The ~~following listing provides a comprehensive reference of common~~ acronyms and ~~terms~~abbreviations identified in alphabetical order below are used throughout ~~the document:~~this Report on Form 10-Q:

September 30, 2021 (unaudited) and December 31, 2020 (in thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

For the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share data)

See accompanying notes to unaudited condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020 (in thousands)

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share data)

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See accompanying notes to unaudited condensed consolidated financial statements.

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Nature of Operations – Stock Yards Bancorp, ~~inc.~~Inc. (“Bancorp” or “the Company”) is a FHC headquartered in Louisville, Kentucky. The accompanying condensed consolidated financial statements include the accounts of its wholly owned subsidiaries, SYB (“the Bank”) and ~~subsidiary~~SYB Insurance Company, Inc. (“the Captive”). Intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements of Bancorp and its subsidiaries have been prepared in conformity with GAAP and adhere to predominant practices within the banking industry.

~~Notes to Consolidated Financial Statements (Unaudited)~~Established in 1904, SYB is a state-chartered non-member financial institution that provides services in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets through 63 full service banking center locations.

The ac~~companying~~Captive, a wholly owned subsidiary of the Company, is a Nevada-based captive insurance company that provides insurance against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance. It has elected to be taxed under Section 831(b) of the Internal Revenue Code. Pursuant to Section 831(b), if gross premiums do not exceed $2,300,000, then the Captive is taxable solely on its investment income. The Captive is included in the Company’s consolidated financial statements and its federal income tax return.

Principles of Consolidation and Basis of Presentation–The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form ~~10-Q~~10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all the information and footnotes required by ~~U.S. generally accepted accounting principles (US GAAP)~~GAAP for complete financial statements. The consolidated unaudited financial statements of Stock Yards Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation ~~of financial condition and results of operations for the interim periods.~~

~~The unaudited~~have been included. Intercompany transactions have been eliminated. These condensed consolidated financial statements ~~include~~should be read in conjunction with Bancorp’s Annual Report on Form 10-K for the ~~accounts~~year ended December 31, 2020. Operating results for the three and nine months ended September 30,2021 are not necessarily indicative of ~~Stock Yards Bancorp, Inc.~~the results that may be expected for the year ending December 31,2021.

Critical Accounting Policies and ~~its wholly-owned subsidiary, Stock Yards Bank & Trust~~ ~~Company (“Bank”). Significant inter-company transactions and accounts have been eliminated in consolidation. In preparing the unaudited consolidated~~Estimates – To prepare financial statements in conformity with GAAP, management ~~is required to~~must make estimates and assumptions that require difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including pandemic-related changes, and changes in the financial condition of borrowers.

Bancorp’s accounting policies are fundamental to understanding management’s discussion and analysis of our results of operations and financial condition. At September 30, 2021 and December 31, 2020, the accounting policy considered the most critical in preparing Bancorp’s consolidated financial statements is the determination of the ACL for loans.

Effective January 1, 2020, Bancorp adopted ASC 326 “Financial Instruments – Credit Losses,” which created material changes to Bancorp’s existing critical accounting policy that existed at December 31, 2019. Accounting policies relating to credit losses for investment securities, loans and off-balance sheet credit exposures reflect the current accounting policies required by this ASC.

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The ACL for loans is established through credit loss expense charged to current earnings. The amount maintained in the ACL reflects management’s estimate of the net amount not expected to be collected on the loan portfolio at the balance sheet date over the life of the loan. The ACL is comprised of specific reserves assigned to certain loans that do not share general risk characteristics and general reserves on pools of loans that do share general risk characteristics. Factors contributing to the determination of specific reserves include the creditworthiness of the borrower and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A specific reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral-dependent loans.

For purposes of establishing the general reserve, Bancorp stratifies the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculates the net amount expected to be collected over the life of the loans to estimate the credit losses in the loan portfolio. Bancorp’s methodologies for estimating the ACL for loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.

Accounting for Business Acquisitions –Bancorp accounts for acquisitions in accordance with the acquisition method as outlined in ASC Topic 805, “Business Combinations.” The acquisition method requires: a) identification of the entity that obtains control of the acquiree; b) determination of the acquisition date; c) recognition and measurement of the identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree; and d) recognition and measurement of goodwill or bargain purchase gain.

Identifiable assets acquired, liabilities assumed, and any non-controlling interest in acquirees are generally recognized at their acquisition-date (“day-one”) fair values based on the requirements of ASC Topic 820, “Fair Value Measurements and Disclosures.” The measurement period for day-one fair values begins on the acquisition date and ends at the earlier of: (a) the day management believes it has all the information necessary to determine day-one fair values; or (b) one year following the acquisition date. In many cases, the determination of day-one fair values requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly complex and subjective in nature and subject to recast adjustments, which are retrospective adjustments to reflect new information existing at the acquisition date affecting day-one fair values. More specifically, these recast adjustments may be made, as market value data, such as valuations, are received by the Bank. Increases or decreases to day-one fair values are reflected with a corresponding increase or decrease to bargain purchase gain or goodwill.

