and~~ 2019, as compared with 14 separate advances totaling $48 million as of December 31, ~~2016, respectively, via 14 separate fixed-rate advances.~~2018. As a result of the KSB acquisition, Bancorp assumed 46 advances totaling $43 million, with maturities ranging from 2019 to 2028. These advances were discounted to fair value as of the acquisition date. See the Footnote titled “Acquisition of King Bancorp, Inc.” for further details. As of September 30, ~~2017,~~ 2019, for ~~two~~15 advances totaling ~~$30~~$50 million, ~~both~~all of which are non-callable, interest payments are due monthly, with principal due at maturity. For the remaining advances, ~~totaling $20.1 million,~~ principal and interest payments are due monthly based on an amortization schedule.

The following is a summary of the contractual maturities and average effective rates of outstanding advances:

~~In addition to fixed-rate~~FHLB advances ~~listed above,~~ at September 30, 2017 Bancorp had a $150 million cash management advance from the FHLB. This advance matured in the first week of October, 2017 and was used to manage Bancorp’s overall cash position. Due to the short term of the advance, it was recorded on the consolidated balance sheet within Federal funds purchased and other short-term borrowings.

~~Advances from the FHLB~~ are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral pledge agreement and FHLB stock. Bancorp ~~at times utilizes~~views these ~~borrowings~~advances to ~~match~~be an effective alternative to brokered deposits to fund ~~long-term fixed rate loans.~~loan growth. At September 30, ~~2017,~~ 2019, and December 31, 2018, the amount of available credit from the FHLB totaled ~~$367.3~~$511 million and $537 million. The Company also had $105 million in FFP lines available from correspondent banks at both September 30, 2019, and December 31, 2018.

The following ~~table illustrates~~tables illustrate activity within the balances ~~of accumulated other comprehensive income~~in AOCI by ~~component, and is shown for the nine months ended September 30, 2017 and 2016.~~component:

Bancorp has a class of preferred stock ~~(no~~(0 par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of which or any series within the class will be determined by the Board of Directors prior to any issuance. ~~None~~NaN of this stock has been issued to date.

The following table reflects ~~for the~~ ~~three and nine months ended September 30, 2017 and 2016,~~ net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:

Certain SARs that were excluded from the EPS calculation because their impact was antidilutive follows:

These shares while antidilutive, could however, be dilutive to EPS in the future.

Bancorp sponsors an unfunded, non-qualified, defined benefit retirement plan for ~~three~~3 key officers ~~(two~~(1 current and ~~one~~2 retired), and has no plans to increase the number of or benefits to participants. ~~Benefits vest based on 25 years of service.~~ All ~~three officers~~participants are fully ~~vested as of September 2017.~~vested. Actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from Bancorp’s assets. Bancorp maintains life insurance policies, for which it is the beneficiary, for the defined benefit plan participants. Income from these policies is utilized to offset costs of benefits. Net periodic ~~benefits costs, which include interest~~benefit cost ~~and amortization of net losses, totaled $34 thousand and $33 thousand~~was immaterial for the three-month periods ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the net periodic benefit costs totaled $103 thousand and $100 thousand, respectively.all respective periods.

The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.

~~Bancorp currently has one stock-based compensation plan.~~ At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. NoIn 2018 shareholders approved an additional 500,000 shares ~~were made available.~~for issuance under the plan. As of September 30, ~~2017,~~ 2019, there were ~~285,133~~795,000 shares available for future awards.

Stock Options – Bancorp had 0 stock options outstanding as of September 30, 2019 and December 31, 2018.

~~Options, which have not been~~SARs – SARs granted ~~since 2007, had a vesting schedule of 20% per year~~ ~~and as of February 2017; all options have been exercised or expired. Stock appreciation rights (“SARs”)~~ have a vesting schedule of 20% per ~~year. SARs~~year and expire ten years after the grant date unless ~~unvested grants are~~ forfeited due to employment termination. ~~SARs granted under the 2005 plan expire as late as 2025.~~

~~Restricted~~Fair values of SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating such value. This model requires the input of assumptions, changes to which can materially affect the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of the underlying shares for the expected term on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on past experience of similar-life SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.

RSA Grants– RSAs granted to officers vest over five years. ~~All restricted shares have been granted at a price equal to the market value of common stock at the time of grant.~~ For all grants prior to 2015, grantees ~~were~~are entitled to dividend payments during the vesting period. For grants in 2015 and ~~after,~~forward, forfeitable dividends are deferred until shares are vested.

~~Stock Yards Bancorp, inc. and subsidiary~~RSAs is equal to the market value of the shares on the date of grant.

PSU Grants ~~of performance stock units (“PSUs”)~~– PSUs vest based upon service and a ~~three-year~~three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the ~~fair~~market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. ~~Beginning in 2015, grants~~Grants require a one year post-vesting holding ~~period. For 2015, 2016~~period and ~~2017,~~ the fair value of such grants incorporates a liquidity discount ~~of 4.80%, 4.50% and 5.12%, respectively,~~ related to the holding ~~period.~~period of 4.1%, 4.3% and 5.1% for 2019,2018, and 2017.

RSU Grants ~~of restricted stock units (“RSUs”)~~– RSUs are only granted to non-employee directors, are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, fair value of the RSUs is ~~equal to the fair~~equals market value of underlying shares on the date of grant.

Bancorp has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other non-interest expense for directors, in the consolidated statements of income as follows:

~~Bancorp~~’s net income for the three and nine-month periods ended September 30, 2017 reflected the implementation of ASU 2016-09 which changed the way excess tax benefits and deficiencies related to share-based compensation are recorded. Prior to 2017 these were recorded directly to additional paid-in capital and, thus did not affect earnings. Beginning in 2017 these are recorded as a tax expense or benefit in the income statement. For the three and nine months ended September 30, 2017 these benefits resulted in a $241 thousand and a $1.4 million increase in net income, respectively. This tax benefit is not reflected in the table above.

~~Bancorp expects to record an additional $~~679 thousand of stock-based compensation expense in 2017 for equity grants outstanding as of September 30, 2017. As of September 30, 2017, Bancorp has $4.9 million of unrecognized stock-based compensation expense that is expected to be recorded as compensation expense over the next five years as awards vest. Bancorp usedutilized cash of ~~$216 thousand~~$272,000 during the firstnine months of ~~2017~~2019 for the purchase of shares upon the vesting of ~~restricted stock units, net of cash received for options exercised.~~RSUs. This compares towith cash ~~received~~used of ~~$1.6 million~~$154,000 during the firstnine months of ~~2016~~2018 for ~~similar activity.~~the purchase of shares.

In the first quarter of 2019, Bancorp awarded 9,834 RSUs to non-employee directors of Bancorp with a grant date fair value of $330,000.

Bancorp ~~inc.~~has recognized stock-based compensation expense for SARs, RSAs, and ~~subsidiary~~PSUs within compensation expense, and RSUs for directors within other non-interest expense, as follows:

~~Fair values of Bancorp~~’s SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating the value of stock options and SARs. This model requires input of assumptions, changes to which can materially affect the fair value estimate. Fair value of restricted shares is equal to Bancorp’s closing stock price on the date of grant. The following assumptions were used in SAR valuations at the grant date in each year:

Dividend yield and expected volatility are based on historical information for Bancorp for time periods corresponding to the expected life of options and SARs granted. Expected volatility is the price volatility of the underlying shares for the expected term measured on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the award. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.

As of September 30, 2019, Bancorp ~~inc. and subsidiary~~has $5.8 million of unrecognized stock-based compensation expense estimated to be recorded as follows:

~~A summary of stock option and~~The following table summarizes SARs activity and related ~~information for the~~ ~~twelve month period ended December 31, 2016 and the nine month period ended September 30, 2017 follows:~~information:

~~Intrinsic~~(1) - Intrinsic value for ~~stock options and~~ SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grantprice.46,410 shares had an intrinsic value of zero because the exercise price for those shares exceeded the current market price at September 30, 2017. There are no options outstanding as of September 30, 2017; all have been exercised or have expired.

~~A summary of~~ ~~activity~~Shares expected to be awarded for ~~restricted shares of common stock~~PSUs granted ~~to officers for the periods ending December 31, 2016 and September 30, 2017 is outlined in the following table:~~

~~Bancorp~~ ~~awarded PSUs~~ to executive officers of Bancorp, the ~~three-year~~three-year performance period for which began January 1 of the award ~~year. Shares awarded in 2017 under the 2014 grant totaled 50,022. Shares awarded in 2016 under the 2013 grant totaled 55,188.~~year are as follows:

~~In the first quarter of 2017, Bancorp awarded 4,680 RSUs to directors of Bancorp with a grant date fair value of $220 thousand. No awards were made in the second or third quarters of 2017.~~

~~(14)~~

~~Stock Split~~

~~In April 2016 Bancorp declared a 3 for 2 stock split effected as a 50% stock dividend payable in May 2016. Share and per share information has been adjusted for this split.~~

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~~Stock Yards Bancorp, inc. and subsidiary~~

~~(15)~~(15)

Commitments and Contingent Liabilities

As of September 30, ~~2017,~~ 2019 and December 31, 2018, Bancorp had various commitments outstanding that arose in the normal course of business, ~~including standby letters~~such as unused commitments or lines of credit and commitments made to ~~extend credit,~~lend in the future, which are properly not reflected in the consolidated financial statements. ~~In management’s opinion, at September 30, 2017~~Total off balance sheet commitments to extend credit of $709.7 million, including standby letters of credit of $17.6 million, represent normal banking transactions. Commitments to extend credit were $628.3 million, including letters of credit of $15.6 million, as of December 31, 2016. follows:

(In thousands)	September 30, 2019		December 31, 2018
Commercial and industrial	$	384,038	$	309,920
Construction and development		251,984		179,364
Home equity		151,800		147,907
Credit cards		25,606		20,003
Overdrafts		22,083		21,751
Letters of credit		22,827		20,891
Other		43,910		33,369
Future loan commitments		179,843		101,399

Total off balance sheet commitments to extend credit	$	1,082,091	$	834,604

Commitments to extend credit are an agreement to lend to a customer as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. ~~Commitments to extend credit are mainly comprised of commercial lines of credit, construction and home equity credit lines and credit cards issued to commercial customers.~~ Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained ~~if any,~~ is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, securities, equipment, and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments. At September 30, ~~2017,~~ 2019 and December 31, 2018, Bancorp had accrued ~~$350 thousand~~$350,000 in other liabilities for its estimate of inherent risks related to unfunded credit commitments.

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Standby letters of credit ~~and financial guarantees written~~ are conditional commitments issued by Bancorp to guarantee the performance of a customer to a first ~~party.~~ party beneficiary. Those guarantees are primarily issued to support~~customer~~ commercial transactions. Standby letters of credit generally have maturities of one to two years.

As ~~part~~ of ~~the normal course of business Bancorp entered into an agreement to purchase~~ ~~29 automatic teller machines (ATMs) over the next three years at a total price of $1.2 million. Management was able to secure favorable pricing by contractually committing to purchase the machines.~~

~~Also, as of~~ September 30, ~~2017,~~ 2019, in the normal course of business, there were pending legal actions and ~~administrative~~ proceedings in which claims for damages are ~~asserted and/~~asserted. Management, after discussion with legal counsel, believes the ultimate result of these legal actions and proceedings will not have a material adverse effect on the consolidated financial position or ~~losses could be incurred. We record a liability for these matters if an unfavorable outcome is probable and the amount~~results of ~~loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate~~operations of ~~loss is a range, we record a best estimate of loss within the range. At September 30, 2017 we have recorded a liability of $266 thousand for such matters.~~Bancorp.

~~(16)~~(16)

Assets and Liabilities Measured and Reported at Fair Value

~~Bancorp follows~~Fair value represents the provisions of authoritative guidance for fair value measurements. This guidance is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by US GAAP. The guidance also prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in US GAAP.

~~Authoritative guidance defines fair value as the~~exchange price that would be received ~~to sell~~for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants aton the measurement date. ~~The guidance also establishes a hierarchy to group assets and liabilities carried at fair value in~~ There are three levels ~~based upon the markets in which the assets and liabilities trade and the~~ ~~source~~ of ~~assumptions~~inputs that may be used to ~~determine~~measure fair ~~value. These levels are:~~values:

●

Level 1: Valuation is based upon quoted (unadjusted) prices for identical instruments traded in active markets.

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~~Stock Yards Bancorp, inc. and subsidiary~~

●

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

●

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect internal estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include pricing models, discounted cash flows and other similar techniques.

Authoritative guidance requires ~~maximum~~maximization of use of observable inputs and ~~minimum~~minimization of use of unobservable inputs in fair value measurements. Where there exists limited or no observable market data, Bancorp derives its own estimates by generally considering characteristics of the asset/liability, the current economic and competitive environment and other factors. For this reason, results cannot be determined with precision and may not be realized on an actual sale or immediate settlement of the asset or liability.

~~Bancorp’s investment~~Bancorp’s AFS securities ~~available-for-sale~~portfolio and interest rate swaps are recorded at fair value on a recurring basis. Other accounts including mortgage servicing rights, impaired loans and other real estate owned may be recorded at fair value on a non-recurring basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.

The portfolio of investment securities available-for-sale is comprised of U.S. Treasury and other U.S. government obligations, debt securities of U.S. government-sponsored corporations (including mortgage-backed securities), obligations of state and political subdivisions and corporate equity securities. U.S. Treasury and ~~publicly traded corporate equity securities are priced using quoted prices of identical securities in an active market. These measurements are classified as Level 1 in the hierarchy above.~~ All ~~other~~AFS securities are priced using standard industry models or matrices with various assumptions such as yield curves, volatility, prepayment speeds, default rates, time value, credit rating and market prices for similar instruments. These assumptions are ~~generally~~ observable in the market place and can be derived from or supported by observable data. These measurements are classified as Level ~~2 in the hierarchy above.~~2.

~~Interest rate swaps are valued using primarily Level 2 inputs.~~ Fair value measurements ~~generally~~for interest rate swaps are based on benchmark forward yield curves and other relevant observable market data. For purposes of potential valuation adjustments to derivative positions, Bancorp evaluates the credit risk of its counterparties as well as its own credit risk. To date, Bancorp has not realized any losses due to ~~a counterparty~~’scounterparty’s inability to perform and the change in value of derivative assets and liabilities attributable to credit risk was not significant during ~~2017.~~the reporting period. Interest rate swaps are valued using primarily Level 2 inputs.

MSRs, impaired loans and OREO are recorded at fair value on a non-recurring basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.

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~~Stock Yards Bancorp, inc. and subsidiary~~

~~Below are the carrying~~Carrying values of assets measured at fair value on a recurring ~~basis.~~basis follows:

(in thousands)	Fair value at September 30, 2017
(In thousands)									Fair value at September 30, 2019
Assets	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
Securities available for sale:

Government sponsored enterprise obligations	$	372,664	$	-	$	372,664	$	-	$	214,365	$	—	$	214,365	$	—
Mortgage-backed securities - government agencies		146,720		-		146,720		-
Mortgage backed securities - government agencies										143,002		—		143,002		—
Obligations of states and political subdivisions		51,622		-		51,622		-		18,234		—		18,234		—
Corporate equity securities		516		516		-		-


Total investment securities available-for-sale		571,522		516		571,006		-
Total Securities available for sale										375,601		—		375,601		—

Interest rate swaps		182		-		182		-		3,708		—		3,708		—

Total assets	$	571,704	$	516	$	571,188	$	-	$	379,309	$	—	$	379,309	$	—

Liabilities

Interest rate swaps	$	148	$	-	$	148	$	-	$	3,802	$	—	$	3,802	$	—

(In thousands)	Fair value at December 31, 2018
Assets	Total		Level 1		Level 2		Level 3
Securities available for sale:
Government sponsored enterprise obligations	$	261,039	$	—	$	261,039	$	—
Mortgage backed securities - government agencies		146,277		—		146,277		—
Obligations of states and political subdivisions		29,679		—		29,679		—


Total Securities available for sale		436,995		—		436,995		—

Interest rate swaps		1,035		—		1,035		—

Total assets	$	438,030	$	—	$	438,030	$	—

Liabilities

Interest rate swaps	$	543	$	—	$	543	$	—

(in thousands)

Fair value at December 31, 2016

Assets

Total

Level 1

Level 2

Level 3

Investment securities available-for-sale

U.S. Treasury and other U.S. government obligations
$ 74,998 $ 74,998 $ - $ -
Government sponsored enterprise obligations
268,090 - 268,090 -
Mortgage-backed securities - government agencies
168,843 - 168,843 -
Obligations of states and political subdivisions
57,444 - 57,444 -
Corporate equity securities
699 699 - -

Total investment securities available-for-sale
570,074 75,697 494,377 -

Interest rate swaps
203 - 203 -

Total assets
$ 570,277 $ 75,697 $ 494,580 $ -

Liabilities

Interest rate swaps
$ 178 $ - $ 178 $ -

Bancorp had no0 financial instruments classified within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, ~~2017~~ 2019 or December 31, ~~2016.~~2018.

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~~Stock Yards Bancorp, inc. and subsidiary~~

~~MSRs are recorded~~Discussion of assets measured at fair value ~~upon capitalization,~~on a non-recurring basis follows:

MSRs – On at least a quarterly basis, MSRs are ~~amortized to correspond with estimated servicing income, and are periodically assessed~~evaluated for impairment based onupon the fair value atof the ~~reporting date.~~MSRs as compared to carrying amount. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income. These measurements are classified as Level 3. At September 30, ~~2017~~ 2019 and December 31, ~~2016~~ 2018, there was no0 valuation allowance for MSRs, as the ~~mortgage servicing rights, as~~ fair value exceeded the cost. Accordingly, the MSRs are not included in ~~either table below~~the following tabular disclosure for September 30, ~~2017~~ 2019 or December 31, ~~2016. See Note 4 for more information regarding MSRs.~~2018.

~~For~~Impaired loans – Collateral-dependent impaired loans ~~in the table below, fair value is calculated as carrying value of loans with a specific valuation allowance, less the specific allowance, and the carrying value of collateral dependent~~generally include loans that have ~~been charged down~~received partial charge-downs or specific reserve allocations needed to ~~their~~record the loan at fair ~~value.~~value. Fair value is commonly based on recent real estate appraisals or other sources of valuations based upon the underlying collateral. Fair value of impaired loans was primarily measured based on the value of ~~the~~ collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. Bancorp typically determines the value of real estate collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. For other assets, Bancorp relies on both internal and third party assessments of asset value, based on information provided by the borrower, following methodologies similar to those described for real estate. As of September 30, ~~2017,~~ 2019, total impaired collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance were ~~$3.2 million,~~$383,000 and the specific allowance totaled ~~$722 thousand,~~$35,000, resulting in a fair value of ~~$2.5 million,~~$348,000, compared with total collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance of ~~$4.2 million,~~$967,000, and the specific allowance allocation totaling ~~$1.3 million,~~$42,000, resulting in a fair value of ~~$2.9 million~~$925,000 at December 31, ~~2016.~~ 2018. Losses represent charge offs and changes in specific allowances for the ~~period~~periods indicated.

~~Other real estate owned (“OREO”), which is carried~~OREO – Assets acquired through or instead of loan foreclosure are initially recorded at ~~the~~fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value ~~is periodically assessed for impairment based on fair value at the reporting date.~~less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or valuations performed by internal or external parties which use judgments and assumptions that are property-specific and sensitive to changes in the overall economic environment. Appraisals may be further discounted based on ~~management~~’smanagement’s historical knowledge and/or changes in market conditions from the date of the most recent appraisal. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. For OREO in the following table, ~~below,~~ fair value is the carrying value of only parcels of OREO which have a carrying value equal to appraised value. Losses represent write-downs which occurred during the period indicated. At September 30, ~~2017~~ 2019 and December 31, ~~2016,~~ 2018, carrying value of ~~all other real estate owned~~OREO was ~~$2.6 million~~$563,000 and ~~$5.0 million, respectively.~~$1.0 million.