Acquisition related costs are expensed as incurred unless those costs are related to issuing debt or equity securities used to finance the acquisition.

Cash Equivalents–Cash and cash equivalents include cash and due from banks, FFS and interest bearing due from banks as segregated in the accompanying consolidated balance sheets.

Debt Securities–Bancorp determines the classification of debt securities at the time of purchase. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Debt securities not classified as held to maturity are classified as AFS and recorded at fair value, with unrealized gains and losses excluded from earnings and reported ~~amounts~~in AOCI, net of tax. All debt securities were classified as AFS at September 30, 2021 and December 31, 2020.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. Amortization of premiums and discounts are recognized in interest income over the period to maturity using the interest method, except for premiums on callable debt securities, which are amortized to their earliest call date.

Bancorp has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and reports accrued interest separately in the consolidated balance sheets. A debt security is placed on non-accrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on non-accrual is reversed against interest income. There was no accrued interest related to AFS debt securities reversed against interest income for the three and nine month periods ended September 30, 2021 and 2020.

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ACL – AFS Debt Securities–For AFS debt securities in an unrealized loss position, Bancorp evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is recognized as an ACL for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL for AFS debt securities and the adjustment to net income may be reversed if conditions change. However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL for AFS debt securities in this situation.

In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. There were no credit related factors underlying unrealized losses on AFS debt securities at September 30, 2021 and December 31, 2020.

Changes in the ACL for AFS debt securities are recorded as expense. Losses are charged against the ACL for AFS debt securities when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Mortgage Loans Held for Sale – Mortgages originated and intended for sale in the secondary market are recorded at the lower of cost or market value on an individual loan basis, as determined by outstanding commitments from investors.

Loans–Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans and any direct partial charge-offs. Bancorp has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain ~~assets~~direct origination costs, are deferred and ~~liabilities~~recognized in interest income over the life of the loan without anticipating prepayments.

Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and ~~disclosure~~in process of ~~contingent assets~~collection, or if full collection of interest or principal becomes doubtful. Consumer loans are typically charged off no later than 120 days past due. All interest accrued but not received for a loan placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and ~~liabilities~~interest amounts contractually due are brought current and future payments are reasonably assured.

Acquired loans are recorded at fair value at the date of acquisition based on a DCF methodology that considers various factors including the ~~financial statements~~type of loan and ~~reported amounts~~related collateral, classification status, fixed or variable interest rate, term of ~~related revenues~~loan and ~~expenses during~~whether or not the ~~reporting period. Actual results could differ from those~~loan was amortizing, and a discount rate reflecting Bancorp’s assessment of risk inherent in the cash flow estimates. ~~Material~~Certain larger purchased loans are individually evaluated while certain purchased loans are grouped together according to similar risk characteristics and are treated in aggregate when applying various valuation techniques. These cash flow evaluations are inherently subjective, as they require material estimates, ~~that are particularly~~all of which may be susceptible to significant ~~change~~change.

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Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that Bancorp would be unable to collect all contractually required payments receivable were considered PCI. PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial ACL based on a DCF methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting Bancorp’s assessment of risk inherent in the cash flow estimates. The difference between the DCFs expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the DCFs expected at acquisition, or the “non-accretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. ACLs on PCI loans reflected only losses incurred post-acquisition (meaning the PV of all cash flows expected at acquisition that ultimately were not expected to be received).

Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to ~~determination~~non-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life 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.~~loans.

~~A description~~Acquired loans are determined by Bancorp to have more-than-insignificant deterioration in credit quality since origination if any of ~~other significant accounting policies is presented~~the following designations apply, listed in order of priority as follows: Loans individually analyzed by Bancorp and determined to have a collateral or cash flow deficiency resulting in a full or partial allocation for loss, loans placed on non-accrual status by the ~~notes to Consolidated Financial Statements for~~acquired institution, loans identified as TDRs by the ~~year ended December 31, 2016 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications~~acquired institution, loans that have ~~been made in~~received a partial charge off by the ~~prior year financial statements to conform to current year classifications.~~acquired institution, loans risk-rated below a “pass” grade by the acquired institution and any loans past due 59 days or more at the time of acquisition.

~~Interim results~~For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income over the lives of the related loans. For non-PCD loans, an initial ACL for loans is estimated and recorded as credit loss expense at the ~~three~~ ~~and nine-month periods ended September 30, 2017 are not necessarily indicative of results for the entire year.~~

The ~~allowance~~subsequent measurement of expected credit losses for ~~loan~~all acquired loans is the same as the subsequent measurement of expected credit losses ~~is management’s estimate~~for originated loans.

Bancorp adopted ASC 326,“Financial Instruments – Credit Losses,” effective January 1, 2020 using the modified retrospective approach. Results for the periods subsequent to January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. Bancorp recorded a net reduction of ~~probable losses inherent~~retained earnings of $8.8 million upon adoption. The transition adjustment included an increase in the ~~loan portfolio~~ACL for loans of $8.2 million and an increase in the ACL for off-balance sheet credit exposures of $3.5 million, net of the total corresponding DTA increase of $2.9 million.