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~~Stock Yards Bancorp, inc. and subsidiary~~

Below are the carrying values of assets measured at fair value on a non-recurring basis. ~~Impaired loan amounts reported represent only those impaired loans with specific valuation allowances and collateral dependent impaired loans charged down to their carrying value.~~

(in thousands)	Fair value at September 30, 2017								Losses for 9 month
(In thousands)												Fair value at September 30, 2019								Losses recorded:
																				Three months		Nine months
									period ended											ended		ended
	Total		Level 1		Level 2		Level 3		September 30, 2017			Total		Level 1		Level 2		Level 3		September 30, 2019		September 30, 2019
Impaired loans	$	2,530	$	-	$	-	$	2,530	$	(280	)	$	348	$	—	$	—	$	348	$	—	$	—
Other real estate owned		2,640		-		-		2,640		(171	)		239		—		—		239		—		—

Total	$	5,170	$	-	$	-	$	5,170	$	(451	)

(in thousands)	Fair value at December 31, 2016								Losses for 9 month
(In thousands)												Fair value at December 31, 2018								Losses recorded:
																				Three months		Nine months
									period ended											ended		ended
	Total		Level 1		Level 2		Level 3		September 30, 2016			Total		Level 1		Level 2		Level 3		September 30, 2018		September 30, 2018
Impaired loans	$	2,933	$	-	$	-	$	2,933	$	(1,612	)	$	925	$	—	$	—	$	925	$	—	$	874
Other real estate owned		4,488		-		-		4,488		(62	)		239		—		—		239		—		—

Total	$	7,421	$	-	$	-	$	7,421	$	(1,674	)

For the securities portfolio, Bancorp monitors the valuation technique used by pricing agencies to ascertain when transfers between levels have occurred. The nature of other assets and liabilities measured at fair value is such that transfers in and out of any level are expected to be rare. For the ~~nine months ended September 30, 2017, there were no transfers between Levels 1, 2, or 3. For~~ Level 3 assets measured at fair value on a non-recurring basis, ~~as of September 30, 2017,~~the significant unobservable inputs used in the fair value measurements are presented below.

September 30, 2019
	Fair		Valuation	Unobservable	(weighted
(Dollars in thousands)	value		technique	inputs	average)

Impaired loans - collateral dependent	$	348	Appraisal	Appraisal discounts		10.0	%
Other real estate owned		239	Appraisal	Appraisal discounts		22.0

December 31, 2018

Significant

Weighted

Fair

Valuation

Unobservable

(weighted

Fair

Valuation

unobservable

average of

(dollars in thousands)

Value

technique

input

input

(Dollars in thousands)

value

technique

inputs

average)

Impaired loans - collateral dependent

2,530

Appraisal

Appraisal discounts

15.0

925

Appraisal

Appraisal discounts

9.9

Other real estate owned

2,640

Appraisal

Appraisal discounts

23.4

239

Appraisal

Appraisal discounts

22.0

3642

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~~Stock Yards Bancorp, inc. and subsidiary~~

~~(17)~~(17)

Disclosure of Financial Instruments Not Reported at Fair Value

US GAAP requires disclosure of the fair value of financial assets and liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. Carrying amounts, estimated fair values, and placement in the fair value hierarchy of ~~Bancorp~~’sBancorp’s financial instruments are as follows:

(in thousands)

Carrying

September 30, 2017

amount

Fair value

Level 1

Level 2

Level 3

Financial assets

Cash and short-term investments
$ 129,078 $ 129,078 $ 129,078 $ - $ -
Mortgage loans held for sale
5,459 6,005 - 6,005 -
Federal Home Loan Bank stock and other securities
7,666 7,666 - 7,666 -
Loans, net
2,310,172 2,302,466 - - 2,302,466
Accrued interest receivable
8,162 8,162 8,162 - -

Financial liabilities

Deposits
2,481,966 2,480,641 - - 2,480,641
Short-term borrowings
233,824 233,824 - 233,824 -
FHLB advances
50,110 50,070 - 50,070 -
Secured borrowings
18,351 18,210
Accrued interest payable
212 212 212 - -

(In thousands)	Carrying
September 30, 2019	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	136,214	$	136,214	$	136,214	$	—	$	—
Mortgage loans held for sale		6,329		6,464		—		6,464		—
Federal Home Loan Bank stock		11,316		11,316		—		11,316		—
Loans, net		2,829,787		2,841,414		—		—		2,841,414
Accrued interest receivable		8,581		8,581		8,581		—		—

Liabilities
Non-interest bearing deposits	$	795,793	$	795,793	$	795,793	$	—	$	—
Transaction deposits		1,720,560		1,720,560		—		1,720,560		—
Time deposits		429,960		433,232		—		433,232		—
Securities sold under agreement to repurchase		33,172		33,172		—		33,172		—
Federal funds purchased		9,957		9,957		—		9,957		—
FHLB advances		81,985		83,505		—		83,505		—
Accrued interest payable		712		712		712		—		—

(in thousands)

Carrying

December 31, 2016

amount

Fair value

Level 1

Level 2

Level 3

Financial assets

Cash and short-term investments
$ 47,973 $ 47,973 $ 47,973 $ - $ -
Mortgage loans held for sale
3,213 3,481 - 3,481 -
Federal Home Loan Bank stock and other securities
6,347 6,347 - 6,347 -
Loans, net
2,281,368 2,284,569 - - 2,284,569
Accrued interest receivable
6,878 6,878 6,878 - -

Financial liabilities

Deposits
2,520,548 2,519,725 - - 2,519,725
Short-term borrowings
114,969 114,969 - 114,969 -
FHLB advances
51,075 50,806 - 50,806 -
Secured borrowings
15,814 15,731
Accrued interest payable
144 144 144 - -

(In thousands)	Carrying
December 31, 2018	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	198,939	$	198,939	$	198,939	$	—	$	—
Mortgage loans held for sale		1,675		1,743		—		1,743		—
Federal Home Loan Bank stock		10,370		10,370		—		10,370		—
Loans, net		2,522,637		2,508,587		—		—		2,508,587
Accrued interest receivable		8,360		8,360		8,360		—		—

Liabilities
Non-interest bearing deposits	$	711,023	$	711,023	$	711,023	$	—	$	—
Transaction deposits		1,736,618		1,736,618		—		1,736,618		—
Time deposits		346,715		345,273		—		345,273		—
Securities sold under agreement to repurchase		36,094		36,094		—		36,094		—
Federal funds purchased		10,247		10,247		—		10,247		—
FHLB advances		48,177		47,227		—		47,227		—
Accrued interest payable		762		762		762		—		—

Table of Contents

~~Stock Yards Bancorp, inc. and subsidiary~~

~~Management used the following methods and assumptions to estimate the fair value of each class of financial instrument for which it is practicable to estimate the value.~~

~~Cash, short-term investments, accrued interest receivable/payable and short-term borrowings~~

~~For these short-term instruments, carrying amount is a reasonable estimate of fair value.~~

~~Mortgage loans held for sale~~

Mortgage loans held for sale are initially recorded at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is determined by market quotes for similar loans based on loan type, term, rate, size and the borrower~~’s credit score.~~

~~Federal Home Loan Bank stock and other securities~~

~~For these securities without readily available market values, carrying amount is a reasonable estimate of fair value as it equals the amount due from FHLB or other issuer at upon redemption.~~

~~Loans, net~~

~~US GAAP prescribes the exit price concept for estimating fair value of loans. Because there is not an active market (exit price) for trading virtually all types of loans in Bancorp~~’s portfolio, fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (entrance price).

~~Deposits~~

Fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Fair value of fixed-rate certificates of deposits is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities.

~~Federal Home Loan Bank advances~~

~~Fair value of FHLB advances is estimated by discounting future cash flows using estimates of current market rate for instruments with similar terms and remaining maturities.~~

~~Secured Borrowings~~Secured borrowings represent sold participation loans for which Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from Bancorp. US GAAP requires the participated portion of these loans to be recorded as secured borrowings. Secured borrowings are included in other liabilities on the consolidated balance sheets.

~~Commitments to extend credit and standby letters of credit~~

Fair values of commitments to extend credit are estimated using fees currently charged to enter into similar agreements and creditworthiness of customers. Fair values of standby letters of credit are based on fees currently charged for similar agreements or estimated cost to terminate them or otherwise settle obligations with counterparties at the reporting date.

~~Limitations~~

Fair value estimates are made at a specific point in time based on relevant market information and information about financial instruments. Because no market exists for a significant portion of ~~Bancorp~~’sBancorp’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Therefore, calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect estimates.

~~Table of Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~

~~(18)~~(18)

Derivative Financial Instruments

Periodically, Bancorp enters into an interest rate swap ~~transaction~~transactions with ~~a borrower,~~borrowers who ~~desires~~desire to hedge ~~their~~ exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the ~~consolidated~~ balance sheet at fair value. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition ~~are expected to~~ have an insignificant effect on earnings. Exchanges of cash flows related to undesignated interest rate swap agreements ~~for the first nine months of 2017~~ were offsetting and therefore had no ~~net~~ effect on Bancorp’s earnings or cash flows.

Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. Notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit ~~exposure.~~exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Bancorp is exposed to credit-related losses in the event of nonperformance by counterparties to these agreements. Bancorp mitigates the credit risk of its financial contracts through credit approvals, limits, collateral, and monitoring procedures, and does not expect any counterparties to fail their ~~obligations~~.obligations.

At ~~September 30, 2017 and December 31, 2016,~~ Bancorp had outstanding undesignated interest rate swap contracts as follows:

(dollar amounts in thousands)

Receiving

Paying

September 30,

December 31,

September 30,

December 31,

2017

2016

2017

2016

Notional amount
$ 53,214 $ 43,986 $ 53,214 $ 43,986
Weighted average maturity (years)
8.9 9.9 8.9 9.9
Fair value
$ 148 $ (178 ) $ (148 ) $ 178

(Dollars in thousands)	Receiving				Paying
	September 30,		December 31,		September 30,		December 31,
	2019		2018		2019		2018
Notional amount	$	83,144	$	55,505	$	83,144	$	55,505
Weighted average maturity (years)		7.9		8.0		7.9		8.0
Fair value	$	3,708	$	519	$	3,729	$	543

In 2015, Bancorp entered into an interest rate swap to hedge cash flows of a $20 million rolling fixed-rate three-month FHLB borrowing. The swap began December 9, 2015 and matures December 6, 2020. In 2016, Bancorp entered into an interest rate swap to hedge cash flows of a $10 million rolling fixed-rate ~~three-month~~three-month FHLB borrowing. The swap began December 6, 2016 and ends December 6, 2021. ~~In 2015, Bancorp entered into an interest rate swap to hedge cash flows of a $20 million rolling fixed-rate three-month FHLB borrowing. The swap began December 9, 2015 and matures December 6, 2020.~~ For purposes of hedging, rolling fixed rate advances are considered to be floating rate liabilities. Interest rate swaps involve exchange of ~~Bancorp~~’sBancorp’s floating rate interest payments for fixed rate swap payments on underlying principal amounts. These swaps were designated, and qualified, for cash-flow hedge accounting. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of gains or losses is reported as a component of ~~other comprehensive income,~~OCI, and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged forecasted transaction affects earnings.

Table of Contents

~~Stock Yards Bancorp, inc. and subsidiary~~

The following table details ~~Bancorp~~’sBancorp’s derivative position designated as a cash flow ~~hedges,~~hedge, and the fair values as of September 30, ~~2017~~ 2019 and December 31, ~~2016.~~2018.

(dollars in thousands)

(Dollars in thousands)											(Dollars in thousands)
							Fair value										Fair value
Notional	Notional	Maturity	Receive (variable)	Pay fixed			assets (liabilities)				Notional	Maturity	Receive (variable)	Pay fixed			assets (liabilities)
amount	amount	date	index	swap rate			September 30, 2017		December 31, 2016		amount	date	index	swap rate			September 30, 2019			December 31, 2018
$	10,000	12/6/2021	US 3 Month LIBOR		1.89	%	$	26	$	16	10,000	12/6/2021	US 3 Month LIBOR		1.89	%	$	(65	)	$	193
	20,000	12/6/2020	US 3 Month LIBOR		1.79	%		8		9	20,000	12/6/2020	US 3 Month LIBOR		1.79	%		(8	)		323
$	30,000				1.82	%	$	34	$	25	30,000				1.82	%	$	(73	)	$	516

~~(19)~~(19)

Regulatory Matters

Bancorp and the Bank are subject to ~~various~~capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, ~~prescribed by banking regulations and administered by state and federal banking agencies.~~ ~~The final rules implementing~~in part, dependent on the ~~Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective on January 1, 2015 with full compliance with all~~individual risk profiles of ~~the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The~~financial institutions. Failure to meet minimum capital ~~level~~ requirements ~~applicable to banks~~can initiate certain mandatory and ~~bank holding companies subject to~~possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and the ~~rules are:~~

~~a total risk-based capital ratio of 8%~~

~~a common equity tier 1 capital ratio of 4.5%~~

~~a tier 1 risk-based capital ratio of 6%~~

~~a tier 1 leverage ratio of 4%~~

~~Under these requirements, Bancorp~~regulatory framework for prompt corrective action, the Holding Company and the Bank must meet ~~minimum~~specific capital guidelines that involve quantitative measures of Bancorp’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and ~~percentages of Tier 1 capital, common equity Tier 1 capital, and total capital to risk weighted assets, and Tier 1 capital to average assets. Risk weighted assets~~classification are ~~determined by applying certain risk weightings prescribed by regulation to various categories of assets and off-balance sheet commitments. Capital and risk weighted assets may be further~~also subject to qualitative judgments by the regulators ~~as to~~regarding components, risk ~~weighting~~weightings and other factors. Failure to meet capital requirements can result in certain mandatory, and possibly discretionary, corrective actions prescribed by regulation or determined to be necessary by regulators, which could materially affect the unaudited consolidated financial statements.

~~The~~Banking regulators have categorized the Bank as well-capitalized. For prompt corrective action, the regulations in accordance with Basel III ~~rules also establish~~eddefine “well capitalized” as a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, a 10.0% Total Risk-Based Capital ratio and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and Bank must hold a capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements. The capital conservation buffer phased in from 2016 to 2019 on the following schedule: a capital conservation buffer of ~~2.5%, to be phased in over three years through December 31, 2018, above the regulatory minimum risk-based capital ratios. When~~0.625% effective January 1, 2016; 1.25% effective January 1, 2017; 1.875% effective January 1, 2018; and a fully phased in capital conservation buffer of 2.5% on January 1, 2019.

Bancorp continues to exceed the ~~buffer will result~~regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based, Tier I Risk Based Capital and Tier I Leverage Capital. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the ~~following minimum ratios:~~Capital Conservation Buffer.

~~a common equity tier 1 risk-based capital ratio of 7.0%,~~

~~a tier 1 risk-based capital ratio of 8.5%, and~~

~~a total risk-based capital ratio of 10.5%.~~

The rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. Bancorp opted out of this requirement.

4045

Table of Contents

~~Stock Yards Bancorp, inc. and subsidiary~~

~~As of~~ ~~September 30, 2017, Bancorp meets the requirements to be considered well capitalized under the rules, and is not subject to limitations due to the capital conservation buffer.~~

The following table~~s set~~ sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ~~ratios as of September 30, 2017 and December 31, 2016.~~ratios:

(Dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
September 30, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	407,160		12.53	%	$	259,900		8.00	%		0		0
Bank		385,910		11.91			259,300		8.00		$	324,125		10.00	%

Common equity tier 1 risk-based capital
Consolidated		379,933		11.69			146,194		4.50			0		0
Bank		358,683		11.07			145,856		4.50			210,861		6.50

Tier 1 risk-based capital (1)
Consolidated		379,933		11.69			194,925		6.00			0		0
Bank		358,683		11.07			194,475		6.00			259,300		8.00

Leverage (2)
Consolidated		379,933		10.90			139,437		4.00			0		0
Bank		358,683		10.60			135,316		4.00			169,145		5.00

(dollars in thousands)

Actual

Minimum for adequately
capitalized

Minimum for well
capitalized

September 30, 2017

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total risk-based capital (1)

Consolidated
$ 358,610 13.64
%
$ 210,328 8.00
%

NA

NA

Bank
346,040 13.20 209,721 8.00 $ 262,152 10.00 %

Common equity tier 1 risk-based capital

Consolidated
333,312 12.67 118,382 4.50
NA

NA

Bank
320,742 12.23 118,016 4.50 157,355 6.00

Tier 1 risk-based capital (1)

Consolidated
333,312 12.67 157,843 6.00
NA

NA

Bank
320,742 12.23 157,355 6.00 157,355 6.00

Leverage (2)

Consolidated
333,312 11.02 120,984 4.00
NA

NA

Bank
320,742 10.61 120,921 4.00 151,151 5.00

(dollars in thousands)

Actual

Minimum for adequately
capitalized

Minimum for well
capitalized

December 31, 2016

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total risk-based capital (1)

Consolidated
$ 338,525 13.04
%
$ 207,684 8.00
%

NA

NA

Bank
325,630 12.57 207,243 8.00 $ 259,053 10.00
%

Common equity tier 1 risk-based capital

Consolidated
314,147 12.10 116,832 4.50
NA

NA

Bank
301,252 11.63 116,564 4.50 155,418 6.00

Tier 1 risk-based capital (1)

Consolidated
314,147 12.10 155,775 6.00
NA

NA

Bank
301,252 11.63 155,418 6.00 155,418 6.00

Leverage (2)

Consolidated
314,147 10.54 119,221 4.00
NA

NA

Bank
301,252 10.11 119,190 4.00 148,987 5.00

(Dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	396,019		13.91	%	$	227,714		8.00	%		0		0
Bank		385,637		13.56			227,462		8.00		$	284,327		10.00	%

Common equity tier 1 risk-based capital
Consolidated		370,135		13.00			128,089		4.50			0		0
Bank		359,753		12.65			127,947		4.50			184,813		6.50

Tier 1 risk-based capital (1)
Consolidated		370,135		13.00			170,785		6.00			0		0
Bank		359,753		12.65			170,596		6.00			227,462		8.00

Leverage (2)
Consolidated		370,135		11.33			130,698		4.00			0		0
Bank		359,753		11.02			130,569		4.00			163,211		5.00

~~(1)~~(1)

Ratio is computed in relation to risk-weighted assets.

~~(2)~~

(2)

Ratio is computed in relation to average assets.

~~Not applicable. Regulatory framework does not define well capitalized for holding companies.~~

Table of Contents

~~Bancorp~~’sBancorp’s principal activities include commercial banking and ~~wealth management and trust (WM&T).~~WM&T. Commercial banking provides a full range of loan and deposit products to individual consumers and businesses. Commercial banking also includes Bancorp’s mortgage origination and ~~securities brokerage~~investment products sales activity. WM&T provides financial management services including investment management, trust and estate administration, and retirement plan services.

Financial information for each business segment reflects that which is specifically identifiable or allocated based on an internal allocation method. Income taxes are allocated based on the effective federal income tax rate adjusted for any tax exempt activity. All tax exempt activity and provision ~~for loan losses~~ have been allocated fully to the commercial banking segment. Measurement of performance of business segments is based on the management structure of Bancorp and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the ~~segments~~’segments’ operations if they were independent entities.

Principally, all of the net assets of ~~Stock Yards~~ Bancorp ~~Inc.~~ are involved in the commercial banking segment. ~~Bancorp has goodwill~~Goodwill of $12.6 million, of which $682,000 ~~related~~relates to a bank acquisition in 1996 ~~which~~ and $11.9 million related to the May 2019 KSB acquisition, has been assigned to the commercial banking segment. Assets assigned to WM&T primarily consist of net premises and ~~equipment, net of accumulated depreciation.~~equipment.

Selected financial information by business segment ~~for the three and nine month periods ended September 30, 2017 and 2016~~ follows:

All of Bancorp’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The table below presents Bancorp’s sources of non-interest income with items outside the scope of ASC 606 noted as such:

Bancorp earns fees from its deposit customers for transactions-based, account management, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments fees, and ACH fees, are recognized at the time the transaction is executed as that is when the company fulfills the performance obligation. Account management fees are earned over the course of a month and charged in the month in which the services are provided. Overdraft fees are recognized at the point in time that the overdraft occurs. Deposit service charges are withdrawn from customer’s account balances.

Treasury management transaction fees are recognized at the time the transaction is executed as that is when the company fulfills the performance obligation. Account management fees are earned over the course of a month and charged in the month in which the services are provided. Treasury management fees are withdrawn from customer’s account balances.

WM&T provides customers fiduciary and investment management services as agreed upon in asset management contracts. The contracts require WM&T to provide a series of distinct services for which fees are earned over time. The contracts are cancellable upon demand with fees typically based upon the asset value of investments. Revenue is accrued and recognized monthly based upon month-end asset values and collected from the customer predominately in the following month except for a small percentage of fees collected quarterly. Incentive compensation related to WM&T activities is considered a cost of obtaining the contract. Contracts between WM&T and clients do not permit performance based fees and accordingly, none of the fees earned by WM&T are performance based. Trust fees receivable as of September 30, 2019 were $2.1 million compared with $1.9 million as of December 31, 2018.

Investment products sales commissions and fees represent the Bank’s share of transaction fees and wrap fees resulting from investment services and programs provided through an agent relationship with a third party broker-dealer. Transaction fees are assessed at the time of the transaction. Those fees are collected and recognized on a monthly basis. Trailing fees are based upon market value and are assessed, collected, and recognized on a quarterly basis. Because the Bank acts as an agent in arranging the relationship between the customer and third party provider, and does not control the services rendered, investment product sales commissions and fees are reported net of related costs, including nominal incentive compensation, and trading activity charges of $391,000 and $403,000 for the nine month periods ended September 30, 2019 and 2018.

Debit and credit card revenue primarily consists of debit and credit card interchange income. Interchange income represents fees assessed within the payment card system for acceptance of card based transactions. Interchange fees are assessed as the performance obligation is satisfied, which is at the point in time the card transaction is authorized. Revenue is collected and recognized daily through the payment network settlement process.

Bancorp did not establish any contract assets or liabilities as a result of adopting ASC 606, nor were any recognized during 2019.

Bancorp’s revenue on the consolidated statement of income is categorized by product type, which effectively depicts how the nature, timing, and extent of cash flows are affected by economic factors.

Bancorp has operating leases for various branch locations with terms remaining from three months to 14 years, some of which include options to extend the leases in five year increments. Options reasonably expected to be exercised are included in determination of the right of use asset. Bancorp elected the practical expedient to expense short-term lease expense associated with leases with original terms 12 months or less. Bancorp elected not to separate non-lease components from lease components for its operating leases. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and other liabilities on the consolidated balance sheet.

Balance sheet, income statement, and cash flow detail regarding operating leases follows:

As of September 30, 2019 Bancorp had not entered into any lease agreements that had yet to commence.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This item discusses the results ofand operations for Stock Yards Bancorp, Inc. ~~(“Bancorp” or “Company”),~~ and its wholly-owned subsidiary, ~~Stock Yards Bank & Trust Company (“Bank”)~~SYB&T for the three and nine months ended September 30, ~~2017~~2019 and compares these periods with the same periods of the previous year. ~~Unless otherwise indicated, all references~~All significant inter-company transactions and accounts have been eliminated in ~~this discussion~~consolidation. All companies are collectively referred to as “Bancorp” or the “Company.”

Stock Yards Bancorp, Inc. is a financial holding company headquartered in Louisville, Kentucky.

The Bank, ~~include Bancorp. In addition, the discussion describes changes~~chartered in 1904, is a state-chartered non-member financial institution that provides services in the ~~financial condition~~Louisville, Kentucky, Indianapolis, Indiana and Cincinnati, Ohio MSAs through 42 full service banking center locations.

As a result of its acquisition of KSB on May 1, 2019, Bancorp became the 100% successor owner of KBST, an unconsolidated finance subsidiary. As permitted under the terms of KBST’s governing documents, Bancorp redeemed the TPS at the par amount of approximately $4 million on June 17, 2019.

Management’s Discussion and ~~the Bank that have occurred during the first nine months~~Analysis of ~~2017 compared with same period in 2016. This discussion~~Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying ~~notes~~Footnotes presented in Part 1 Item 1 ~~of this report.~~“Financial Statements.”

This report contains ~~forward-looking~~forward-looking statements under the Private Securities Litigation Reform Act that involve risks and uncertainties. Although Bancorp believes assumptions underlying 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 the following: economic conditions both generally and more specifically in markets in which Bancorp and the Bank operate; competition for Bancorp’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’s customers; and 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.

Acquisition of King Bancorp, Inc.and its wholly-owned subsidiary King Southern Bank

On May 1, 2019, Bancorp completed its acquisition of KSB, for $28 million in cash. The acquisition expands the Company’s market area into nearby Nelson County, Kentucky, while expanding the customer base in Louisville, Kentucky. At May 1, 2019, KSB reported approximately $192 million in total assets, approximately $164 million in loans, and approximately $126 million in deposits. As a result of the acquisition, goodwill totaling $12 million was recorded during the second quarter of 2019 with nominal recast adjustments posted during the third quarter.

As a result of the completion of the acquisition, Bancorp incurred pre-tax transaction charges totaling $1.3 million during the second quarter of 2019. Net income from the KSB acquisition is expected to be accretive to Bancorp’s overall operating results on a quarterly basis going forward.

For disclosure regarding the impact to Bancorp’s financial statements of issued-but-not-yet-effective ASUs, see the Footnote titled “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”

Bancorp ~~inc.~~is divided into two reportable segments: Commercial Banking and ~~subsidiary~~WM&T:

WM&T provides custom-tailored financial planning, investment management, retirement planning and trust and estate services in all markets in which Bancorp operates. The magnitude of ~~2017 through~~WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

~~Bancorp~~ ~~completed~~2019 compared to the ~~first nine months of 2017 with net income of $33.1 million, an 8.8% increase over the comparable~~same period in 2016. The increase is primarily due to higher net interest income, higher non-interest income, and a reduction in provision for loan losses. These increases were partially offset by higher non-interest expense. Diluted earnings per share for the first nine months of 2017 were $1.44, compared with $1.34 for the first nine months of 2016. Bancorp's performance for the first nine months of 2017 reflected several positive factors, including:2018:

~~As is the case with most banks, Bancorp~~’s primary revenue sources are net interest income and fee income 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 interest rates earned on those loans are critical to overall profitability. Similarly, deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. Loan and deposit volumes are influenced by competition, new account acquisition efforts and economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the marketplace.

~~Net interest~~ ~~income increased $4.4 million, or 6.1%,~~General highlights for the ~~first~~ nine months ~~of 2017,~~ended September 30, 2019 compared ~~with~~to the same period in ~~2016. Net interest margin increased to 3.63% for the first nine months of 2017, compared with 3.60% for the same period of 2016.~~2018:

~~For the~~ nine-month period ended September 30, 2017, Bancorp recorded a $1.7 million provision for loan losses, compared to $2.5 million for the same period in 2016. The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for the inherent losses on outstanding loans.

●	NIM improved 3 bps to 3.85% for the nine months ended September 30, 2019 compared to the same period in 2018.

●	The FRB lowered the FFTR on two separate occasions by 25 bps twice during with Prime ending the period at 5.00%.

●	Net interest income increased $8.0 million, or 9%, for the nine months ended September 30, 2019.

●	Consistent with the lowering of Prime, Bancorp lowered the stated rate of most interest-bearing deposit account types during 2019.

●	Average loans increased $164 million, or 7%, for the nine months ended September 30, 2019 compared to the same period in 2018. Bancorp benefited from the May 1^st KSB acquisition in addition to strong organic loan production and net loan growth.

●	Average deposits increased $275 million, or 11%, for the nine months ended September 30, 2019 compared to same period in 2018.

●	Sustained sound credit metrics, including net loan loss recoveries for the first nine months of 2019, lead to reduced provision of $1.0 million compared with $2.7 million for the same period in 2018.

●	Non-interest income increased $2.9 million, or 8%, for the nine months ended September 30, 2019 compared to 2018 based on the following:

Strong market returns, new business generation, and growth in corporate retirement plans led to higher WM&T income.

Debit and credit card revenue continues to benefit from increasing transaction volumes and incentives paid by card processors.

Other non-interest income benefited from non-recurring swap fees collected, gain on sale of Visa Class B common stock and proceeds received from a life insurance policy.

●	Non-interest expenses increased $7.1 million, or 11%, for the nine months ended September 30, 2019 compared to 2018 based on the following:

Compensation reflects increases for both the KSB acquisition and full time equivalent employee additions.

In addition to the full time equivalent employee additions mentioned above, employee benefits expense also reflects higher health insurance claims experienced and increased 401(k) expense.

●	Bancorp's efficiency ratio, calculated on a FTE basis, in the first nine months of 2019 was 55.7% compared with 54.8% in the same period in 2018.

●	The ETR decreased from 19.29% for the nine months ended September 30, 2018 to 11.86% for the same period in 2019 primarily due to two Kentucky state tax law changes that occurred during the first six months of 2018.

Total ~~non-interest income in the~~ ~~first nine months~~stockholder’s equity to total assets was 11.21% as of ~~2017 increased $1.4 million, or 4.2%, compared with the same period in 2016, and comprised 30.0% of total revenues, as~~September 30, 2019 compared to ~~31.6% for the same period in 2016. Continuing the trends of 2016, Bancorp’s wealth management~~11.10% at December 31, 2018 and ~~trust department (WM&T) led the increase with a 7.4%, or $1.1~~10.62% at September 30, 2018. Total equity increased $30 million ~~increase over the same period in 2016.~~

~~Total non-interest expense in the first~~ nine months of 2017 increased $3.6 million, or 5.9%, compared with the same period in 2016, primarily due to increases in salaries and employee benefits, as well as expenses related to the Bancorp’s continued growth and improvements in technology infrastructure. Amortization expenses for investments in tax-credit partnerships, which had a significant impact on earnings in 2016, decreased by $1.2 million, or 39.4%, in the first nine months of ~~2017~~2019, as ~~compared to the same period~~net income of $49 million was offset by dividends declared of $17 million, stock repurchases totaling $9 million, changes in 2016. Bancorp's efficiency ratio in the first nine months of 2017 was 57.6% compared to 57.4% in the same period in 2016. Excluding amortization of the investments in tax credit partnerships, the adjusted efficiency ratio, a non-GAAP measure, would have been 55.9%AOCI and ~~54.5% for the first nine months of 2017 and 2016, respectively. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures.~~

~~Bancorp~~’s effective tax rate decreased to 25.9% in 2017 from 27.0% in 2016. In 2017 Bancorp adopted ASU 2016-09 “Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting”. The new standard requires excess tax benefits and deficiencies related to share-based payment awards to be reflected in the statement of operations as a component of the provision for income taxes. For the nine months ended September 30, 2017 Bancorp recorded a benefit of $1.4 million for such tax benefits against the provision for income tax expense. Prior to adoption of ASU 2016-09 these tax benefits were recorded directly to additional paid-in capital.

~~The ratio of shareholder’s equity to total assets was 10.59% as of September 30, 2017 compared with 10.33% at December 31, 2016. Tangible common equity (TCE), a non-GAAP measure,~~TCE is a measure of a company's capital which is useful in evaluating the quality and adequacy of capital. ~~The~~Bancorp’s ratio of ~~tangible common equity~~TCE to total tangible assets was ~~10.54%~~10.83% as of September 30, ~~2017,~~2019, compared with ~~10.26%~~11.05% at December 31, ~~2016.~~2018, and 10.57% at September 30, 2018, with the decline attributable to the second quarter KSB acquisition. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures.

In ~~April 2016 Bancorp declared a 3 for 2 stock split effected as a 50% stock dividend payable in May 2016. Share and per share information has been adjusted for this dividend.~~

The following sections provide more details on ~~Bancorp’s financial condition and results of operation.~~subjects presented in this overview.

Net income of $11.7 million for the three months ended September 30, 2017 increased $1.2 million, or 11.8%, from $10.5 million for the comparable 2016 period. Basic net income per share was $0.52 for the third quarter of 2017, an increase of 10.6% from the $0.47 for the third quarter of 2016. Net income per share on a diluted basis was $0.51 for the third quarter of 2017, as compared to $0.46 for the same period in 2016. See Note 11 for additional information related to net income per share.

~~Annualized r~~eturn on average assets and annualized return on average stockholders’ equity were 1.53% and 14.03%, respectively, for the third quarter of 2017, compared with 1.44% and 13.47%, respectively, for the same period in 2016.

Net income of $33.1 million for the nine months ended September 30, 2017 increased $2.7 million, or 8.8%, from $30.4 million for the comparable 2016 period. Basic net income per share was $1.47 for the first nine months of 2017, an increase of 8.1% from the $1.36 for the period in 2016. Net income per share on a diluted basis was $1.44 for the first nine months of 2017, an increase of 7.5% from the $1.34 for the same period in 2016. See Note 11 for additional information related to net income per share.

~~Annualized return on average assets and annualized return on average stockholders’ equity were 1.47% and 13.65%, respectively, for the first nine months of 2017, compared with 1.42% and 13.51%, respectively, for the same period in 2016.~~

~~The following table presents average balance sheets for~~As is the ~~three and nine month periods ended September 30, 2017 and 2016 along~~case with ~~the related calculation of tax-equivalent~~most banks, Bancorp’s primary revenue sources are net interest income ~~net~~and fee income from various financial services provided to customers. Net interest ~~margin~~income is the difference between interest income earned on loans, investment securities and ~~net~~other interest ~~spread for~~earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and interest rates earned on those loans are critical to overall profitability. Similarly, deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. New business volume is influenced by economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the ~~related periods. See the notes following the tables for further explanation.~~marketplace.

~~Stock Yards Bancorp, inc.~~Total Company Average Balance Sheets and ~~subsidiary~~Interest Rates - Three Month Comparison

~~Stock Yards Bancorp, inc.~~Total Company Average Balance Sheets and ~~subsidiary~~Interest Rates - Nine Month Comparison

N~~otes to the average balance~~Total Company Average Balance Sheets and ~~interest rate tables:~~Interest Rates - Supplemental Information

During the third quarter of 2019, the FRB lowered the FFTR 25 bps twice; effective on August 1st and later during the quarter effective September 19th. At September 30, 2019, Prime was 5.00% compared to 5.50% at December 31, 2018 and 5.25% at September 30, 2018. In response to the August FFTR reduction, Bancorp immediately lowered the stated rate of most interest-bearing deposit account types, in addition to lowering all CD offering rates. With regard to the September FFTR reduction, Bancorp immediately lowered stated rates on most personal money market and larger sweep customers in addition to CD offering rates. Bancorp was able to fully offset the loss in revenue, with the first FFTR move not impacting overall NIM. As discussed throughout, future FFTR declines would likely result in margin compression, as additional reductions in deposit rates may not be sufficient to offset the potential loss in revenue.

Beginning in the second quarter of 2019, with the flattening/inverting of the treasury curve, Bancorp began to experience loan pricing pressure. In addition to continued intense loan pricing competition, protracted yield curve inversion is a concern, with recent fixed rate loan production at yields closer to 4.50%, while the overall portfolio yielded 4.98% for the three months ended September 30, 2019.

In the first half of 2018, Bancorp raised stated rates paid on money market accounts in addition to launching a targeted CD marketing campaign within its Louisville market to support loan growth in addition to increasing liquidity. The campaign generated over $100 million in CD growth in 2018. In addition, the deposit portfolio assumed from KSB in the second quarter was and remains concentrated in higher costing time deposits. While the Company has not aggressively pursued deposits since mid-2018, nor has it significantly raised rates, deposit balances have continued to migrate from non-interest bearing accounts to interest bearing accounts during the period.

In general, net interest income and NIM have been favorably impacted by elevated loan prepayment fees collected in 2019 with a much lighter impact experienced in the prior year. Also, the KSB portfolio mix of $~~26.4~~earning assets and interest bearing liabilities added during 2019 has slightly impacted NIM in a negative manner.

Net Interest Income – Three months ended September 30, 2019 compared to September 30, 2018

Net interest spread and NIM increased to 3.53% and 3.86%, for the three months ended September 30, 2019 compared to 3.51% and 3.79% for the same periods in 2018. Net interest income (FTE) of $32.1 million for the three months ended September 30, ~~2017~~2019 increased ~~$1.4~~$3.5 million, or ~~5.6%~~12%, from ~~$25.0~~$28.6 million for the same period in ~~2016. Bancorp recognized positive effects of increased average balances on loans, resulting from loan growth in 2016, and increased rates on all~~2018 led by earning asset ~~categories following rate increases by the Federal Reserve, were partially offset by the negative effect of increased rates for all funding sources, and increased~~growth, primarily loans. Total average balances for all funding sources except certificate of deposit accounts. To date in 2017 the Federal Reserve twice raised the target Fed Funds rate with 25 basis point increases in both March and June. Management increased rates paid on retail deposits accounts in conjunction with the March rate hike. Those deposit customers had not seen a rate increase on their accounts in over ten years. The June increase resulted in most of the variable rate loan portfolio breaking through applicable floor rates which will enhance margin going forward. Net interest spread and net interest margin were 3.53% and 3.66%, respectively, for the third quarter of 2017 and 3.57% and 3.65%, respectively, for the third quarter of 2016. Heightened competition on pricing, effects of liquidity and a flattening yield curve contributed to pressure on net interest margin.

~~Fully taxable equivalent net interest income of $~~77.2 million for the nine months ended September 30, 2017 increased $4.4 million, or 6.0%, from $72.8 million for the same period in 2016. Positive effects of increased average balances on loans, resulting from loan growth in 2016, and increased rates on other earning assets, were partially offset by the negative effect of increasing rates and average balances for all funding sources except certificates of deposits. Average rates on loans increased period to period while the rates on taxable securities decreased. Net interest spread and net interest margin were 3.52% and 3.63%, respectively, for the first nine months of 2017 and 3.52% and 3.60%, respectively, for the first nine months of 2016.