Bancorp adopted ASC 326 using the prospective transition approach for loans purchased with PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI loans met the criteria of PCD loans as of the adoption date. On January 1, 2020, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassified between the amortized cost basis of loans and corresponding ACL. The majority of these marks were subsequently charged off in the third quarter of 2020.

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The following table summarizes the impact of the adoption of ASC 326 effective January 1, 2020:

Expected credit losses are ~~charged against~~reflected in the ~~allowance when management believes uncollectability~~ACL for loans through a charge to provision. When Bancorp deems all or a portion of a ~~loan balance~~financial asset to be uncollectible, the appropriate amount is ~~confirmed.~~written-off and the ACL for loans is reduced by the same amount. Bancorp applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts of collection have been exhausted and the collateral, if any, has been liquidated. Subsequent recoveries, if any, are credited to the ~~allowance.~~ACL for loans when received.

~~Management has identified~~Bancorp’s methodologies for estimating the ~~accounting policy related~~ACL for loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable to the ~~allowance and provision~~identified pools of financial assets with similar risk characteristics 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 factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses. In the first quarter of 2017, Bancorp extended the historical period used to capture Bancorp’s historical loss ratios from 24 quarters to 28 quarters. This extension of the historical period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss ~~rates used in the quantitative allocation caused management~~experience was observed. Bancorp’s methodologies may revert 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~~information on a straight-line basis over a number of ~~the look-back period for the qualitative factors. Management believes the extension of the look-back period is appropriate to capture the impact of a full economic cycle~~quarters when it can no longer develop reasonable and more accurately represents the current level of risk inherent in the loan portfolio. To the extent 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 to the allowance for loan losses is applicable to the commercial banking segment of Bancorp. The impact and any associated risks related to this policy on Bancorp’s business operations are discussed in the “Allowance for Loan Losses” section below.supportable forecasts.

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~~Stock Yards~~Loans are predominantly segmented by FDIC Call Report Codes into loan pools that have similar risk characteristics, similar collateral type and are assumed to pose consistent risk of loss to Bancorp. Bancorp ~~inc.~~has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Commercial Real Estate – Owner Occupied –Includes non-farm non-residential real estate loans for a variety of commercial property types and ~~subsidiary~~purposes, and is typically secured by commercial offices, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party (or affiliate) who owns the property. Repayment terms vary considerably; interest rates are fixed or variable and structured for full or partial amortization of principal.

Commercial Real Estate – Non-Owner Occupied –Includes investment real estate loans secured by similar collateral as above. The primary source of income for this loan type is typically rental income associated with the property. This category also includes apartment or multifamily residential buildings (secured by five or more dwelling units).

Construction and Land Development –Consists of loans to finance the ground up construction or improvement of owner occupied and non-owner occupied residential and commercial properties and loans secured by raw or improved land. The repayment of C&D loans is generally dependent upon the successful completion of the improvements by the builder for the end user, the leasing of the property, or sale of the property to a third party. Repayment of land secured loans is dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt. Bancorp’s construction loans may convert to real estate-secured loans once construction is completed or principal amortization payments begin, assuming the borrower retains financing with the Bank.

Commercial and Industrial –Represents loans for C&I purposes to sole proprietorships, partnerships, corporations and other business enterprises, whether secured (other than those that meet the definition of a “loan secured by real estate”) or unsecured, single payment or installment. This category includes loans originated for financing capital expenditures, loans secured by accounts receivable, inventory and other business assets such as equipment, non-real estate related construction loans in addition to non-real estate loans guaranteed by the SBA. Bancorp originates these loans for a variety of purposes across various industries. This portfolio has been segregated between term loans and revolving lines of credits based on the varied characteristics of these individual loan structures.

Residential Real Estate –Includes non-revolving (closed-end) first and junior lien loans secured by residential real estate primarily in Bancorp’s market areas. This portfolio is segregated between owner occupied and non-owner occupied status, as the investment nature of the latter poses additional credit risks to Bancorp.

Home Equity Lines of Credit – Similar to the above, however these are revolving (open-ended) lines of credit.

Consumer –Represents loans to individuals for personal expenditures that may be secured or unsecured. This includes pre-arranged overdraft plans, secured automobile loans and other consumer-purpose loans.

Leases –Represents a variety of leasing options to businesses to acquire equipment.

Bancorp measures expected credit losses for its loan portfolio segments as follows:

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Discounted Cash flow Method – The DCF methodology is used to develop cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates and time to recovery are based on historical internal data.

Bancorp uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes the FRB’s forecasted Seasonally Adjusted National Civilian Unemployment Rate as its primary loss driver, as this was determined to best correlate to historical losses.

With regard to the DCF model and the adoption of CECL effective January 1, 2020, management determined that four quarters represented a reasonable and supportable forecast period with reversion back to a historical loss rate over eight quarters on a straight-line basis. However, in response to uncertainty surrounding the magnitude and duration of the economic crisis created by the pandemic, management subsequently determined that a one-quarter forecast period with a reversion back to a historical loss rate in the following quarter was appropriate for the calculation performed at March 31, 2020. For the calculation performed at June 30, 2020, management elected to return to the four quarter forecast period with reversion back to a historical loss rate in the following quarter, which was the methodology used for all subsequent calculations through June 30, 2021. Beginning with the calculation performed as of September 30, 2021, management concluded that increasing the reversion period back to a historical loss rate over four quarters on a straight line basis was warranted, as both current and forecasted unemployment levels have normalized.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level NPV of expected cash flows. An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Static Pool Method – The static pool methodology is utilized for the loan portfolio segments that typically have shorter durations. For each of these loan segments, Bancorp applies an expected loss ratio based on historical losses adjusted as appropriate for qualitative loss factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans and reasonable and supportable forecasts of economic conditions.

Collateral Dependent Loans – Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where Bancorp has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and Bancorp expects repayment of the financial asset to be provided substantially through the operation of the business or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of loan. Bancorp’s estimate of the ACL reflects losses expected over the remaining contractual life of the loan and the contractual term does not consider extensions, renewals or modifications.

A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period may be included in Bancorp’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

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In March 2020, the CARES Act was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current at December 31, 2019. All modifications were originally eligible as long as they were executed between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) the 60th day after the end of the COVID-19 national emergency as declared by the President of the United States. The Consolidated Appropriations Act, which was signed into law on December 27, 2020, extended this provision to the earlier of (1) 60 days after the national emergency termination date or (2) January 1, 2022. Multiple modifications of the same credits are allowed and there is no cap on the duration of the modification. The impact of such activity is discussed in the section of this document titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Premises and Equipment–Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of premises and equipment is computed using straight-line methods over the estimated useful lives of the assets ranging from three to 40 years. Leasehold improvements are amortized on the straight-line method over terms of the related leases, including expected renewals, or over the useful lives of the improvements, whichever is shorter. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.

FHLB Stock–Bancorp is a member institution of the FHLB. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts of stock. FHLB stock is carried at cost, classified as a restricted security and annually evaluated for impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are recorded as interest income.

Goodwill– Goodwill resulting from business acquisitions represents the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested annually for impairment or more frequently if events and circumstances exist that indicate a goodwill impairment test should be performed.

Bancorp has selected September 30 as the date to perform its annual goodwill impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Bank’s balance sheet.

All goodwill is attributable to the Commercial Banking segment. Goodwill related to the KSB acquisition is deductible for tax purposes, as it was structured as an asset sale/338 election. Goodwill related to the KB acquisition is not deductible for tax purposes, as it was structured as stock sale. Based on its assessment, Bancorp believes its goodwill balance at September 30, 2021 and December 31, 2020 was not impaired and is properly recorded in the consolidated financial statements.

Other intangible assets consist of CDI assets arising from business acquisitions. CDI assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives.

Other Assets– BOLI and other life insurance policies are carried at net realizable value, which considers applicable surrender charges. Also, Bancorp maintains life insurance policies in conjunction with its non-qualified defined benefit and non-qualified compensation plans.

OREO is carried at the lower of cost or estimated fair value minus estimated selling costs. In certain situations, improvements to prepare assets for sale are capitalized if those costs increase the estimated fair value of the asset. Expenses incurred in maintaining assets, write downs to reflect subsequent declines in value, and realized gains or losses are reflected in the results of operations and are included in non-interest income and/or expense.

MSRs are initially recorded at fair value and amortized in proportion to, and over the period of, estimated net servicing income, considering appropriate prepayment assumptions and are evaluated quarterly for impairment by comparing the carrying value to fair value.

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Off-Balance Sheet Credit Exposures – Financial instruments include off-balance sheet credit instruments, such as commitments to originate loans, commitments to fund existing loans and commercial letters of credit issued to meet customer-financing needs. Off-balance sheet refers to assets or liabilities that do not appear on a company's balance sheet. Bancorp’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

Bancorp records an ACL for off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision for credit losses on Bancorp’s consolidated statements of income. The ACL for off-balance sheet credit exposures is estimated by loan portfolio segment at each balance sheet date under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on Bancorp’s consolidated balance sheets.

Derivatives– Bancorp uses derivative financial instruments, including interest rate swaps, as part of its interest rate risk management. GAAP establishes accounting and reporting standards for derivative instruments and hedging activities. As required by GAAP, Bancorp’s interest rate swaps are recognized as other assets and liabilities in the consolidated balance sheet at fair value. Accounting for changes in fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. To qualify for hedge accounting, Bancorp must comply with detailed rules and documentation requirements at inception of the hedge, and hedge effectiveness is assessed at inception and periodically throughout the life of each hedging relationship. Hedge ineffectiveness, if any, is measured periodically throughout the life of the hedging relationship.

For derivatives designated as cash flow hedges, the effective portion of changes in fair value of the derivative is initially reported in OCI and subsequently reclassified to interest income or expense when the hedged transaction affects earnings, while the ineffective portion of changes in fair value of derivative, if any, is recognized immediately in other noninterest income. Bancorp assesses the effectiveness of each hedging relationship by comparing cumulative changes in cash flows of the derivative hedging instrument with cumulative changes in cash flows of the designated hedged item or transaction. No component of the change in the fair value of the hedging instrument is excluded from the assessment of hedge effectiveness.