A~~verage~~ earning assets increased ~~$138.8~~$311 million, or ~~5.1%~~10%, to ~~$2.9~~$3.3 billion for the three month period ended September 30, 2017 as compared to the same time period in 2016, reflecting growth in the loan portfolio and to a lesser extent fed funds sold. Average interest bearing liabilities increased $77 million or 4.1% for the third quarter of September 30, 2017 as compared to the third quarter of 2016. A decrease in volume of time deposits partially offset increases in all other interest bearing deposit and borrowing categories. Average earning assets increased $142.8 million or 5.3%, to $2.8 billion for the first nine months of 2017 as compared with 2016, reflecting increases in the loan portfolio, the majority of which was garnered in 2016. Average interest bearing liabilities increased $78.4 million, or 4.1%, to $1.95 billion for the first nine months of 2017,2019, as compared with the same period in ~~2016. Increases~~2018, with the average rate earned on earnings assets increasing 18 bps to 4.57%. Average loans increased $260 million, or 10%, for the three months ended September 30, 2019 compared to the same period in 2018, with the KSB acquisition contributing $156 million, or 60% of the total increase. The remaining increase stemmed from strong organic loan production experienced across all markets. Average balances of FFS and interest bearing due from banks and taxable securities increased $64 million in total for the third quarter of 2019, as compared with 2018, as excess liquidity was deployed into short-term investments earning higher period over period yields.

Total interest income (FTE) increased $4.9 million, or 15%, for the third quarter of 2019, as compared with the third quarter of 2018, to $38.0 million. Approximately $4.7 million of the total increase related to the increased interest income on loans (FTE), with changes in volume driving most of the increase.

Total average interest bearing liabilities increased $220 million, or 11%, to $2.3 billion for the three month period ended September 30, 2019, as compared with the same period in 2018, with the average cost increasing 16 bps to 1.04%. Interest bearing liabilities assumed in the ~~volume~~KSB acquisition (deposits and FHLB advances) represented $122 million, or 56%, of the total increase. Average interest bearing ~~demand~~ deposits ~~savings~~increased $253 million, or 13%, for the three months ended September 30, 2019 compared to the same period in 2018, with time deposits representing 52% of the increase. KSB assumed interest bearing liabilities represented $86 million of the third quarter 2019 average interest bearing deposit balance and concentrated in the time deposit category.

Total interest expense increased $1.4 million, or 31%, for the three months ended September 30, 2019 compared to 2018 with the vast majority of the increase associated with total interest bearing deposits – predominantly time deposits. The cost of time deposits increased from 1.45% for the three months ended September 30, 2018 to 2.10% for the same period in 2019, while the average balance increased $132 million, or 44%. The change in time deposits was impacted equally by both changes in rates and volume. The average balance of SSUAR decreased $30 million, or 44%, for the three months ended September 30, 2019 as compared to the same period in 2018, as a significant number of commercial customers migrated from lower yielding collateralized products to higher yielding non-collateralized deposits. Average FHLB advances increased $35 million, or 72%, for the three months ended September 30, 2019 compared to 2018 based on advances assumed from the KSB acquisition. These advances were retained by Bancorp based upon favorable rates and terms in the overall execution of the Company’s asset liability management strategy.

Net Interest Income – Nine months ended September 30, 2019 compared to September 30, 2018

Net interest spread and NIM were 3.53% and 3.85%, for the nine months ended September 30, 2019 compared to 3.61% and 3.82% for the same periods in 2018. Net interest income (FTE) of $92.7 million for the nine months ended September 30, 2019 increased $7.9 million, or 9%, from $84.8 million for the same period in 2018, led by growth in average interest earning assets, primarily loans. Total average earning assets increased $251 million, or 8%, to $3.2 billion for the nine month period ended September 30, 2019, as compared with the same period in 2018, with the average rate earned on earnings assets increasing 30 bps to 4.58%. Average loans increased $164 million, or 7%, for the nine months ended September 30, 2019 compared to the same period in 2018, with the KSB acquisition contributing $89 million, or 54% of the total average increase. The remaining increase stemmed from record year to date organic loan production experienced across all markets. Average balances of FFS, interest bearing due from banks and taxable securities increased $101 million in total for the nine month period ended September 30, 2019, as compared with 2018, as excess liquidity was deployed into short-term investments earning higher period over period yields.

Total interest income (FTE) increased $15.1 million, or 16%, for the nine months ended September 30, 2019, as compared with the same period in 2018, to $110.1 million. Approximately $100.1 million of the total increase related to loans (FTE), with changes in rate driving just over half of the increase.

Total average interest bearing liabilities increased $173 million, or 8%, to $2.2 billion for the nine month period ended September 30, 2019, as compared with the same period in 2018, with the average cost increasing 38 bps to 1.05%. Interest bearing liabilities assumed in the KSB acquisition (deposits and FHLB advances) represented $71 million, or 41%, of the total increase. Average interest bearing deposits increased $225 million, or 12%, for the nine months ended September 30, 2019 compared to the same period in 2018, with approximately $50 million attributable to the KSB acquisition and concentrated in the time deposits category.

Total interest expense increased $7.2 million, or 70%, for the nine months ended September 30, 2019 compared to the same period in 2018 and was concentrated within interest bearing deposits. Approximately 75% of the combined time deposits, money market ~~deposit~~ accounts ~~securities sold under agreements~~and demand deposits change was attributable to ~~repurchase, and~~rate with fluctuations as follows:

The average balance of SSUAR decreased $28 million, or 43%, for the nine months ended September 30, 2019 compared to the same period in 2018, as a significant number of commercial customers migrated from lower yielding collateralized products to higher yielding non-collateralized deposits. Average FHLB advances increased $19 million, or 39%, for nine months ended September 30, 2019 compared to 2018 based on advances assumed from the KSB acquisition. These advances were ~~partially offset~~retained by ~~decreases~~Bancorp based upon favorable rates and terms in ~~volume~~the overall execution of ~~time deposits, and other short term borrowing products.~~the Company’s asset liability management strategy. As a result of the KSB acquisition, Bancorp assumed a $4 million subordinated note that was redeemed at par prior to the end of the second quarter of 2019.

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, management evaluates interest rate sensitivity with the goal of optimizing net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.

Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing ~~liabilities and off-balance sheet financial instruments.~~liabilities. By estimating effects of interest rate ~~increases and decreases,~~fluctuations, the model can ~~reveal~~ approximate interest rate risk exposure. This 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 may not indicate actual or expected results.

The September 30, ~~2017~~2019 simulation analysis, which shows ~~minimal~~ interest rate sensitivity, indicates that ~~Bancorp is asset sensitive as~~ increases in interest rates of 100 to 200 ~~basis points~~BPs would have a positive effect on net interest income, and decreases of 100 to 200 BPs in interest rates would have a negative effect on net interest income. ~~If rates raise 200 basis points,~~The mix of assets and liabilities acquired in the KSB transaction slightly increased Bancorp’s exposure to falling rates. The overall increase in net interest income ~~would increase 2.12%. The excess liquidity held~~ in ~~interest bearing deposit accounts and other short-term investments along with~~the rising rate scenarios is primarily due to variable rate loans ~~now at or above their floors gives Bancorp significant assets that will reprice as rates move. Those same~~and short-term investments repricing more quickly than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in a down 100 ~~basis point~~and 200 BP rate ~~scenario.~~scenarios, as rates on non-maturity deposits cannot be lowered sufficiently to offset declining interest income. These estimates are summarized below.

Approximately ~~61%~~60% of ~~Bancorp~~’sBancorp’s loan portfolio has fixed rates ~~and 39% of its loan portfolio is~~with 40% priced at variable rates. ~~With the Prime rate currently at 4.25%, and after the .25% increase in Prime in June of 2017, the majority of~~ Bancorp’s variable rate loans ~~now have interest rates at or~~are above their ~~floors.~~

Undesignated derivative instruments, as described in ~~Note~~ ~~18 to Bancorp’s consolidated financial statements~~the Footnote titled “Disclosure of Financial Instruments Not Reported at Fair Value,” are recognized on the consolidated balance sheet at fair value, with changes in fair value ~~due to changes in prevailing interest rates,~~ recorded in other non-interest ~~income.~~income as interest rates fluctuate. Because of matching terms of offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings, and are therefore not included in the simulation analysis results above.

Derivatives designated as cash flow hedges as described in ~~Note~~ ~~18 to Bancorp’s consolidated financial statements~~the Footnote titled “Derivative Financial Instruments,” are recognized on the consolidated balance sheet at fair value, with changes in fair value due to changes in prevailing interest rates, recorded net of tax in ~~other comprehensive income.~~OCI.

The provision ~~for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management~~’s evaluation, is adequate to provide coverage for inherent losses on outstanding loans. The allowance for loan losses is calculated after considering credit quality factors, and ultimately relies on an overall internal analysisreflects results of ~~risk in the loan portfolio. The provision reflects~~ an allowance methodology that is driven by risk ratings, historical losses, specific loan loss allocations, and qualitative factors. The provision represents a charge to earnings necessary to maintain an allowance that, in management’s evaluation, is adequate to provide coverage for the ~~first~~inherent losses on outstanding loans. The provision reflects many factors including trends in the portfolio, as well as changes in quantitative and qualitative factors.

Bancorp recorded provision of $400,000 and $1.0 million for the three and nine month periods ended September 30, 2019, as compared with $735,000 and $2.7 million for the same periods in 2018. Continued strong credit metrics and net recoveries of $61,000 and $343,000 for the three and nine months ended September 30, 2019 resulted in an allowance to total loans of ~~2017,~~0.94% as of September 30, 2019, compared with 1.00% as of both December 31, 2018 and September 30, 2018. The loans acquired in the ~~resulting allowance level, reflected a number~~KSB acquisition were marked to market on the acquisition date and as such did not receive an allowance.

Key indicators of ~~factors, including stable~~loan quality remained consistent with the prior year with the exception of increased classified balances, defined as OAEM, Substandard, and ~~acceptable credit quality metrics, modest~~non-performing loans, which increased $11 million as of September 30, 2019, as compared with December 31, 2018. While classified loan ~~growth during~~levels remained historically low, Substandard loans increased approximately $15 million in 2019 primarily due to the ~~period, and an expansion~~downgrade of three commercial relationships.

Consistent with Bancorp’s methodology, the historical look-back period was extended from 2432 to 36 quarters ~~to 28 quarters. This expansion~~in the first quarter of ~~the look-back period was applied~~2019 to all classes and segments of the portfolio. ~~The~~Management believes the expansion of the look-back period for the historical loss rates used in the quantitative allocation caused management to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation, resulting in the same expansion of the look-back period for the qualitative factors. Management believes the extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. Key indicators of loan quality continued to show improvement during 2017, with levels of non-performing loans continuing a five year downward trend. Classified assets, after experiencing a slight elevation the prior quarter stabilized in the third quarter. Bancorp recorded provision for loan losses of $150 thousand and $1.7 million for the first three and nine month periods of 2017, respectively, as compared to $1.3 million and $2.5 million for the same periods in 2016.

~~Management~~ uses loan grading procedures which result in specific allowance allocations for estimated inherent risk of loss. For all loans graded, but not individually reviewed for allowance purposes, a general allowance allocation is computed using historical data based on actual loss experience. Specific and general allocations plus consideration of qualitative factors represent management’s best estimate of probable losses contained in the loan portfolio, atand captures the ~~evaluation date. Although~~effects of a full economic cycle. Based on the look-back period extension, the allowance level increased approximately $2.0 million during the first quarter of 2019. Additional information regarding Bancorp’s methodology for evaluating the adequacy of the allowance can be read in the Company’s Annual Report on Form 10-K.

Non-performing loans, consisting of TDRs, non-accrual loans, and loans over 90 days past due still accruing, declined to $3.2 million at September 30, 2019 from $3.4 million at December 31, 2018 and $5.0 million at September 30, 2018. Bancorp considers the present asset quality metrics to be exceptional; however, recognizing the cyclical nature of local economies, this trend is expected to normalize over the long-term.

Bancorp’s loan ~~losses~~portfolio is ~~comprised~~diversified with no significant concentrations of ~~specific~~credit. Geographically, most loans are extended to borrowers in the MSAs of Louisville, Indianapolis and ~~general allocations,~~Cincinnati. The adequacy of the ~~entire~~ allowance is ~~available~~monitored on an ongoing basis and it is the opinion of management that the balance of the allowance at September 30, 2019 is adequate to absorb ~~any credit losses. Based on this detailed analysis of credit risk, management considers the allowance for loan losses adequate to cover~~ probable losses inherent in the loan portfolio ~~at September 30, 2017.~~as of the financial statement date.

An analysis of the changes in the allowance ~~for loan losses~~ and selected ratios ~~for the~~ ~~three and nine month periods ended September 30, 2017 and 2016~~ follows:

Loans are charged off when deemed uncollectible and a loss is identified or after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries may occur. Periodically, loans are partially charged off to net realizable value based upon collateral analysis and collection status. One significant C&I loan relationship totaling $1.3 million was charged off to its net realizable value in the first quarter of 2018, which resulted in increased net charge offs for the nine month period ending September 30, 2018.

An analysis of net charge-offs (recoveries) by loan ~~category for the~~ ~~three and nine month periods ended September 30, 2017 and 2016~~portfolio segment follows:

~~Stock Yards Bancorp, inc.~~Non-interest Income and ~~subsidiary~~Non-interest Expenses

~~The following table sets forth major components of non-interest income and expenses for~~ ~~the three and nine month periods ended September 30, 2017 and 2016.~~

~~The largest component of non-interest income is wealth management and trust (“WM&T”) revenue. The magnitude of WM&T revenue distinguishes Bancorp from~~ most other community banks of similar asset size. WM&T assets under management (AUM) totaled $2.7 billion at September 30, 2017, a 12.5% increase compared to $2.4 billion at September 30, 2016. AUM are stated at market value and while the 2017 increase was partially the result of a rising stock market during the period, primarily it represents a continuance of the 2016 trend for new clients added. WM&T revenue, which constitutes an average of 45% ofTotal non-interest income increased ~~$225 thousand, or 4.7% and $1.1~~$1.9 million, or ~~7.4%~~16%, and $2.9 million, or 8%, for the three and nine month periods ended September 30, ~~2017 respectively,~~2019 compared to the same periods in ~~2016. Recurring fees, which generally comprise over 98%~~2018. Non-interest income comprised 29.3% and 28.3% of ~~the WM&T revenue, increased $340 thousand or 7.4%~~total revenues, defined as net interest income and ~~$1.4 million, or 10.7%,~~non-interest income, for the ~~respective~~ three and nine month periods ended September 30, ~~2017, as~~2019 compared to 28.6% and 28.5% for the same periods in ~~2016.~~ 2018. WM&T services comprised 43.1% and 46.0% of Bancorp’s total non-interest income for the three and nine month periods ended September 30, 2019 compared to 47.1% and 48.0% for the same periods in 2018. Debit and credit card income comprised 15.8% and 16.4% of Bancorp’s non-interest income for the three and nine month periods ended September 30, 2019 compared to 15.4% and 14.7% for the same periods in 2018.

The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. Trust AUM, stated at market value, totaled $3.12 billion at September 30, 2019, a 5% increase compared with $2.97 billion at September 30, 2018, and a 13% increase from $2.77 billion at December 31, 2018. WM&T revenue increased $358,000, or 7%, and $615,000, or 4% for the three and nine month periods ended September 30, 2019, as compared with the same periods in 2018 consistent with increased new business generation, the second consecutive quarter of strong market returns and growth in corporate retirement plans.

Recurring fees earned for managing trust accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. ~~Some revenues~~Recurring fees, which generally comprise over 97% of the WM&T revenue, increased $263,000, or 5%, and $432,000, or 3% for the three and nine month periods ended September 30, 2019, as compared with the same periods in 2018. A portion of the WM&T revenue, most notably executor, insurance, and some employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities, and is also based on the market value of AUM. Total non-recurring fees ~~decreased $115 thousand~~increased $95,000, or 72%, and ~~$393 thousand~~$182,000, or 52%, for the three and nine ~~months~~month periods ended September 30, ~~2017,~~2019, as compared towith the same periods in ~~2016, primarily due to a decrease in estate fees period to period.~~2018. Contracts between WM&T and their clients do not permit performance based fees and accordingly, none of the fees earned by WM&T are performance based. Management believes the WM&T department will continue to factor significantly in Bancorp’s financial results and provide strategic diversity to revenue streams.

~~The following table provides information regarding~~ ~~AUM~~Detail of WM&T Service Income by ~~WM&T as of September 30, 2017 and 2016. This table demonstrates that:~~Account Type:

• ~~Corporate retirement plan accounts consist primarily of participant directed assets.~~

• ~~The majority of WM&T’s managed assets are in personal trust and investment advisory accounts.~~

The table ~~below presents data regarding WM&T managed assets by class of investment for the periods ending~~ ~~September 30, 2017 and 2016. This table demonstrates that:~~

~~The table below provides information regarding fee income earned by Bancorp’s WM&T department for the three and nine-month periods ended September 30, 2017 and 2016. It~~above demonstrates that WM&T fee revenue is ~~earned most significantly from~~concentrated within investment advisory and personal trust ~~and investment advisory~~ accounts. ~~Fees~~WM&T fees are based on AUM and tailored for individual accounts and/or ~~relationships. WM&T uses a~~relationships with fee ~~structure that considers and tailors~~structures customized based on account type ~~of account~~ and other ~~factors.~~factors with larger relationships paying a lower percentage of AUM in fees. For example, fee structures are in place for investment management, irrevocable trusts, revocable trusts, ~~IRA accounts,~~individual IRAs, and accounts holding only fixed income securities. There are also fee structures for estate settlements, which are non-recurring, and retirement plan services which typically consist of a one-time conversion fee with recurring AUM fees to follow. ~~All fees are based on the market value of each account and are tiered based on account size.~~ Fees are agreed upon at the time the account is opened and ~~these and~~ any subsequent revisions are communicated invia writing to the customer. Fees earned are not performance based nor are they based on investment strategy or transactions.

~~Other Non-interest~~ ~~Income~~Deposit service charges decreased $38,000, or 3%, and ~~Non-interest Expense~~

~~Service charges on deposit accounts~~ ~~decreased $22 thousand~~$313,000, or ~~1% while increasing $416 thousand, or 6.0%~~7%, for the three and nine month periods ~~of 2017, respectively,~~ended September 30, 2019, as compared with the same periods in ~~2016. The decline quarter over quarter was driven by a decline in fees assessed on overdrawn checking accounts. This component of~~2018. Deposit service charge income is ~~generally~~primarily driven by changes in customers and transaction volume which can fluctuate ~~throughout~~from period to period. Both the ~~year. Cash management services offered to commercial customers through our treasury management area continues to be a growing source of revenue. Treasury generated gross revenue grew 12% over~~quarterly and year-to-date decreases are consistent with the ~~nine month period ended September 30, 2017, as compared to the same period~~general decline in ~~2016. Fees charged~~fees earned on overdrawn checking ~~accounts declined 4% year over year. Management~~accounts. While management expects this source of revenue to ~~slowly~~continue its slow decline due to anticipated changes in customer behavior, including reduced check volume, and ongoing regulatory ~~restrictions. Service charges were further impacted by~~restrictions, the ~~introduction of a new checking account product~~decline is anticipated to be less significant than what was experienced in the ~~third quarter~~first part of ~~2016. The product provides~~2019.