Periodically, Bancorp enters into an interest rate swap transaction with a borrower, who desires to hedge 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. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an insignificant effect on earnings. Because these derivative instruments have not been designated as hedging instruments, the derivative instruments 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 noninterest income.

Bancorp had no fair value hedging relationships at September 30, 2021 and December 31, 2020. Bancorp does not use derivatives for trading or speculative purposes. See the Footnote titled “Derivative Financial Instruments” for additional discussion.

Transfers of Financial Assets–Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from Bancorp, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and Bancorp does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Stock-Based Compensation– For all awards, stock-based compensation expense is recognized over the period in which it is earned based on the grant-date fair value of the portion of stock-based payment awards that are ultimately expected to vest, reduced for estimated forfeitures at the time of grant. GAAP requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Income Taxes– Income tax expense is the total of the current year income tax due or refundable and the change in DTAs and DTLs. DTAs and DTLs are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted statutory tax rates. A valuation allowance, if needed, reduces DTAs to the amount expected to be realized.

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A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded.

Bancorp recognizes interest and/or penalties related to income tax matters in income tax expense, if any.

Bancorp periodically invests in certain partnerships with customers that yield historic tax credits, accounted for using the flow through method, which approximates the equity method. Also, low-income housing tax credits, as well as tax-deductible losses, are accounted for using the effective yield method for older transactions or proportional amortization method for more recent transactions. The tax benefit of these investments exceeds the amortization expense associated with them, resulting in a positive impact on net income.

Net Income Per Share –Basic net income per common share is determined by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per share is determined by dividing net income by the weighted average number of shares of common stock outstanding plus the weighted average number of shares that would be issued upon exercise of dilutive options and SARs, assuming proceeds are used to repurchase shares under the treasury stock method.

Comprehensive Income –Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For Bancorp, this includes net income, changes in unrealized gains and losses on AFS debt securities and cash flow hedging instruments, net of reclassification adjustments and taxes, and minimum pension liability adjustments, net of taxes.

Loss Contingencies– Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are any outstanding matters that would have a material effect on the financial statements.

Restrictions on Cash and Cash Equivalents– Bancorp has historically been required by the FRB to maintain average reserve balances. Effective March 26, 2020, the FRB reduced the reserve requirement ratio to 0% in response to the COVID-19 pandemic, eliminating reserve requirements for all depository institutions. The reserve requirement ratio remained at 0% as of September 30, 2021.

The Company’s captive maintains cash reserves to cover insurable claims. Reserves totaled $400,000 as of September 30, 2021.

Dividend Restrictions– Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Holding Company or by the Holding Company to shareholders.

Fair Value of Financial Instruments–Fair values of financial instruments are estimated using relevant market information and other assumptions, as disclosed in the Footnote titled “Assets and Liabilities Measured and Reported at Fair Value” in this section of the filing. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect such estimates.

Revenue from Contracts with Customers–On January 1, 2018, Bancorp adopted ASU 2014-09, “Revenue from Contracts with Customers,”and all subsequent amendments to the ASU (collectively, “ASC 606”). While this update modified guidance for recognizing revenue, it did not have a material impact on the timing or presentation of Bancorp’s revenue. The majority of Bancorp’s revenue comes from interest income and other sources, including loans, leases, securities, and derivatives, which are not subject to ASC 606. Bancorp’s services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as Bancorp satisfies its obligation to its customer.

Segment Information–Bancorp provides a broad range of financial services to individuals, corporations and others through its full service banking locations. These services include loan and deposit services, cash management services, securities brokerage activities, mortgage origination and WM&T activities. Bancorp’s operations are considered by management to be aggregated in two reportable operating segments: Commercial Banking and WM&T.

Reclassifications–Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.

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Adoption of New Accounting Standards–The FASB issued ASU No.2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” in March 2020. The amendments in this update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

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.

In April 2019, the FASB issued ASU No.2019-04, “Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825).” The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for Bancorp’s for fiscal years and interim periods beginning after December 15, 2022. Bancorp is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

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On May 31, 2021, Bancorp completed its acquisition of Kentucky Bancshares, Inc. in a combined stock and cash transaction for total consideration of $233 million. Bancorp acquired 19 branches in 11 communities throughout central and eastern Kentucky, including the Lexington, Kentucky metropolitan statistical area and contiguous counties, and also acquired a captive insurance subsidiary.

The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date. 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 fair values shown in the following table continue to be evaluated by management and may be subjected to further adjustment.

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Goodwill of approximately $123 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, was recorded in the KB acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Commercial Banking segment. Goodwill related to the KB acquisition is not deductible for tax purposes, as it was structured as stock sale. 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 KB acquisition will change.

Total revenue, defined as net interest income and non-interest income, attributed to KB totaled $11.3 million and $15.7 million for the three and nine months ended September 30, 2021.