Debit and credit card income consists of interchange income, ancillary ~~services to customers, while carrying a monthly service charge. The income associated with the new checking account product was approximately $641 thousand~~fees and incentives received from card processors. Debit and credit card revenue increased $343,000, or 19%, and $1.1 million, or 21%, for the ~~first~~three and nine ~~months of 2017, as compared to $198 thousand for the same period in 2016.~~

~~Bankcard transaction revenue increased~~ ~~$37 thousand or 2.5% for the third quarter of 2017, and $214 thousand, or 5.1% for the first nine months of 2017, as compared~~month periods ended September 30, 2019, as compared with the same periods in ~~2016. Bankcard transaction revenue primarily represents~~2018. The increases in both comparisons reflected increased volume resulting from continued growth in the customer bases. Total debit card income ~~the Bank derives from customers’ use of debit~~increased $86,000, or 6%, and ~~credit cards. Bancorp began offering credit cards to business customers late in 2015. Revenue on credit cards totaled $276 thousand and $795 thousand~~$467,000, or 12% for the three and nine month periods ~~of 2017, respectively, compared to $206 thousand~~ended September 30, 2019, while credit card income increased $257,000, or 64%, and ~~$520 thousand~~$591,000, or 55%, for the same ~~periods in 2016. Bancorp expects volume of~~periods. Third quarter 2019 credit card ~~transactions to increase as~~income included a $47,000 non-recurring fee from its card processor for reaching activity incentive thresholds. This was the first such payment received since the Bank launched this product in mid-2015. Second quarter 2019 debit card revenue included a similar non-recurring fee of $174,000. No similar non-recurring debit or credit card incentives were received in 2018. Both debit and credit card volume, which is ~~expanded within the commercial~~dependent on customer ~~base. Interchange income on debit cards declined $35 thousand~~behavior and ~~$66 thousand in the three and nine month periods of 2017, respectively, compared~~new accounts, is expected to ~~the same periods in 2016. Bancorp expects future decreases in interchange rates on debit cards as merchants structure their technology and processes~~continue to ~~take advantage of lower transactional pricing options, which do not favor Bancorp or the banking industry as a whole.~~increase.

~~Stock Yards~~Treasury management fees primarily consists of fees earned for cash management services provided to commercial customers. This category has been a growing source of revenue for Bancorp ~~inc.~~including increases in the third quarter of 2019 of $113,000, or 10%, and ~~subsidiary~~

$312,000, or 9%, for the first nine months of 2019, as compared with the same periods in 2018. Bancorp anticipates this income category will continue to increase based upon continued customer base growth and the expanding suite of services offered.

Mortgage banking ~~revenue~~income primarily includes gains on sales of mortgage loans. ~~Bancorp~~’sBancorp’s mortgage banking department originates residential mortgage loans to be sold in the secondary ~~market.~~market, primarily to the FNMA. Interest rates on the loans sold to FNMA are locked with the borrower and investor prior to closing the loans, thus Bancorp bears no interest rate risk related to ~~these loans.~~loans sold. The department offers conventional, VA and FHA financing, for purchases and refinances, as well as programs for first-time home buyers. ~~Changes in interest~~Interest rates on mortgage loans directly impact the volume of business transacted by the mortgage banking department. Mortgage banking revenue ~~decreased $291 thousand~~increased $122,000, or ~~27.1%~~17%, and ~~$516 thousand,~~$78,000, or ~~17.8%~~4%, for the ~~respective~~ three and nine month periods ended September 30, ~~2017~~2019, as compared with the same periods in ~~2016, primarily due~~2018. Mortgage transaction volume began to ~~lower transaction volume. In Bancorp’s primary market of Louisville, Kentucky the housing inventory was low, particularly~~increase in the ~~first half~~second quarter and to a larger extent into the third quarter of ~~2017, contributing~~2019, as mortgage rates declined, spurring the increase in refinancing activity. During the third quarter, the ten year treasury rate/ yield curve began a steep decline leading to ~~this decline.~~the lowest mortgage rates in several years. Bancorp anticipates refinancing activity to remain steady into the fourth quarter, provided mortgage rates continue to remain attractive.

~~Securities brokerage~~Net investment product sales commissions and fees decreased $7 thousand or 1.3% while increasing $45 thousand, or 2.9%, for the respective three and nine month periods ended September 30, 2017 as compared with the same periods in 2016. Revenue fluctuations correspondare generated primarily ~~to overall brokerage volume. Brokerage commissions and fees earned consist primarily of~~on stock, bond and mutual fund sales, as well as wrap fees on brokerage accounts. Wrap fees are charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management, and are based on a percentage of assets. Bancorp deploys its brokers primarily through its branch network via an arrangement with a third party broker-dealer, while larger managed accounts are serviced in the Bank’s WM&T department.

~~Bank Owned Life Insurance (BOLI) income totaled~~ ~~$204 thousand~~ Net investment product sales commissions and fees decreased $44,000, or 10%, and $125,000, or 10%, for the ~~third quarter~~three and ~~$964 thousand for the first~~ nine ~~months of 2017,~~month periods ended September 30, 2019, as compared ~~to $216 thousand and $657 thousand for~~with the same periods in ~~2016. The year to date increase~~2018. Overall, brokerage volume has been impacted by advisor turnover and market volatility that has somewhat discouraged investment activity in ~~2017 over 2016, was primarily due to $348 thousand in death benefit proceeds recorded in the second quarter of 2017.~~ 2019.

BOLI assets represent the cash surrender value ~~for~~of life insurance policies on certain ~~current and prior~~key employees who have provided consent for Bancorp to be the beneficiary of a portion of such policies. ~~BOLI income results from the~~The related change in cash surrender value and any death benefits received under the ~~policies.~~policies are recorded as non-interest income. This income ~~helps~~serves to offset the cost of various employee benefits.

~~Other non-interest~~ BOLI income ~~decreased $216 thousand or 30.3%~~increased $301,000 and ~~$193 thousand, or 11%,~~$285,000 for the ~~respective~~ three and nine month periods ended September 30, ~~2017~~2019, as compared with the same time periods in ~~2016. The primary driver~~2018, as a result of ~~the decline was swap fee~~life insurance proceeds received, offset slightly by lower crediting rates on investments.

Other non-interest income ~~which declined $116 thousand in the third quarter~~increased $723,000 and ~~$251 thousand~~$949,000 for the ~~first~~three and nine months ended September 30, 2019, as compared with the same period in 2018 primarily due to the following non-recurring items:

Total non-interest expenses increased $2.2 million, or 10%, and $7.1 million, or 11%, for the three and nine month periods ended September 30, 2019 compared to the same periods in 2018. Salaries and employee benefits comprised 63.6% and 62.9% of Bancorp’s non-interest expenses for the three and nine month periods ended September 30, 2019, compared to 64.8% and 64.6% for the same periods in 2018.

Compensation, which includes salaries, incentives, bonuses, and stock based compensation, increased $723,000, or 6%, and $2.6 million, or 7%, for the three and nine month periods ended September 30, 2019, as compared with the same periods in ~~2016. These fees are~~2018. The increase related to an ~~infrequent source of revenue due~~overall increase in full time equivalent employee’s led by the Company’s efforts to add loan production talent to support strategic growth initiatives in addition to the ~~unique nature~~May 2019 KSB acquisition. In addition, non-recurring severance and employee retention expense of $487,000 was recorded in the second quarter of 2019 as a result of the ~~transactions. This category contains a variety of other income sources none of which resulted in individually significant variances.~~KSB acquisition. At September 30, 2019, Bancorp had 622 full time equivalent employees including 25 employees added from the KSB acquisition, as compared with 593 at September 30, 2018.

~~Salaries~~Employee benefits consists of all personnel related expense not included in compensation, with the most significant items being health insurance, payroll taxes, and ~~employee~~retirement plan contributions. Employee benefits increased ~~$935 thousand~~$407,000, or ~~7.8% for the third quarter of 2017,~~16%, and ~~$3.0 million,~~$812,000, or ~~8.4%~~11%, for the ~~first~~three and nine ~~months of 2017,~~month periods ended September 30, 2019, as compared with the same periods in ~~2016. The increases are largely due to~~2018. Growth in full time equivalent employees, increased 401(k) matching contributions, higher ~~compensation expenses, reflecting addition of personnel and to a lesser extent,~~health insurance claims, increased ~~health care costs. The additions to staff were driven by expanding market presence in Cincinnati and Indianapolis, along~~FICA expense associated with the ~~need for front line lending~~growth in compensation and ~~loan support staff across all markets. The Bank’s~~higher employee health insurance is a self-insured plan and related expenses fluctuate with claims experience. At September 30, 2017, Bancorp had 581 full-time equivalent employees compared with 558 at September 30, 2016.recruiting costs resulted in the increases.

Net occupancy and equipment expense ~~decreased $25 thousand~~primarily includes depreciation, rent, property taxes, utilities and maintenance, variances for which were not individually significant. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense. Net occupancy increased $285,000, or ~~1.5%~~15%, and $490,000, or 9%, for the ~~third quarter~~three and ~~increased $49 thousand or 1.0% for the~~ nine ~~months~~month periods ended September 30, ~~2017,~~2019, as compared with the same periods in 2016. The quarterly decrease was the result of timing of normal maintenance activities. The increase year over year was largely due to increased recurring expenses for multiple bank properties and a decrease in sub-lease rents.

~~Data processing expense increased~~ ~~$173 thousand or 9.9% in~~opened one branch location during the third quarter of ~~2017~~2019 in Mt. Washington, Kentucky and ~~$737 thousand, or 14.2% in the first nine months of 2017, as compared~~added five branch locations associated with the ~~same periods~~KSB acquisition during the second quarter. The KSB locations added $175,000 of additional expense for the nine month period ended September 30, 2019. Bancorp closed three of the acquired branch locations in ~~2016. The increase was primarily a result~~Louisville during the third quarter of ~~increases~~2019 due to their proximity to existing Bancorp branches and two buildings were sold resulting in ~~computer infrastructure~~positive adjustments to goodwill.

Technology and ~~maintenance costs. These expenses~~communications expense include ongoing computer software amortization, equipment depreciation, and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security, and internal resources.

~~Furniture~~ Technology expense increased $246,000, or 15%, and ~~equipment expense~~ ~~increased $39 thousand~~$552,000, or ~~14.1% in the third quarter of 2017 and $8 thousand or 0.9%~~11%, for the ~~first~~three and nine ~~months of 2017,~~month periods ended September 30, 2019, as compared with the same periods in ~~2016. Costs of capital asset additions flow through~~2018 due largely to increases in computer infrastructure upgrades and maintenance costs. KSB related one-time non-recurring expenses totaled $104,000 for the ~~statement of income over the lives of the assets in the form of depreciation expense.~~nine month period ended September 30, 2019.

~~FDIC insurance~~Bancorp outsources processing for debit and credit card operations, which generate significant revenue for the Company. These expenses increase as transaction volume increases, offsetting a portion of corresponding revenue growth. Debit and credit card processing expense ~~decreased~~ ~~$114 thousand~~increased $74,000, or ~~32%~~13%, and ~~$319 thousand,~~$147,000, or ~~30.7%~~8%, for the ~~respective~~ three month and nine month periods ~~of 2017,~~ended September 30, 2019, as compared with the same periods in ~~2016.~~2018, as a result of a growing customer base and increased transaction volume.

Marketing and business development expenses include all costs associated with promoting Bancorp, community support, retaining customers, and acquiring new business. Marketing and business development expenses decreased $8,000, or 1%, in the third quarter of 2019, as compared with the third quarter of 2018 while increasing $69,000, or 3%, for the nine months ended September 30, 2019. The increase for the nine months ended September 30, 2019 compared 2018 was largely due to increased community support expenses, which can fluctuate between periods due to the nature and timing of the expense, ~~assessment~~but is ~~calculated by~~expected to trend to historical annual levels over the ~~FDIC on a quarterly basis. During 2016~~remainder of 2019.

Postage, printing and supplies expenses increased $32,000, or 9%, and $57,000, or 5%, for the ~~FDIC revised~~three and nine month periods ended September 30, 2019, as compared with the ~~assessment criteria~~same time periods in 2018, primarily due to ~~more closely align~~the KSB acquisition.

Legal and professional fees increased $23,000, or 5%, and $1.1 million, or 72%, for the three and nine month periods ended September 30, 2019 compared to the same periods in 2018. One-time costs associated with the KSB acquisition totaled nearly $900,000 for the nine months ended September 30, 2019. Additional costs associated with consulting engagements also contributed to the period increases.

No FDIC insurance expense ~~with each financial institution’s risk profile. Bancorp benefited from this change.~~

~~Amortization of investments in tax credit partnerships~~ ~~decreased $399 thousand~~was recorded for the third quarter of ~~2017~~2019, as the national FDIC Reserve Ratio reached 1.38%, triggering the FDIC to release credits to small institutions (less than $10 billion in total consolidated assets). This change was announced in 2016 and ~~$1.2 million~~it took approximately 3 years for the ~~first nine months~~threshold to be met and the corresponding credits issued. It is also expected that no FDIC insurance expense will be recorded in the fourth quarter of ~~2017, as compared with the same periods of 2016. This expense reflects amortization of investments in~~2019.

Tax credit partnerships ~~which~~ generate federal income tax credits, and ~~vary widely depending upon the timing and magnitude of investments and related amortization. For~~for each of Bancorp’s investments in tax credit partnerships, the tax benefit compared with ~~the amortization~~related expenses results in a positive effect on net income. ~~See~~Amounts of credits and corresponding expenses can vary widely depending upon timing and magnitude of the ~~Income Taxes section below for details on amortization and income tax impact for these credits.~~investments.

Other non-interest expenses increased ~~$190 thousand~~$240,000, or ~~5.5% and $1.3 million or 13.6% in~~24%, for the ~~respective~~ three ~~and nine month periods ending~~months ended September 30, ~~2017,~~2019, as compared ~~with the same periods in 2016. The quarterly increase was largely~~to 2018 primarily due to ~~recording a $266 thousand liability related to an estimated loss from certain administrative proceedings arising in~~ the ~~course of our business. The increase for the year to date 2017 period was largely due to a combination of numerous items, the largest of which are detailed below:~~following:

Other non-interest expenses increased $977,000, or 35%, for the nine months ended September 30, 2019, as compared to 2018 primarily due to the following:

Bancorp recorded income tax expense of ~~$4.1~~$3.8 million and ~~$11.6~~$6.7 million for the three and nine month periods ended September 30, ~~2017, respectively, as~~2019, compared with ~~$3.9~~$3.6 million and ~~$11.2~~$9.8 million for the same periods in ~~2016.~~2018. The ~~effective rate~~ETR for ~~both~~ the corresponding three and nine ~~months ended September 30, 2017, was 25.9%~~month periods in ~~2017 as compared to 27.1%~~2019 were 18.0% and ~~27.0%~~11.9% and 20.4% and 19.3% for the ~~three and nine months ended September 30, 2016, respectively. Refer~~same periods in 2018. The decline in the ETR from 2018 to ~~Footnote 5~~2019 related primarily to the ~~consolidated financial statements for a reconciliation of the statutory and effective income~~following two Kentucky state tax ~~rates.~~

~~Bancorp invests in certain partnerships with customers that yield federal income tax credits, and these tax credits reduce the effective tax rate. The level of this activity for the first~~ nine months of 2017 was less than that of the comparable period in 2016 as is reflected in the comparable effect on effective tax rates for those periods. Taken as a whole, the tax benefit of these investments exceeds amortization expense associated with them, resulting in a positive impact on net income.

~~The effective tax rate in 2017 was largely reduced by the result of the adoption of ASU 2016-09 “Compensation~~ – Stock Compensation Improvements to Employee Share-Based Payment Accounting”. The new standard requires excess tax benefits and deficiencies related to share-based payment awards to be reflected in the statement of operations as a component of the provision for income taxes. For the three and nine months ended September 30, 2017 Bancorp recorded a benefit of $241 thousand and $1.4 million, respectively for such excess benefits against the provision for income tax expense. Prior to adoption of ASU 2016-09 these tax benefits were recorded directly to additional paid-in capital. Tax benefits recorded to capital for the three and nine months ended September 30, 2016 were $443 thousand and $963 thousand, respectively.

~~Other commitments discussed in Bancorp~~’s Annual Report on Form 10-K for the year ended December 31, 2016, have not materially changed since that report was filed, relative to qualitative and quantitative disclosures of fixed and determinable contractual obligations.law changes:

Total assets increased ~~$116.4~~$231 million, or ~~3.8%~~7%, to ~~$3.2~~$3.5 billion at September 30, ~~2017 as compared to $3.0~~2019, from $3.3 billion at December 31, ~~2016. Loans increased $29.7~~2018. In the first nine months of 2019, increases in loans, premises and equipment, and other assets were offset by decreases in cash and cash equivalents, and AFS securities. Bancorp acquired total assets of approximately $192 million on May 1, 2019 in connection with the KSB acquisition and recognized goodwill of approximately $12 million.

Cash and cash equivalents decreased $63 million, or ~~1.3%~~32%, ~~period~~as excess liquidity was used to ~~period, with increases primarily in commercial~~fund loan growth and ~~industrial loans, commercial real estate, and to a lesser degree, 1-4 family residential loans. The most significant decrease was seen in commercial construction and development loans, primarily~~ the ~~result of significant loan principal repayments where maturing loans were not replaced with permanent financing. Securities available-for-sale increased by $1.4~~KSB acquisition. AFS securities decreased $61 million, or 14%, during the first nine months of ~~2017. The majority~~2019, as maturing security cash flows were not reinvested but held in the form of ~~this increase~~short-term liquidity. This decline was offset by $9 million of market value improvement in the portfolio, shifting to a $3 million net unrealized gain position at September 30, 2019 from a $6 million unrealized loss position at December 31, 2018.

Premises and equipment increased $18 million, or 39%, primarily the result of ~~short-term investments made at quarter end largely offset by maturities during~~establishing a right of use lease asset upon adopting ASU 2016-02, Leases in the first quarter of 2019 and the addition of KSB branches.

Gross loans increased $308 million, or 12%, including $152 million in loans acquired from KSB. Strong loan production in the second and third quarters of 2019 contributed to non-acquisition, or legacy, loan growth of $156 million, or 6%, for the nine months ~~of 2017. Included in securities available-for-sale are short-term U.S. government sponsored entities. These securities, which totaled $150 million at~~ended September 30, ~~2017 and $100~~2019.

Total liabilities increased $201 million, ator 7%, to $3.1 billion as of September 30, 2019, from $2.9 billion as of December 31, ~~2016, normally have a maturity~~2018. Bancorp assumed $177 million in liabilities in connection with the KSB acquisition as of ~~less than one~~May 1, 2019.

For the nine month ~~and are purchased at quarter-end as part of a tax minimization strategy. The remaining variance was attributable to reduction in unrealized losses on the securities portfolio to $431 thousand at~~period ending September 30, ~~2017~~2019, non-interest bearing demand deposits increased $85 million, or 12%, while interest bearing deposits increased $67 million, or 3%. SSUAR decreased $3 million, or 8%, as ~~compared~~customers continued to ~~unrealized losses~~migrate to higher-yielding, non-collateralized deposits. FHLB advances increased $34 million, or 70%, as Bancorp retained the fixed rate long term advances assumed from KSB. These advances were retained by Bancorp based upon favorable rates and terms in the overall execution of ~~$1.9~~the Company’s asset liability management strategy. Other liabilities increased $19 million, ~~at December 31, 2016. Funds from maturing available-for-sale investments were held as cash,~~ or ~~invested short term,~~40%, largely due to ~~fund future loan growth.~~the adoption of ASU 2016-02, Leases, in the first quarter of 2019.

~~Total liabilities~~ ~~increased $96.0 million,~~Trust AUM (not included on balance sheet) grew from $2.77 billion at December 31, ~~2016~~2018 to $3.12 billion at September 30, ~~2017,~~2019.

~~Elements~~Composition of ~~Loan Portfolio~~loans, net of deferred fees and costs, by primary loan portfolio class follows:

~~The following table sets forth the major classifications of the loan portfolio.~~

~~Loan portfolio growth built further on the momentum experienced in the second quarter of 2017,~~ driven by solid loan production that continued to exceed the average pace recorded over the last three years. While all of the Company's markets participated in this growth, Indianapolis, through excellent leadership and a growing lending team, led the way. Still, the conversion of loan production into portfolio growth continued to track below the exceedingly strong rate that characterized 2016 due to several factors, including principal repayments primarily related to commercial construction projects and borrowers who sold collateral or their business. Also, management believes that business owners remain more cautious about the longer-term direction of the economy, awaiting greater clarity on possible tax reform. Considering its loan pipeline, management anticipates continued momentum in net loan growth in the fourth quarter of 2017, although net loan growth could be challenging if loan payoffs persist at high levels.

Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain ~~sold~~ participation loans sold, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their ownership share of the loan without permission from Bancorp. US GAAP requires the participated portion of these loans to be recorded as secured borrowings. These participated loans are included in the ~~commercial~~C&I, C&D and ~~industrial and real estate~~CRE mortgage loan ~~totals above, and~~portfolio segments with a corresponding liability is recorded in other liabilities. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the total participated ~~portions~~portion of loans of this nature were ~~$18.3~~$9 million and ~~$15.8 million, respectively.~~$11 million.

An allowance ~~for loan losses~~ has been established to provide for probable losses on loans that may not be fully repaid. The allowance ~~for loan losses~~ is increased by provisions charged to expense and decreased by charge-offs, net of ~~recoveries, if any.~~recoveries. Loans are typically charged off when management deems them uncollectible and after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries ~~may~~could occur. Periodically, loans are partially charged off to the net realizable value based upon the evaluation of related underlying collateral, including Bancorp’s ~~bias for~~expectation of resolution.

The allowance methodology is driven by risk ratings, historical losses, and qualitative factors. The ~~provision for~~level of the ~~first nine months of 2017, and the resulting~~September 30, 2019 allowance ~~level,~~ reflected a number of factors, including ~~a slight elevation~~credit quality metrics which were generally consistent with those experienced in ~~classified loans~~the preceding 12 months, and an expansion of the historical look-back period from 2432 quarters to 2836 quarters. This expansion of the ~~look-back~~historical period was applied to all classes and segments of the portfolio. ~~The expansion~~Expansion of the look-back period for ~~the~~ historical loss rates used in the quantitative allocation caused ~~management to~~ review of the overall methodology for ~~the~~ qualitative factors to ensure ~~Bancorp was~~we were appropriately capturing ~~the~~ risk not addressed in the quantitative historical loss ~~rates used in the quantitative allocation.~~rate. Management believes ~~the~~ extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. Key indicators of loan quality continued to ~~show improvement during 2017,~~trend at levels consistent with ~~levels~~prior periods, however management recognizes that due to the cyclical nature of ~~non-performing loans continuing a five year downward trend. During its review of qualitative factors in~~local economies, these trends will likely normalize over the first nine months of 2017, Bancorp noted a potential exposure for one pool of classified loans. Due to this potential exposure, Bancorp increased its qualitative allocation for the allowance for the nine month period.

long term. Additional information regarding ~~Bancorp~~’sBancorp’s methodology for evaluating the adequacy of the allowance ~~for loan loss~~ can be read in ~~the Company’s annual 10K.~~Bancorp’s Annual Report on Form 10-K.

~~As of~~ The allowance increased $1.3 million from December 31, 2018 to $27 million at September 30, 2017 the allowance for loan loss was $24.9 million, a $900 thousand increase over the December 31, 2016 balance of $24.0 million. For the comparative periods, the allowance as a percent of average loans was 1.09% and 1.11%, respectively.2019. The allowance as a percent of ~~period end~~total loans declined to 0.94% at September 30, 2019 from 1.00% at December 31, 2018, primarily due to the KSB acquisition. The loans acquired in the KSB acquisition were marked to market on the acquisition date and as such did not receive an allowance. The allowance balance is reflective of ~~each period end, was 1.07%~~continued strong credit metrics and ~~1.04%, respectively.~~net recoveries of $343,000 for the first nine months of 2019. As of September 30, 2019, and December 31, 2018, the allowance remained adequate to cover potential losses in the loan portfolio, in management’s opinion.

Information summarizing non-performing assets, including non-accrual loans follows:

~~Non-performing~~
In total, non-performing assets as of September 30, ~~2017~~2019 were comprised of ~~33 non-accrual~~22 loans, ranging in amount from $1$1,000 to ~~$907 thousand, five~~$500,000, two accruing TDRs, and foreclosed real estate held for sale. Foreclosed real estate held at September 30, ~~2017~~2019 included ~~properties of three former lending relationships, with~~ a ~~combined value of $2.6 million. At September 30, 2017 there were two properties, with~~1-4 family residential property and a ~~combined recorded investment of $75 thousand, in the process of foreclosure.~~CRE property.

Bancorp uses a variety of financial instruments in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Other commitments discussed in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018, have not materially changed since that report was filed, relative to qualitative and quantitative disclosures of fixed and determinable contractual obligations.

See the Footnote titled “Commitments and Contingent Liabilities” for additional detail.

The role of liquidity management is to ensure funds are available to meet ~~depositors~~’depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in ~~the~~ supply of ~~those~~such funds. Liquidity is provided by short-term liquid assets that can be converted to cash, ~~investment~~AFS securities, ~~available-for-sale,~~ various lines of credit available to Bancorp, and the ability to attract funds from external sources, principally deposits. Management believes it has the ability to increase deposits at any time by offering rates slightly higher than market rate.

~~Bancorp~~’sBancorp’s most liquid assets are comprised of cash and due from banks, ~~available-for-sale~~AFS marketable investment securities, ~~federal funds sold~~FFS and interest bearing ~~deposits~~due from accounts with banks. ~~Federal funds sold~~FFS and interest bearing ~~deposits~~due from bank accounts totaled ~~$81.4~~$68 million at September 30, ~~2017.~~2019. These investments normally have overnight maturities and are used for general daily liquidity purposes. ~~The fair value of the available-for-sale investment portfolio was $571.5~~

AFS securities totaled $376 million at September 30, ~~2017. The portfolio includes maturities of approximately $216.7~~2019, with $100 million in securities expected to mature over the next ~~twelve months, including $150 million of short-term securities which matured in October 2017.~~12 months. Combined with ~~federal funds sold~~FFS and interest bearing ~~deposits,~~due from bank accounts, these offer substantial resources to meet either new loan demand or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of ~~its investment~~the securities portfolio to secure public fund deposits, cash balances of certain ~~wealth management and trust~~WM&T accounts, and ~~securities sold under agreements to repurchase.~~SSUAR. At September 30, ~~2017,~~2019, total investment securities pledged for these purposes comprised ~~58%~~79% of the ~~available-for-sale investment~~AFS securities portfolio, leaving ~~$241.8~~approximately $80 million of unpledged ~~securities, including $150 million which matured the first week of October..~~AFS securities.

Bancorp ~~defines core~~has a significant base of non-maturity customer deposits, defined as demand, savings, ~~and~~ money market deposit accounts and ~~certificates of deposit~~time deposits less than or equal to ~~$250,000.~~ $250,000 (excluding brokered deposits). At September 30, ~~2017,~~2019, such deposits totaled ~~$2.4~~$2.8 billion and represented ~~99%~~97% of Bancorp’s total deposits, as compared ~~to $2.5~~with $2.7 billion, or ~~98%~~97% of total deposits at December 31, ~~2016.~~2018. Because these deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they do not put ~~heavy~~significant pressure on liquidity. ~~However, many of Bancorp’s customers’ deposit balances are historically high.~~Bancorp began adding liquidity to the balance sheet in 2018 through targeted CD marketing campaigns. The campaigns generated over $100 million in CD growth in 2018.

As of September 30, ~~2017~~2019 and December 31, 2018, Bancorp had ~~no brokered deposits. This compares to $498 thousand, or 0.02% of total deposits, in~~ brokered deposits ~~at December 31, 2016.~~of $30 million.

Included in ~~the~~ total deposit balances at September 30, ~~2017~~2019 is ~~$122.4~~$140 million of public funds deposits generally comprised of accounts from local government agencies and public school districts in ~~Bancorp’s markets.~~the markets Bancorp operates within. As a result of property tax collections in the latter part of each year, these accounts provide seasonal excess balances that originate with tax payments and decline leading into the subsequent tax season. While this excess liquidity is maintained in low-yielding short-term investments and consequently negatively impacts NIM, it has a positive impact on net interest income.

Other sources of funds available to meet daily needs include the sales of SSUAR and FHLB advances. As a member of the FHLB, ~~of Cincinnati,~~ Bancorp has access to credit products offered by the FHLB. Bancorp views these borrowings as a low cost alternative to ~~other time~~brokered deposits. At September 30, ~~2017,~~2019 and December 31, 2018, available credit from the FHLB totaled ~~$367.3~~$511 million and $537 million. Additionally, Bancorp had unsecured available ~~federal funds purchased~~FFP lines with correspondent banks totaling $105 million at both September 30, ~~2017.~~2019, and December 31, 2018.

~~At September 30, 2017~~ ~~Bancorp had a $150 million cash management advance from the FHLB. This advance matured in the first week of October, 2017 and was used to manage~~ Bancorp’s ~~overall cash position. Due to the short term of the advance, it was recorded on the consolidated balance sheet within Federal funds purchased and other short-term borrowings.~~

~~Bancorp’s~~ principal source of cash is dividends ~~paid to it as sole shareholder of~~received from the Bank. The Bank paid the Holding Company an $18.5 million dividend during the third quarter of 2019 to support the share repurchase program. Also, during the second quarter of 2019, the Bank paid the Holding Company a $28 million dividend to consummate the KSB acquisition. At September 30, ~~2017,~~2019, the Bank ~~may~~could pay up to ~~$70.3~~$42 million in dividends to Bancorp without regulatory approval subject to the ongoing capital requirements of the Bank.

At September 30, ~~2017,~~2019, stockholders’ equity totaled ~~$334.3~~$396 million, an increase of ~~$20.4~~$30 million, or 8%, since December 31, ~~2016.~~ 2018. See the Consolidated Statement of Changes in Stockholders’ Equity for further detail of ~~the~~ changes in equity since ~~the end of 2015.~~2018. One component of equity is ~~accumulated other comprehensive income~~AOCI which, for Bancorp, consists of net unrealized gains or losses on AFS securities ~~available-for-sale~~ and hedging instruments, as well as a minimum pension liability, each net of income taxes. ~~Accumulated other comprehensive loss~~AOCI was ~~$531 thousand~~$2 million at September 30, ~~2017~~2019 compared with a loss of ~~$1.5~~$5 million on December 31, ~~2016.~~2018. The ~~$968 thousand positive difference~~fluctuation in OCI is ~~primarily a reflection of the effect~~reflective of the changing interest rate environment during 2019 and corresponding impact upon the ~~first nine months~~valuation of ~~2017 as short term rates increased slightly, while long term rates decreased, which decreased~~ Bancorp’s ~~unrealized loss on~~AFS securities ~~available for sale.~~

~~As of~~ September 30, 2017, Bancorp meets all requirements to be considered well capitalized under regulatory risk-based capital rules, and is not subject to limitations due to the capital conservation buffer. See Footnote 19 to the consolidated financials for more information regarding Bancorp’s and the Bank’s risk-based capital amounts and ratios as of September 30, 2017 and December 31, 2016.

In addition to capital ratios defined by banking regulators, Bancorp considers various ratios when evaluating capital adequacy and overhead, including tangible common equity to tangible assets, tangible common equity per share, and adjusted efficiency ratio, all of which are non-GAAP measures.

Bancorp believes the tangible common equity ratios are important because of their widespread use by investors as means to evaluate capital adequacy, as they reflect the level of capital available to withstand unexpected market conditions. Because US GAAP does not include capital ratio measures, there are no US GAAP financial measures comparable to these ratios.portfolio.

~~Stock Yards Bancorp, inc.~~The following table sets forth Bancorp’s and ~~subsidiary~~the Bank’s risk based capital ratios:

(1) Under banking agencies’ risk-based capital guidelines, assets and credit-equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. Weighted values are added together, resulting inBancorp's total risk-weighted assets. These ratios are computed in relation to average assets.

Bancorp and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Holding Company and the Bank must meet specific capital guidelines that involve quantitative measures of Bancorp’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other factors.

Banking regulators have categorized the Bank as well-capitalized. For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 6.5% common equity tier 1 risk-based capital ratio, an 8.0% tier 1 risk-based capital ratio, a 10.0% total risk-based capital ratio and a 5.0% leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and Bank must hold a capital conservation buffer composed of common equity tier 1 risk-based capital above their minimum risk-based capital requirements. The capital conservation buffer phased in from 2016 to 2019 on the following schedule: 0.625% effective January 1, 2016; 1.25% effective January 1, 2017; 1.875% effective January 1, 2018; and a fully phased in capital conservation buffer of 2.5% on January 1, 2019.

Bancorp continues to exceed the regulatory requirements for total risk-based capital, common equity tier I risk-based capital, tier I risk-based capital and leverage capital. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.

The following table ~~reconciles~~provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity, a non-GAAP disclosure. Bancorp~~’s calculation~~ provides the tangible book value per share, a non-GAAP measure, in addition to those defined by banking regulators, because of ~~tangible common equity~~its widespread use by investors as a means to ~~amounts reported under US GAAP.~~evaluate capital adequacy.

In addition to the efficiency ratio normally presented, Bancorp considers an adjusted efficiency ratio. Bancorp believes excluding amortization of investments in tax credit partnerships from non-interest expense in this ratio is important because it provides a meaningful comparison to both prior periods, since amortization expense can fluctuate widely between periods depending upon timing of tax credits, and to other companies who do not invest in these partnerships.

~~The following table reconciles Bancorp’s calculation of adjusted efficiency ratios to the ratio reported under US GAAP.~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which outlines a single comprehensive model for use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance. The ASU was originally effective for fiscal years and interim periods beginning after December 15, 2016. In August 2015, FASB issued ASU 2015-14 which delayed the effective date. The effective date will be annual reporting periods beginning after December 15, 2017, and the interim periods within that year. Bancorp has reviewed existing contractual arrangements and believes the majority of revenue earned is excluded from the scope of the pronouncement and the impact of adoption if any would be minimal. Bancorp continues to evaluate and develop processes and controls for procedural and disclosure requirements of the standard.

~~The FASB also issued a series of other ASUs, which update ASU 2014-09.~~ ~~The effective dates for ASU 2014-09 have been updated by ASU 2015-14,~~ ~~Deferral of the Effective Date~~. For public business entities, certain employee benefit plans, and certain not-for-profit entities, ASU 2014-09 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual and interim periods in fiscal years beginning after December 15, 2016. Bancorp is including these ASUs in its evaluation and implementation efforts relative to ASU 2014-09.

• ~~ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~

• ~~ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~

• ~~ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~

• ~~ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~

~~In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01,~~ ~~Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~, which requires equity investments to be measured at fair value with changes in fair value recognized in net income. The ASU is effective for fiscal years and interim periods beginning after December 15, 2017. Because Bancorp does not have significant investments in equity securities, the adoption of ASU 2016-01 is not expected to have a significant impact on Bancorp’s operations or financial statements.

~~In February 2016, FASB issued ASU No. 2016-02,~~ ~~Leases~~, which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize on the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendment should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. Bancorp has evaluated existing lease commitments and does not expect adoption to significantly impact Bancorp’s financial condition or results of operations.

~~In June 2016, FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This standard will likely have a significant impact on the way Bancorp recognizes credit impairment on loans. Under current US GAAP, credit impairment losses are determined using an incurred-loss model, which recognizes credit losses only when it is probable that all contractual cash flows will not be collected. The initial recognition of loss under CECL differs from current US GAAP because recognition of credit losses will not be based on any triggering event. This should generally result in credit impairment being recognized earlier and immediately after the financial asset is originated or purchased. Bancorp continues to evaluate existing accounting processes, internal controls, and technology capabilities to determine what additional changes will be needed to address the new requirements. These processes and controls require significant judgment, collection and analysis of additional data, and use of estimates. Technology and other resources have been upgraded or modified to capture additional data to support the accounting and disclosure requirements. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019.

~~In August 2016, FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~, which amends guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues. The guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. Bancorp does not anticipate that adoption of the ASU will have a significant impact on the consolidated financial statements of the Company.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~, which requires entities to recognize at the transaction date the income tax consequences of inter-company asset transfers other than inventory. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Entities may early adopt the ASU, but only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, adjustments should be reflected at the beginning of the fiscal year that includes that interim period. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In January 2017, the FASB issued ASU 2017-01~~, ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. Entities may early adopt the ASU and apply it to transactions that have not been reported in financial statements that have been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In January 2017, the FASB issued ASU 2017-03,~~ Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update), which incorporates into the FASB Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The SEC staff had previously announced that registrants should include the disclosures starting with their December 2017 financial statements. Bancorp is evaluating the potential impact of implementation of this standard on the consolidated financial statements of the Company.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,~~ which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The changes are effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019. All entities may early adopt the standard for goodwill impairment tests with measurement dates after January 1, 2017. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In February 2017, the FASB issued ASU 2017-05,~~ Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the guidance in Subtopic 610-20 on accounting for derecognition of a nonfinancial asset. The ASU also defines in-substance nonfinancial assets and includes guidance on partial sales of nonfinancial assets. An entity is required to apply the amendments in this ASU at the same time that it applies ASU 2014-09. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other components of net benefit cost outside operating income, if this subtotal is presented. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting~~ which clarifies what constitutes a modification of a share-based payment award. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Earnings Per Share (Topic 260),~~~~Distinguishing Liabilities from Equity (Topic 480)~~~~, Derivatives and Hedging (Topic 815)~~; I. ~~Accounting for Certain Financial Instruments with Down Round Features.~~ ~~II. Replacement of the Indefinite Deferral for Mandatory Redeemable Financial Instruments of Certain Nonpublic Entities and~~ ~~Certain Mandatory Redeemable Noncontrolling Interests with a Scope Exception,~~ which makes limited changes to as to classifying certain financial instruments as either liabilities or equity. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.Early adoption is permitted, including adoption in an interim period. Because Bancorp does not have financial instruments with a down round feature, the implementation of ASU 2017-11 is not expected to have a significant impact on the consolidated financial statements of the Company.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815); Targeted Improvements for Accounting for Hedging Activities~~, which amends the hedge accounting recognition and presentation requirements under ASC 815. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption of this standard is permitted upon its issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.

Information required by this item is included in Part I Item 2, ~~“Management~~’s“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations.”

As of the end of the period covered by this report, an evaluation was carried out by Stock Yards Bancorp, ~~maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files~~Inc.’s management, with the ~~Securities~~participation of its CEO and ~~Exchange Commission (SEC), and to record, process, summarize and disclose this information within the time periods specified in the rules~~CFO, of the ~~SEC.~~

~~Based on their evaluation of Bancorp’s disclosure controls and procedures, the Chief Executive and Chief Financial Officers have concluded that, because~~effectiveness of the ~~material weakness described in Management’s Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K for the year ended December 31, 2016, Bancorp’s~~Company’s disclosure controls and procedures (as defined in ~~Rules~~Rule 13a-15(e) ~~and 15d-15(e)~~ under the Securities Exchange Act of 1934) ~~were not effective as of September 30, 2017. However, based on a number of factors, we believe~~. Based upon that evaluation, the ~~consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position~~Company’s CEO and ~~results of operation and cash flows for the periods presented in conformity with US GAAP.~~

~~With regard to the material weakness, our remediation efforts began during the~~ first quarter of 2017. We continue to strengthen how certain controls are designed, performed and documented. We have increased staffing in the internal loan review department, and engaged a third party to assist with loan review. We must now demonstrate the effectiveness ofCFO concluded that these changes with an appropriate amount of consistency and for a sufficient period of time to conclude that the control is functioning properly. Other than these changes, based on the evaluation of Bancorp’s disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in the ~~Chief Executive and Chief Financial Officers, there were no significant changes during the quarter ended September 30, 2017 in Bancorp’s~~Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, ~~Bancorp’s~~the Company’s internal control over financial reporting.