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The following unaudited pro forma condensed combined financial information presents the results of operations of Bancorp, including the effects of the purchase accounting adjustments and acquisition expenses, had the KB acquisition taken place at the beginning of the period:

~~Bancorp~~’s allowance calculation includes allocations to loan portfolio segments at September 30, 2017 for qualitative factors including, among other factors, local economic and business conditions in each of our primary markets, quality and experience of lending staff and management, exceptions 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 of the loan review function, and management’s judgement of current trends and potential risks. Bancorp utilizes the sum of all allowance amounts derived as described above as the appropriate level of allowance for loan 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.

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~~The amortized~~All of Bancorp’s debt 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, 2021 and December 31, 2020, there were no holdings of debt securities ~~consist~~ of ~~common stock~~any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Accrued interest on AFS debt securities totaled $2.3 million and $1.6 million at September 30, 2021 and December 31, 2020, respectively, and was included in the consolidated balance sheets.

AFS debt securities totaling $396 million were acquired on May 31, 2021 as a result of the KB acquisition. Shortly after acquisition, 86 securities with a total fair value of $91 million in the acquired AFS debt securities portfolio were sold, resulting in a ~~publicly-traded business development~~ ~~company.~~

~~There were no securities classified~~loss on the sale $295,000, which was recorded a as ~~held to maturity as of~~ ~~September 30, 2017 or December 31, 2016.~~

~~Bancorp sold no securities~~ fair value adjustment through goodwill during the ~~three or nine month periods ending September 30, 2016 or 2017. One security was called prior to maturity in the third~~second 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.~~2021.

A summary of ~~the~~ ~~available-for-sale investment~~AFS debt securities by contractual maturity ~~groupings~~ as of September 30, ~~2017 is shown below.~~2021 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,~~MBS, 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~~$698 million and $505 million were pledged ~~securities was approximately $329.7 million~~ at September 30, ~~2017~~ 2021 and ~~$380.4 million at~~ December 31, ~~2016.~~2020, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits and uninsured cash balances for WM&T accounts. The large increase for 2021 was driven by collateralized accounts added through the KB acquisition.

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

Securities with unrealized losses at September 30, ~~2017~~ 2021 and December 31, ~~2016, not recognized~~2020, 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~~ 2021 and December 31, ~~2016.~~ 2020. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past ~~twelve~~12 months, but is not in the ~~“investments~~“Less than 12 months” category above.

For AFS debt securities with an unrealized loss position, Bancorp evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is recognized as an a ACL for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.

amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. 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~~attributable 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. ~~Because management does not intend to sell the~~These investments consisted of 177 and ~~it is not likely that Bancorp will be required to sell the investments before recovery~~14 separate investment positions as of ~~their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at~~ September 30, ~~2017.~~

~~FHLB stock~~ 2021 and ~~other~~December 31, 2020, respectively. There were no credit related factors underlying unrealized losses on AFS debt securities ~~are investments held by Bancorp which are not readily marketable~~ at September 30, 2021 and ~~are carried at cost. This category includes Federal Home Loan Bank of Cincinnati (FHLB) stock which~~ ~~is required for access to FHLB borrowing.~~December 31, 2020.

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(1) Total loans are presented inclusive of premiums, discounts and ~~subsidiary~~net loan origination fees and costs.

Loans totaling $755 million were acquired on May 31, 2021 as a result of the KB acquisition, including $33 million in PPP loans.

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $11 million and $12 million at September 30, 2021 and December 31,2020, respectively, and was included in the consolidated balance sheets.

Loans with carrying amounts of $2.5 billion and $2.0 billion were pledged to secure FHLB borrowing capacity at September 30, 2021 and December 31, 2020, respectively.

Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $53 million and $43 million as of September 30, 2021 and December 31, 2020, respectively.

C~~omposition~~In connection with the acquisition of KB, Bancorp acquired loans ~~net~~both with and without evidence of ~~deferred fees~~credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and ~~costs, by primary loan portfolio class follows:~~lease losses. Acquired loans are accounted for under ASC 326,Financial Instruments – Credit Losses.

The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount is adjusted to reflect Bancorp’s allowance for credit losses recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the remaining life of the respective loans. Bancorp records an ACL for non-PCD loans at the time of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.

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~~Stock Yards~~ Bancorp ~~inc.~~purchased loans through the acquisition of KB for which there was, at the time of acquisition, more-than-insignificant deterioration of credit quality since origination. The carrying amount of loans acquired and ~~subsidiary~~classified as PCD was as follows at acquisition:

Interest income recognized on loans classified as PCD totaled $341,000 and $450,000 for the three and nine-month periods ended September 30, 2021, respectively.

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The following table presents the ~~balance~~ amortized cost basis of ~~the recorded investment in~~non-performing loans and ~~allowance~~the amortized cost basis of loans on non-accrual status for ~~loan losses by portfolio segment and based on impairment evaluation method as of September 30, 2017 and December 31, 2016.~~which there was no related ACL losses:

For the three and nine month periods ended September 30, 2021 and 2020, the amount of accrued interest income previously recorded as revenue and subsequently reversed due to the change in accrual status was immaterial.

For the three and nine month periods ended September 30, 2021 and 2020, 0 interest income was recognized on loans on non-accrual status.