In the ordinary course of operations, Bancorp and the Bank are defendants in various legal proceedings. There is no proceeding pending or, to the knowledge of management, threatened in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Bancorp or the Bank.

The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended September 30, ~~2017.~~2019.

~~(1)~~ ~~Activity represents~~Effective May 22, 2019, Bancorp’s Board of Directors approved a share repurchase program authorizing the repurchase of 1,000,000 shares, or approximately 4% of ~~stock withheld~~the Company’s total common shares outstanding. Stock repurchases are expected to ~~pay taxes due upon exercise~~be made from time to time on the open market or in privately negotiated transactions, subject to applicable securities law. The plan, which will expire in two years unless otherwise extended or completed at an earlier date, does not obligate the Company to repurchase any specific dollar amount or number of ~~stock appreciation rights.~~shares prior to the plan’s expiration. As of September 30, 2019, Bancorp had 741,196 shares that could be repurchased under its current share repurchase program.

There were no equity securities of the registrant sold without registration during the quarter covered by this report.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Kentucky		61-1137529
(State or other jurisdiction of	~~(I.R.S. Employer~~
incorporation or organization)	(I.R.S. Employer Identification No.)

1040 East Main Street, Louisville, Kentucky		40206
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, no par value	SYBT	The NASDAQ Stock Market, LLC

Large accelerated filer ☒	☐	Accelerated filer ☐	☑
Non-accelerated filer ~~(Do not check if a smaller reporting Company)~~☐	☐	Smaller reporting company	☐
Emerging growth company ☐	☐

Item
~~Page~~part I – financial information

~~PART I~~ – ~~FINANCIAL INFORMATION~~


Item 1. Financial ~~Statements~~Statements.			4

~~The following consolidated financial statements of Stock Yards Bancorp, Inc. and Subsidiary are submitted herewith:~~

	~~Consolidated Balance Sheets September 30, 2017 (Unaudited) and December 31, 2016~~	3

	~~Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016~~	4

	~~Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016~~	5

	~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)~~ ~~for the nine months ended September 30, 2017 and 2016~~	6

	~~Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and 2016~~	7

	~~Notes to Consolidated Financial Statements (Unaudited)~~	8


Item 2.	~~Management~~’s Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.	4352

Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk~~Risk.	6876

Item 4.	Controls and ~~Procedures~~Procedures.	6976


~~PART~~part II – ~~OTHER INFORMATION~~other information

Item 1. Legal Proceedings.	76

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.	6976

Item 6. Exhibits.	77

~~Item 6.~~ SIGNATURES	~~Exhibits~~	7078

~~ASU~~ACH	~~Accounting Standards Update~~
~~Bancorp~~Automated Clearing House	~~Stock Yards Bancorp, Inc.~~
~~Bank~~	~~Stock Yards Bank & Trust Company~~
~~BOLI~~	~~Bank Owned Life Insurance~~
BP	~~Basis Point = 1/100~~^th ~~of one percent~~
~~COSO~~	~~Committee of Sponsoring Organizations~~
~~CRA~~	~~Community Reinvestment Act of 1977~~
~~Dodd-Frank Act~~	~~Dodd-Frank Wall Street Reform and Consumer Protection Act~~
~~EPS~~	~~Earnings Per Share~~
~~FASB~~	~~Financial Accounting Standards Board~~
FDIC		Federal Deposit Insurance Corporation
	~~FHA~~NM		~~Federal Housing Administration~~Not Meaningful
~~FHLB~~AFS		Available for Sale		FFP	Federal ~~Home Loan Bank~~
~~FHLMC~~Funds Purchased	~~Federal Home Loan Mortgage Corporation~~
~~FNMA~~	~~Federal National Mortgage Association~~
~~GNMA~~	~~Government National Mortgage Association~~
~~WM&T~~	~~Wealth Management and Trust Department~~
~~LIBOR~~	~~London Interbank Offered Rate~~
~~MSR~~	~~Mortgage Servicing Right~~
OAEM		Other Assets Especially Mentioned
Allowance		Allowance for Loan and Lease Losses		FFS	Federal Funds Sold	OCI	Other Comprehensive Income
AOCI		Accumulated Other Comprehensive Income		FFTR	Federal Funds Target Rate	OREO	Other Real Estate Owned
ASC		Accounting Standards Codification		FHA	Federal Housing Authority	OTTI	Other than Temporary Impairment
ASU		Accounting Standards Update		FHLB	Federal Home Loan Bank of Cincinnati	PCI	Purchased Credit Impaired
AUM		Assets Under Management		FHLMC	Federal Home Loan Mortgage Corporation	Prime	The Wall Street Journal Prime Interest Rate
Bancorp / the Company		Stock Yards Bancorp, Inc.		FICA	Federal Insurance Contributions Act	Provision	Provision for Loan and Lease Losses
Bank / SYB&T		Stock Yards Bank & Trust Company		FNMA	Federal National Mortgage Association	PSU	Performance Stock Unit
BOLI		Bank Owned Life Insurance		FRB	Federal Reserve Bank	ROA	Return on Average Assets
bps		Basis Point - 1/100th of one percent		FTE	Fully Tax Equivalent	ROE	Return on Average Equity
C&D		Construction and Development		GAAP	Generally Accepted Accounting Principles in the United States	RSA	Restricted Stock Award
C&I		Commercial and Industrial		GNMA	Government National Mortgage Association	RSU	Restricted Stock Unit
CD		Certificate of Deposit		HB	House Bill	SAR	Stock Appreciation Right
CECL		Current Expected Credit Loss		HELOC	Home Equity Line of Credit	SEC	Securities and Exchange Commission
~~TDRs~~CEO		Chief Executive Officer		KBST	King Bancorp Statutory Trust I	SSUAR	Securities Sold Under Agreements to Repurchase
CFO		Chief Financial Officer		KSB	King Bancorp, Inc. and King Southern Bank	TBOC	THE Bank Oldham County
COSO		Committee of Sponsoring Organizations		LIBOR	London Interbank Offered Rate	TCE	Tangible Common Equity
CRA		Community Reinvestment Act		Loans	Loans and Leases	TDR	Troubled Debt ~~Restructurings~~Restructuring
~~US GAAP~~CRE		~~United States Generally Accepted Accounting Principles~~Commercial Real Estate		MBS	Mortgage Backed Securities	TPS	Trust Preferred Securities
EPS		Earnings Per Share		MSA	Metropolitan Statistical Area	VA	U.S. Department of Veterans Affairs
ETR		Effective Tax Rate		MSRs	Mortgage Servicing Rights	WM&T	Wealth Management and Trust
EVP		Executive Vice President		NA	Not Applicable
FASB		Financial Accounting Standards Board		NIM	Net Interest Margin

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~
~~Consolidated Statements of Income~~ ~~(Unaudited)~~
~~For the three and nine months ended September 30, 2017 and 2016~~
~~(In thousands, except per share data)~~

	For three months ended				For the nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Interest income:
Loans	$	25,401	$	23,436	$	73,812	$	67,992
Federal funds sold and interest bearing deposits		388		95		798		395
Mortgage loans held for sale		48		66		145		185
Securities – taxable		2,003		2,047		6,173		6,325
Securities – tax-exempt		271		298		829		907
Total interest income		28,111		25,942		81,757		75,804
Interest expense:
Deposits		1,593		941		4,237		2,916
Federal funds purchased and other short-term borrowing		77		19		125		57
Securities sold under agreements to repurchase		33		38		100		100
Federal Home Loan Bank advances		244		184		715		552
Total interest expense		1,947		1,182		5,177		3,625
Net interest income		26,164		24,760		76,580		72,179
Provision for loan losses		150		1,250		1,650		2,500
Net interest income after provision for loan losses		26,014		23,510		74,930		69,679
Non-interest income:
Wealth management and trust services		5,025		4,800		15,272		14,219
Service charges on deposit accounts		2,522		2,544		7,368		6,952
Bankcard transactions		1,492		1,455		4,412		4,198
Mortgage banking		781		1,072		2,380		2,896
Gain on call of securities available for sale		31		—		31		—
Securities brokerage		551		558		1,584		1,539
Bank owned life insurance		204		216		964		657
Other		497		713		1,564		1,757
Total non-interest income		11,103		11,358		33,575		32,218
Non-interest expenses:
Salaries and employee benefits		12,983		12,048		39,244		36,214
Net occupancy		1,621		1,646		4,765		4,716
Data processing		1,920		1,747		5,909		5,172
Furniture and equipment		316		277		861		853
FDIC insurance		242		356		716		1,035
Amortization of investments in tax credit partnerships		616		1,015		1,847		3,046
Other		3,619		3,429		10,469		9,215
Total non-interest expenses		21,317		20,518		63,811		60,251
Income before income taxes		15,800		14,350		44,694		41,646
Income tax expense		4,096		3,883		11,597		11,235
Net income	$	11,704	$	10,467	$	33,097	$	30,411
Net income per share:
Basic	$	0.52	$	0.47	$	1.47	$	1.36
Diluted	$	0.51	$	0.46	$	1.44	$	1.34
Average common shares:
Basic		22,542		22,385		22,524		22,325
Diluted		22,964		22,803		22,984		22,711

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Net income	$	11,704		$	10,467		$	33,097		$	30,411
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net of tax $29, ($616), $512, and $2,213, respectively		56			(1,147	)		950			4,110
Reclassification adjustment for securities (gains) realized in income (net of tax of $(11), $0, $(11), and $0, respectively)		(20	)		—			(20	)		—
Unrealized losses on hedging instruments:
Unrealized gains (losses) arising during the period, net of tax benefit of $23, $74, $21, ($162), respectively		43			137			38			(301	)
Other comprehensive income (loss), net of tax		79			(1,010	)		968			3,809
Comprehensive income	$	11,783		$	9,457		$	34,065		$	34,220

	Three months ended				Nine months ended
(In thousands, except per share data)	September 30,				September 30,
	2019		2018		2019		2018
Interest income:
Loans and leases	$	35,022	$	30,359	$	99,985	$	86,877
Federal funds sold and interest bearing due from banks		566		373		2,129		804
Mortgage loans held for sale		41		42		121		121
Securities available for sale
Taxable		2,239		2,055		7,353		6,298
Tax-exempt		105		192		382		669
Total interest income		37,973		33,021		109,970		94,769
Interest expense:
Deposits		5,316		3,972		16,034		8,723
Securities sold under agreements to repurchase		26		55		79		122
Federal funds purchased and other short-term borrowing		52		245		176		728
Federal Home Loan Bank advances		509		228		1,154		692
Subordinated debentures		-		—		26		—
Total interest expense		5,903		4,500		17,469		10,265
Net interest income		32,070		28,521		92,501		84,504
Provision for loan and lease losses		400		735		1,000		2,705
Net interest income after provision		31,670		27,786		91,501		81,799
Non-interest income:
Wealth management and trust services		5,738		5,380		16,839		16,224
Deposit service charges		1,444		1,482		4,027		4,340
Debit and credit card income		2,102		1,759		6,014		4,956
Treasury management fees		1,264		1,151		3,623		3,311
Mortgage banking income		834		712		2,112		2,034
Net investment product sales commissions and fees		400		444		1,120		1,245
Bank owned life insurance		487		186		849		564
Other		1,035		312		2,045		1,096
Total non-interest income		13,304		11,426		36,629		33,770
Non-interest expenses:
Compensation		12,330		11,607		36,846		34,280
Employee benefits		2,908		2,501		8,458		7,646
Net occupancy and equipment		2,199		1,914		6,033		5,543
Technology and communication		1,841		1,595		5,462		4,910
Debit and credit card processing		662		588		1,880		1,733
Marketing and business development		732		740		2,260		2,191
Postage, printing and supplies		402		370		1,218		1,161
Legal and professional		524		501		2,581		1,498
FDIC insurance		-		238		486		718
Amortization/impairment of investments in tax credit partnerships		137		-		241		58
Capital and deposit based taxes		993		738		2,864		2,452
Other		1,229		989		3,731		2,754
Total non-interest expenses		23,957		21,781		72,060		64,944
Income before income tax expense		21,017		17,431		56,070		50,625
Income tax expense		3,783		3,555		6,652		9,766
Net income	$	17,234	$	13,876	$	49,418	$	40,859
Net income per share, basic	$	0.76	$	0.61	$	2.18	$	1.81
Net income per share, diluted	$	0.76	$	0.60	$	2.16	$	1.78
Weighted average common shares:
Basic		22,550		22,636		22,633		22,613
Diluted		22,810		22,968		22,901		22,956

													Accumulated
	Common stock						Additional						other
	Number of						paid-in			Retained			comprehensive
	shares			Amount			capital			earnings			income (loss)			Total

Balance December 31, 2015		14,919		$	10,616		$	44,180		$	231,091		$	632		$	286,519

Net income		-			-			-			30,411			-			30,411

Other comprehensive income, net of tax		-			-			-			-			3,809			3,809

Stock compensation expense		-			-			1,646			-			-			1,646

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award		159			527			3,404			(2,903	)		-			1,028

3 for 2 stock split		7,494			24,956			(24,956	)		-			-			-

Cash dividends, $0.53 per share		-			-			-			(11,843	)		-			(11,843	)

Shares cancelled		(9	)		(31	)		(224	)		255			-			-

Balance September 30, 2016		22,563		$	36,068		$	24,050		$	247,011		$	4,441		$	311,570

Balance December 31, 2016		22,617		$	36,250		$	26,682		$	252,439		$	(1,499	)	$	313,872

Net income		-			-			-			33,097			-			33,097

Other comprehensive income, net of tax		-			-			-			-			968			968

Stock compensation expense		-			-			2,012			-			-			2,012

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award		59			198			2,142			(4,669	)		-			(2,329	)

Cash dividends, $0.59 per share		-			-			-			(13,365	)		-			(13,365	)

Shares cancelled		(7	)		(24	)		(155	)		179			-			-

Balance September 30, 2017		22,669		$	36,424		$	30,681		$	267,681		$	(531	)	$	334,255

	2017			2016
Operating activities:
Net income	$	33,097		$	30,411
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,650			2,500
Depreciation, amortization and accretion, net		6,848			8,016
Deferred income tax provision		(1,811	)		(320	)
Gain on call of securities available for sale		(31	)		—
Gain on sales of mortgage loans held for sale		(1,453	)		(1,825	)
Origination of mortgage loans held for sale		(74,857	)		(91,195	)
Proceeds from sale of mortgage loans held for sale		74,064			93,861
Bank owned life insurance income		(964	)		(657	)
Loss on the disposal of premises and equipment		-			163
(Gain) on the sale of foreclosed assets		(39	)		(382	)
Stock compensation expense		2,012			1,646
Excess tax benefits from share-based compensation arrangements		(1,353	)		(963	)
Decrease in accrued interest receivable and other assets		(5,651	)		(6,145	)
Increase in accrued interest payable and other liabilities		18,062			14,253
Net cash provided by operating activities		49,574			49,363
Investing activities:
Purchases of securities available for sale		(422,190	)		(327,711	)
Proceeds from sale of securities available for sale		-			-
Proceeds from maturities of securities available for sale		420,179			355,943
Purchase of Federal Home Loan Bank stock		(1,319	)		-
Net increase in loans		(30,454	)		(191,793	)
Purchases of premises and equipment		(1,733	)		(5,853	)
Proceeds from mortality benefit of bank owned life insurance		970			-
Proceeds from sale of foreclosed assets		2,432			1,403
Net cash used in investing activities		(32,115	)		(168,011	)
Financing activities:
Net (decrease) increase in deposits		(38,582	)		18,895
Net increase in securities sold under agreements to repurchase and federal funds purchased		118,855			56,699
Proceeds from Federal Home Loan Bank advances		90,000			199,000
Repayments of Federal Home Loan Bank advances		(90,965	)		(191,102	)
Proceeds (used for) and received from settlement of stock awards		(216	)		1,599
Excess tax benefits from share-based compensation arrangements		-			963
Common stock repurchases		(2,113	)		(1,534	)
Cash dividends paid		(13,333	)		(11,812	)
Net cash provided by financing activities		63,646			72,708
Net increase (decrease) in cash and cash equivalents		81,105			(45,940	)
Cash and cash equivalents at beginning of period		47,973			103,833
Cash and cash equivalents at end of period	$	129,078		$	57,893
Supplemental cash flow information:
Income tax payments	$	11,063		$	9,190
Cash paid for interest		5,109			3,636
Supplemental non-cash activity:
Transfers from loans to foreclosed assets	$	-		$	1,522

	May 1, 2019
	As Recorded			Fair Value				Recast				As Recorded
(In thousands)	by King			Adjustments (1)				Adjustments (1)				by Bancorp
Assets aquired:

Cash and due from banks	$	3,316		$	—			$	—			$	3,316
Interest bearing due from banks		1,761			—				—				1,761
Available for sale securities		12,404			23		a		—				12,427
Loans		165,744			(1,597	)	b		(118	)	b		164,029
Allowance for loan and lease losses		(1,812	)		1,812		b		—				—
Loans, net		163,932			215				(118	)			164,029
Federal Home Loan Bank stock, at cost		1,517			—				—				1,517
Federal Reserve Bank stock, at cost		490			—				—				490
Premises and equipment, net		4,358			(1,328	)	c		351		c		3,381
Core deposit intangible		—			1,519		d		—				1,519
Bank owned life insurance		3,431			—				—				3,431
Other real estate owned		325			(325	)	e		—				—
Other assets and accrued interest receivable		867			(36	)	f		—				831

Total assets acquired	$	192,401		$	68			$	233			$	192,702

Liabilities assumed:

Deposits
Non-interest bearing	$	24,939		$	—			$	—			$	24,939
Interest bearing		100,839			(252	)	g		—				100,587
Total deposits		125,778			(252	)			—				125,526

Federal funds purchased		1,566			—				—				1,566
Federal Home Loan Bank advances		43,718			(419	)	h		—				43,299
Subordinated Note		3,609			—				—				3,609
Holding Company line of credit		2,300			—				—				2,300
Other liabilities and accrued interest payable		313			—				—				313

Total liabilities assumed		177,284			(671	)			—				176,613

Net assets acquired	$	15,117		$	739			$	233			$	16,089

Cash consideration paid													(28,000	)

Goodwill												$	11,911

(in thousands)	Amortized		Unrealized
September 30, 2017	cost		Gains		Losses		Fair value

Government sponsored enterprise obligations	$	372,596	$	846	$	778	$	372,664
Mortgage-backed securities - government agencies		147,604		697		1,581		146,720
Obligations of states and political subdivisions		51,100		611		89		51,622
Corporate equity securities		653		-		137		516

Total securities available for sale	$	571,953	$	2,154	$	2,585	$	571,522

December 31, 2016
U.S. Treasury and other U.S. Government obligations	$	74,997	$	1	$	-	$	74,998
Government sponsored enterprise obligations		268,784		800		1,494		268,090
Mortgage-backed securities - government agencies		170,344		735		2,236		168,843
Obligations of states and political subdivisions		57,158		682		396		57,444
Corporate equity securities		653		46		-		699