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

(in thousands)

Type of loan

Construction

and development

Commercial

excluding

and

undeveloped

Undeveloped

Real estate

December 31, 2016

industrial

land

land

mortgage

Consumer

Total

Loans
$ 736,841 $ 192,348 $ 21,496 $ 1,319,520 $ 35,170 $ 2,305,375

Loans collectively evaluated for impairment
$ 734,139 $ 191,810 $ 21,022 $ 1,316,400 $ 35,111 $ 2,298,482

Loans individually evaluated for impairment
$ 2,682 $ 538 $ 474 $ 2,516 $ 59 $ 6,269

Loans acquired with deteriorated credit quality
$ 20 $ - $ - $ 604 $ - $ 624

Construction

and development

Commercial

excluding

and

undeveloped

Undeveloped

Real estate

industrial

land

land

mortgage

Consumer

Total

Allowance for loan losses

At December 31, 2015
$ 8,645 $ 1,760 $ 814 $ 10,875 $ 347 $ 22,441
Provision (credit)
2,775 275 (130 ) (68 ) 148 3,000
Charge-offs
(1,216 ) (133 ) - (576 ) (568 ) (2,493 )
Recoveries
279 21 - 342 417 1,059
At December 31, 2016
$ 10,483 $ 1,923 $ 684 $ 10,573 $ 344 $ 24,007

Allowance for loans collectively evaluated for impairment
$ 9,276 $ 1,923 $ 683 $ 10,573 $ 285 $ 22,740

Allowance for loans individually evaluated for impairment
$ 1,207 $ - $ 1 $ - $ 59 $ 1,267

Allowance for loans acquired with deteriorated credit quality
$ - $ - $ - $ - $ - $ -

~~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:~~

●

Commercial and industrial loans: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may have an effect on credit quality in this loan category.

●

Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and development projects. In most cases, construction loans require interest only during construction. Upon completion or stabilization, the construction loan may convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.

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

●

~~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 of the borrower, and can be affected by market conditions 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.

●

~~Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential~~ and commercial real estate and income-producing investment properties. For owner occupied residential and commercial real estate, 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 borrower. Underlying properties are generally located in Bancorp's primary market areas. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy that may cause increased vacancy rates, which in turn, could have an effect on credit quality. Overall health of the economy, including real estate prices, has an effect on credit quality in this loan category.

●

Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates, ~~could have a significant effect on credit quality in this loan category.~~

Bancorp has loans that were acquired for which there was, at acquisition, evidence 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 and December 31, 2016. Changes in the fair value adjustment for acquired impaired loans are shown in the following table:~~

(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

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

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

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

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

Unpaid

Average

(in thousands)

Recorded

principal

Related

recorded

December 31, 2016

investment

balance

allowance

investment

Loans with no related allowance recorded:

Commercial and industrial
$ 322 $ 465 $ - $ 1,947
Construction and development, excluding undeveloped land
538 708 - 108
Undeveloped land
233 265 - 76

Real estate mortgage

Commercial investment
107 107 - 193
Owner occupied commercial
1,042 1,479 - 1,356
1-4 family residential
895 896 - 962
Home equity - first lien
- - - 3
Home equity - junior lien
472 472 - 333
Subtotal: Real estate mortgage
2,516 2,954 - 2,847

Consumer
- - - 18
Subtotal
$ 3,609 $ 4,392 $ - $ 4,996

Loans with an allowance recorded:

Commercial and industrial
$ 2,360 $ 2,835 $ 1,207 $ 1,619
Construction and development, excluding undeveloped land
- - - 182
Undeveloped land
241 241 1 149

Real estate mortgage

Commercial investment
- - - -
Owner occupied commercial
- - - 554
1-4 family residential
- - - -
Home equity - first lien
- - - -
Home equity - junior lien
- - - -
Subtotal: Real estate mortgage
- - - 554

Consumer
59 59 59 63
Subtotal
$ 2,660 $ 3,135 $ 1,267 $ 2,567

Total:

Commercial and industrial
$ 2,682 $ 3,300 $ 1,207 $ 3,566
Construction and development, excluding undeveloped land
538 708 - 290
Undeveloped land
474 506 1 225

Real estate mortgage
- - - -
Commercial investment
107 107 - 193
Owner occupied commercial
1,042 1,479 - 1,910
1-4 family residential
895 896 - 962
Home equity - first lien
- - - 3
Home equity - junior lien
472 472 - 333
Subtotal: Real estate mortgage
2,516 2,954 - 3,401

Consumer
59 59 59 81
Total
$ 6,269 $ 7,527 $ 1,267 $ 7,563

~~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.~~

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

~~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 the ~~recorded investment in non-accrual~~amortized cost basis and ACL allocated for collateral dependent loans, ~~as of~~ ~~September 30, 2017 and December 31, 2016.~~which are individually evaluated to determine expected credit losses:

(in thousands)

September 30, 2017

December 31, 2016

Commercial and industrial
$ 1,256 $ 1,767
Construction and development, excluding undeveloped land
737 538
Undeveloped land
474 474