Total securities available for sale	$	571,936	$	2,264	$	4,126	$	570,074

(in thousands)
Securities available-for-sale	Amortized cost		Fair value

Due within 1 year	$	216,651	$	216,696
Due after 1 but within 5 years		74,383		74,529
Due after 5 but within 10 years		14,085		14,031
Due after 10 years		118,577		119,030
Mortgage-backed securities - government agencies		147,604		146,720
Corporate equity securities		653		516

Total securities available-for-sale	$	571,953	$	571,522

(In thousands)	Amortized cost		Fair value

Due within 1 year	$	99,584	$	99,577
Due after 1 year but within 5 years		33,234		33,288
Due after 5 years but within 10 years		6,174		6,245
Due after 10 years		91,446		93,489
Mortgage backed securities - government agencies		142,518		143,002
Total securities available for sale	$	372,956	$	375,601

(in thousands)	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2017	value		losses		value		losses		value		losses

Government sponsored enterprise obligations	$	190,462	$	135	$	70,176	$	643	$	260,638	$	778
Mortgage-backed securities - government agencies		13,227		117		65,781		1,464		79,008		1,581
Obligations of states and political subdivisions		9,307		13		6,287		76		15,594		89
Corporate equity securities		516		137		-		-		516		137

Total temporarily impaired securities	$	213,512	$	402	$	142,244	$	2,183	$	355,756	$	2,585

December 31, 2016
Government sponsored enterprise obligations	$	154,951	$	1,344	$	3,485	$	150	$	158,436	$	1,494
Mortgage-backed securities - government agencies		115,374		1,873		9,914		363		125,288		2,236
Obligations of states and political subdivisions		29,893		380		1,478		16		31,371		396

Total temporarily impaired securities	$	300,218	$	3,597	$	14,877	$	529	$	315,095	$	4,126

(in thousands)	September 30, 2017		December 31, 2016
Commercial and industrial	$	750,728	$	736,841
Construction and development, excluding undeveloped land		174,310		192,348
Undeveloped land		20,989		21,496

Real estate mortgage:
Commercial investment		576,810		538,886
Owner occupied commercial		397,804		408,292
1-4 family residential		261,707		249,498
Home equity - first lien		51,925		55,325
Home equity - junior lien		63,416		67,519
Subtotal: Real estate mortgage		1,351,662		1,319,520

Consumer		37,431		35,170

Total loans	$	2,335,120	$	2,305,375

(in thousands)	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
September 30, 2017	industrial		land		land		mortgage		Consumer		Total

Loans	$	750,728	$	174,310	$	20,989	$	1,351,662	$	37,431	$	2,335,120

Loans collectively evaluated for impairment	$	748,591	$	173,573	$	20,515	$	1,348,774	$	37,375	$	2,328,828

Loans individually evaluated for impairment	$	2,137	$	737	$	474	$	2,403	$	56	$	5,807

Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	485	$	-	$	485

	●	~~Undeveloped land: Loans in this category are secured by~~ land acquired for development by the borrower, but for which no development has yet taken ~~place. Credit risk~~ ~~is primarily dependent upon the financial strength~~place.
(2) Total loans are presented inclusive of ~~the borrower,~~premiums, discounts, and ~~can be affected by market conditions~~net loan origination fees and ~~time to develop land for ultimate sale. Credit risk is also affected by availability of development financing to the extent such financing is not being provided by Bancorp.~~

(in thousands)	Accretable discount			Non- accretable discount
Balance at December 31, 2015	$	3		$	189

Accretion		(3	)		(41	)
Reclassifications from (to) non-accretable discount		-			-
Disposals		-			-
Balance at December 31, 2016	$	-		$	148

Accretion		-			-
Reclassifications from (to) non-accretable discount		-			-
Disposals		-			-
Balance at September 30, 2017	$	-		$	148

			Unpaid				Average
(in thousands)	Recorded		principal		Related		recorded
September 30, 2017	investment		balance		allowance		investment

Loans with no related allowance recorded:
Commercial and industrial	$	350	$	540	$	-	$	228
Construction and development, excluding undeveloped land		737		907		-		533
Undeveloped land		474		506		-		413

Real estate mortgage
Commercial investment		55		55		-		124
Owner occupied commercial		1,470		1,908		-		1,264
1-4 family residential		785		785		-		759
Home equity - first lien		-		-		-		-
Home equity - junior lien		81		81		-		224
Subtotal: Real estate mortgage		2,391		2,829		-		2,371

Consumer		-		17		-		-
Subtotal	$	3,952	$	4,799	$	-	$	3,545

Loans with an allowance recorded:
Commercial and industrial	$	1,787	$	2,321	$	654	$	2,343
Construction and development, excluding undeveloped land		-		-		-		-
Undeveloped land		-		-		-		60

Real estate mortgage
Commercial investment		-		-		-		-
Owner occupied commercial		-		-		-		-
1-4 family residential		12		12		12		3
Home equity - first lien		-		-		-		-
Home equity - junior lien		-		-		-		-
Subtotal: Real estate mortgage		12		12		12		3

Consumer		56		56		56		58
Subtotal	$	1,855	$	2,389	$	722	$	2,464

Total:
Commercial and industrial	$	2,137	$	2,861	$	654	$	2,571
Construction and development, excluding undeveloped land		737		907		-		533
Undeveloped land		474		506		-		473

Real estate mortgage
Commercial investment		55		55		-		124
Owner occupied commercial		1,470		1,908		-		1,264
1-4 family residential		797		797		12		762
Home equity - first lien		-		-		-		-
Home equity - junior lien		81		81		-		224
Subtotal: Real estate mortgage		2,403		2,841		12		2,374

Consumer		56		73		56		58
Total	$	5,807	$	7,188	$	722	$	6,009

	May 1, 2019
	Contractual		Non-accretable			Accretable			Acquisition-day
(In thousands)	receivable		amount			amount			fair value

Commercial and industrial	$	8,249	$	—		$	(23	)	$	8,226
Construction and development		10,764		—			43			10,807
Raw Land		7,974		—			43			8,017
Real estate mortgage:
Commercial real estate		84,219		—			(456	)		83,763
1-4 family residential		50,556		—			322			50,878
Home equity - first lien		196		—			3			199
Home equity - junior lien		679		—			5			684
Subtotal: Real estate mortgage		135,650		—			(126	)		135,524

Consumer		1,528		—			(73	)		1,455

Total loans ASC 310-20		164,165		—			(136	)		164,029

Commercial and industrial
Construction and development		—		—			—			—
Raw Land		—		—			—			—
Real estate mortgage:
Commercial real estate		1,351		(1,351	)		—			—
1-4 family residential		228		(228	)		—			—
Home equity - first lien		—		—			—			—
Home equity - junior lien		—		—			—			—
Subtotal: Real estate mortgage		1,579		(1,579	)		—			—

Consumer		—		—			—			—

Total loans ASC 310 purchased- credit-impaired loans		1,579		(1,579	)		—			—

Total loans	$	165,744	$	(1,579	)	$	(136	)	$	164,029

In thousands	September 30, 2019			December 31, 2018

Contractually-required principal	$	1,575		$	432
Non-accretable amount		(1,575	)		—
Accretable amount		-			(68	)
Carrying value of loans	$	-		$	364

													Recorded
(in thousands)							90 or more						investment
							days past						> 90 days
			30-59 days		60-89 days		due (includes		Total		Total		and
September 30, 2017	Current		past due		past due		non-accrual)		past due		loans		accruing

Commercial and industrial	$	747,316	$	2,149	$	7	$	1,256	$	3,412	$	750,728	$	-
Construction and development, excluding undeveloped land		173,573		-		-		737		737		174,310		-
Undeveloped land		20,515		-		-		474		474		20,989		-

Real estate mortgage
Commercial investment		574,088		2,667		-		55		2,722		576,810		-
Owner occupied commercial		395,924		47		363		1,470		1,880		397,804		-
1-4 family residential		259,729		330		602		1,046		1,978		261,707		261
Home equity - first lien		51,836		89		-		-		89		51,925		-
Home equity - junior lien		62,892		165		278		81		524		63,416		-
Subtotal: Real estate mortgage		1,344,469		3,298		1,243		2,652		7,193		1,351,662		261

Consumer		37,196		226		9		-		235		37,431		-
Total	$	2,323,069	$	5,673	$	1,259	$	5,119	$	12,051	$	2,335,120	$	261

December 31, 2016

Commercial and industrial	$	734,682	$	84	$	290	$	1,785	$	2,159	$	736,841	$	18
Construction and development, excluding undeveloped land		191,810		-		-		538		538		192,348		-
Undeveloped land		21,022		-		-		474		474		21,496		-

Real estate mortgage
Commercial investment		537,998		631		64		193		888		538,886		86
Owner occupied commercial		406,726		342		-		1,224		1,566		408,292		182
1-4 family residential		246,730		1,174		576		1,018		2,768		249,498		34
Home equity - first lien		55,027		231		21		46		298		55,325		46
Home equity - junior lien		66,911		99		126		383		608		67,519		72
Subtotal: Real estate mortgage		1,313,392		2,477		787		2,864		6,128		1,319,520		420

Consumer		34,965		28		105		72		205		35,170		-
Total	$	2,295,871	$	2,589	$	1,182	$	5,733	$	9,504	$	2,305,375	$	438

(In thousands)							Substandard				Total
September 30, 2019	Pass		OAEM		Substandard		non-performing		Doubtful		loans

Commercial and industrial	$	838,507	$	13,924	$	23,488	$	208	$	—	$	876,127
Construction and development, excluding undeveloped land		248,296		—		—		—		—		248,296
Undeveloped land		35,169		—		—		—		—		35,169

Real estate mortgage:
Commercial investment		715,432		1,835		8,690		1,574		—		727,531
Owner occupied commercial		456,106		6,825		6,338		1,409		—		470,678
1-4 family residential		329,678		1,690		157		222		—		331,747
Home equity - first lien		51,015		—		—		—		—		51,015
Home equity - junior lien		72,034		213		18		268		—		72,533
Subtotal: Real estate mortgage		1,624,265		10,563		15,203		3,473		—		1,653,504

Consumer		43,568		—		—		—		—		43,568

Total	$	2,789,805	$	24,487	$	38,691	$	3,681	$	—	$	2,856,664


December 31, 2018

Commercial and industrial	$	803,073	$	11,516	$	18,703	$	232	$	—	$	833,524
Construction and development, excluding undeveloped land		220,532		4,200		—		318		—		225,050
Undeveloped land		29,618		—		—		474		—		30,092

Real estate mortgage:
Commercial investment		586,543		1,815		15		237		—		588,610
Owner occupied commercial		411,722		9,030		4,500		1,121		—		426,373
1-4 family residential		273,537		1,544		162		774		—		276,017
Home equity - first lien		49,500		—		—		—		—		49,500
Home equity - junior lien		70,437		249		19		242		—		70,947
Subtotal: Real estate mortgage		1,391,739		12,638		4,696		2,374		—		1,411,447

Consumer		48,058		—		—		—		—		48,058

Total	$	2,493,020	$	28,354	$	23,399	$	3,398	$	—	$	2,548,171

	Type of loan
				Construction
				and development,
Three months ended	*Commercial*			*excluding*
	*and*			*undeveloped*			*Undeveloped*		*Real estate*
(In thousands)	*industrial*			*land*			*land*		*mortgage*		*Consumer*			*Total*

Balance, July 1, 2019	$	11,858		$	1,810		$	601	$	12,030	$	117		$	26,416
Provision (credit)		32			(108	)		195		269		12			400
Charge-offs		(91	)		—			—		—		(139	)		(230	)
Recoveries		154			—			—		46		91			291
Balance, September 30, 2019	$	11,953		$	1,702		$	796	$	12,345	$	81		$	26,877

					Past Due 90-Days-or-More
	Non-accrual				and Still Accruing Interest
(In thousands)	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018

Commercial and industrial	$	186	$	192	$	-	$	12
Construction and development, excluding undeveloped land		—		318		—		—
Undeveloped land		—		474		—		—

Real estate mortgage:
Commercial investment		741		138		396		99
Owner occupied commercial		1,409		586		—		535
1-4 family residential		137		760		72		—
Home equity - first lien		—		—		—		—
Home equity - junior lien		249		143		19		99
Subtotal: Real estate mortgage		2,536		1,627		487		733
Consumer		—		—		—		—
Total loans	$	2,722	$	2,611	$	487	$	745

	As of						Three months ended				Nine months ended
	September 30, 2019						September 30, 2019				September 30, 2019

			*Unpaid*				*Average*		*Interest*		*Average*		*Interest*
	*Recorded*		*principal*		*Related*		*recorded*		*income*		*recorded*		*income*
(In thousands)	*investment*		*balance*		*allowance*		*investment*		*recognized*		*investment*		*recognized*

Impaired loans with no related allowance:
Commercial and industrial	$	186	$	176	$	—	$	136	$	—	$	164	$	—
Construction and development, excluding undeveloped land		—		—		—		—		—		80		—
Undeveloped land		—		—		—		—		—		119		—

Real estate mortgage
Commercial investment		741		741		—		524		—		376		—
Owner occupied commercial		1,409		1,847		—		1,427		—		1,226		—
1-4 family residential		137		137		—		426		—		614		—
Home equity - first lien		—		—		—		—		—		—		—
Home equity - junior lien		249		249		—		359		—		329		—
Subtotal: Real estate mortgage		2,536		2,974		—		2,736		—		2,545		—

Consumer		—		—		—		—		—		—		—
Subtotal	$	2,722	$	3,150	$	—	$	2,872	$	—	$	2,908	$	—

Impaired loans with an allowance:
Commercial and industrial	$	22	$	22	$	22	$	28	$	—	$	27	$	—
Construction and development, excluding undeveloped land		—		—		—		—		—		—		—
Undeveloped land		—		—		—		—		—		—		—

Real estate mortgage
Commercial investment		—		—		—		—		—		—		—
Owner occupied commercial		—		—		—		—		—		—		—
1-4 family residential		13		13		13		14		—		14		—
Home equity - first lien		—		—		—		—		—		—		—
Home equity - junior lien		—		—		—		—		—		—		—
Subtotal: Real estate mortgage		13		13		13		14		—		14		—

Consumer		—		—		—		—		—		—		—
Subtotal	$	35	$	35	$	35	$	42	$	—	$	41	$	—

Total:
Commercial and industrial	$	208	$	198	$	22	$	164	$	—	$	191	$	—
Construction and development, excluding undeveloped land		—		—		—		—		—		80		—
Undeveloped land		—		—		—		—		—		119		—

Real estate mortgage
Commercial investment		741		741		—		524		—		376		—
Owner occupied commercial		1,409		1,847		—		1,427		—		1,226		—
1-4 family residential		150		150		13		440		—		628		—
Home equity - first lien		—		—		—		-		—		-		—
Home equity - junior lien		249		249		—		359		—		329		—
Subtotal: Real estate mortgage		2,549		2,987		13		2,750		—		2,559		—

Consumer		—		—		—		—		—		—		—
Total impaired loans	$	2,757	$	3,185	$	35	$	2,914	$	—	$	2,949	$	—

(In thousands)							90 or more
							days past due
			*30-59 days*		*60-89 days*		*(includes all*		*Total*		*Total*
September 30, 2019	*Current*		*past due*		*past due*		*non-accrual)*		*past due*		*loans*

Commercial and industrial	$	874,576	$	465	$	900	$	186	$	1,551	$	876,127
Construction and development, excluding undeveloped land		248,296		—		—		—		—		248,296
Undeveloped land		35,169		—		—		—		—		35,169

Real estate mortgage:
Commercial investment		723,028		3,352		14		1,137		4,503		727,531
Owner occupied commercial		468,699		478		92		1,409		1,979		470,678
1-4 family residential		329,140		2,159		239		209		2,607		331,747
Home equity - first lien		50,881		134		—		—		134		51,015
Home equity - junior lien		72,216		49		—		268		317		72,533
Subtotal: Real estate mortgage		1,643,964		6,172		345		3,023		9,540		1,653,504

Consumer		43,522		46		—		—		46		43,568

Total	$	2,845,527	$	6,683	$	1,245	$	3,209	$	11,137	$	2,856,664

December 31, 2018

Commercial and industrial	$	832,923	$	197	$	200	$	204	$	601	$	833,524
Construction and development, excluding undeveloped land		224,732		—		—		318		318		225,050
Undeveloped land		29,552		66		—		474		540		30,092

Real estate mortgage:
Commercial investment		586,884		1,382		107		237		1,726		588,610
Owner occupied commercial		421,143		2,732		1,377		1,121		5,230		426,373
1-4 family residential		274,547		374		336		760		1,470		276,017
Home equity - first lien		49,321		179		—		—		179		49,500
Home equity - junior lien		70,467		182		56		242		480		70,947
Subtotal: Real estate mortgage		1,402,362		4,849		1,876		2,360		9,085		1,411,447

Consumer		48,058		—		—		—		—		48,058

Total	$	2,537,627	$	5,112	$	2,076	$	3,356	$	10,544	$	2,548,171

	For the nine months
	ended September 30,
(in thousands)	2017			2016
Balance at beginning of period	$	921		$	1,018
Additions for mortgage loans sold		143			105
Amortization		(222	)		(192	)
Balance at end of period	$	842		$	931

							Three months ended						Nine months ended
	Nine months ended September 30,						September 30,						September 30,
	2017			2016			2019			2018			2019			2018
U.S. federal statutory income tax rate		35.0	%		35.0	%		21.0	%		21.0	%		21.0	%		21.0	%
Kentucky state income tax enactments								(0.7	)		—			(6.9	)		—
Excess tax benefits from stock-based compensation arrangements								(1.5	)		—			(1.2	)		(1.0	)
Increase in cash surrender value of life insurance								(0.8	)		(0.7	)		(0.9	)		(0.6	)
Tax credits		(4.6	)		(9.4	)		(0.5	)		(0.2	)		(0.6	)		(0.4	)
Excess tax benefits from share-based compensation arrangements		(3.0	)		-
Increase in cash surrender value of life insurance		(1.4	)		(0.9	)
Tax exempt interest income		(1.1	)		(1.3	)		(0.3	)		(0.4	)		(0.3	)		(0.5	)
State income taxes, net of federal benefit		0.7			0.9			0.7			0.8			0.7			0.7
Other, net		0.3			2.7			(0.1	)		(0.1	)		0.1			0.1
Effective income tax rate		25.9	%		27.0	%		17.9	%		20.4	%		11.9	%		19.3	%

(in thousands)	Amount

3 months or less	$	11,463
Over 3 through 6 months		3,938
Over 6 through 12 months		10,942
Over 1 through 3 years		6,410
Over 3 years		517
Total	$	33,270

	Net unrealized			Net unrealized			Minimum
	gains on			gains (losses)			pension
	securities			on cash			liability
(in thousands)	available-for-sale			flow hedges			adjustment			Total

Balance at December 31, 2015	$	965		$	(60	)	$	(273	)	$	632

Net current period other comprehensive gain (loss)		4,110			(301	)		-			3,809
Balance at September 30, 2016	$	5,075		$	(361	)	$	(273	)	$	4,441


Balance at December 31, 2016	$	(1,211	)	$	(16	)	$	(272	)	$	(1,499	)

Net current period other comprehensive income gain		950			38			-			988
Amounts reclassified from other comprehensive income		(20	)		-			-			(20	)
Net current-period other comprehensive income		930			38			-			968
Balance at September 30, 2017	$	(281	)	$	22		$	(272	)	$	(531	)

	2019			2018

Dividend yield		2.54	%		2.56	%
Expected volatility		20.39	%		20.17	%
Risk free interest rate		2.52	%		2.96	%
Expected life of SARs (years)		7.2			7.0