Real estate mortgage

Commercial investment
55 107
Owner occupied commercial
1,470 1,042
1-4 family residential
785 984
Home equity - first lien
- -
Home equity - junior lien
81 383
Subtotal: Real estate mortgage
2,391 2,516

Consumer
- -
Total
$ 4,858 $ 5,295

(in thousands) September 30, 2021	Real Estate		Accounts Receivable / Equipment		Other		Total		ACL Allocation

Commercial real estate - non-owner occupied	$	771	$	0	$	0	$	771	$	35
Commercial real estate - owner occupied		8,116		0		0		8,116		2,213
Total commercial real estate		8,887		0		0		8,887		2,248

Commercial and industrial - term		0		926		0		926		217
Commercial and industrial - lines of credit		0		0		0		0		0
Total commercial and industrial		0		926		0		926		217

Residential real estate - owner occupied		1,912		0		0		1,912		0
Residential real estate - non-owner occupied		511		0		0		511		116
Total residential real estate		2,423		0		0		2,423		116

Construction and land development		0		0		0		0		0
Home equity lines of credit		181		0		0		181		0
Consumer		0		0		34		34		0
Leases		0		0		0		0		0
Credit cards		0		0		0		0		0
Total collateral dependent loans	$	11,491	$	926	$	34	$	12,451	$	2,581

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 30, 2017 Bancorp had $949 thousand of loans 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 established 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.

(in thousands) December 31, 2020	Real Estate		Accounts Receivable / Equipment		Other		Total		ACL Allocation

Commercial real estate - non-owner occupied	$	10,278	$	0	$	0	$	10,278	$	3,037
Commercial real estate - owner occupied		1,403		0		0		1,403		13
Total commercial real estate		11,681		0		0		11,681		3,050

Commercial and industrial - term		16		7		0		23		16
Commercial and industrial - lines of credit		0		88		0		88		0
Total commercial and industrial		16		95		0		111		16

Residential real estate - owner occupied		413		0		0		413		0
Residential real estate - non-owner occupied		101		0		0		101		0
Total residential real estate		514		0		0		514		0

Construction and land development		0		0		0		0		0
Home equity lines of credit		221		0		0		221		0
Consumer		0		0		4		4		0
Leases		0		0		0		0		0
Credit cards		0		0		0		0		0
Total collateral dependent loans	$	12,432	$	95	$	4	$	12,531	$	3,066

There have been no significant changes to the types of collateral securing Bancorp’s collateral dependent loans.

Table of Contents

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

At September 30, 2016 Bancorp had $999 thousand of accruing loans classified as TDR. Bancorp did not modify or classify any additional loans as TDR during the three or nine month periods ended September 30, 2016.

~~No loans classified 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 modifications 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.

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~~tables present the aging of ~~the recorded investment in~~contractually past due loans ~~as of~~ ~~September 30, 2017 and December 31, 2016.~~by portfolio class:

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)			30-59 days		60-89 days		90 or more		Total		Total
September 30, 2021*	Current		Past Due		Past Due		Days Past Due		Past Due		Loans

Commercial real estate - non-owner occupied	$	1,141,630	$	5	$	241	$	771	$	1,017	$	1,142,647
Commercial real estate - owner occupied		651,023		949		0		659		1,608		652,631
Total commercial real estate		1,792,653		954		241		1,430		2,625		1,795,278

Commercial and industrial - term		579,865		1,000		18		921		1,939		581,804
Commercial and industrial - term - PPP		231,165		170		0		0		170		231,335
Commercial and industrial - lines of credit		326,859		1,918		263		79		2,260		329,119
Total commercial and industrial		1,137,889		3,088		281		1,000		4,369		1,142,258

Residential real estate - owner occupied		394,026		2,148		464		1,431		4,043		398,069
Residential real estate - non-owner occupied		276,132		708		0		205		913		277,045
Total residential real estate		670,158		2,856		464		1,636		4,956		675,114

Construction and land development		303,642		0		0		0		0		303,642
Home equity lines of credit		139,632		121		221		53		395		140,027
Consumer		104,089		320		97		123		540		104,629
Leases		12,348		0		0		0		0		12,348
Credit cards		15,820		1		0		0		1		15,821
Total	$	4,176,231	$	7,340	$	1,304	$	4,242	$	12,886	$	4,189,117

(in thousands)			30-59 days		60-89 days		90 or more		Total		Total
December 31, 2020*	Current		Past Due		Past Due		Days Past Due		Past Due		Loans

Commercial real estate - non-owner occupied	$	822,199	$	0	$	10,600	$	671	$	11,271	$	833,470
Commercial real estate - owner occupied		507,265		278		0		1,129		1,407		508,672
Total commercial real estate		1,329,464		278		10,600		1,800		12,678		1,342,142

Commercial and industrial - term		523,936		1,404		430		6		1,840		525,776
Commercial and industrial - term - PPP		550,186		0		0		0		0		550,186
Commercial and industrial - lines of credit		249,204		86		0		88		174		249,378
Total commercial and industrial		1,323,326		1,490		430		94		2,014		1,325,340

Residential real estate - owner occupied		237,902		585		247		457		1,289		239,191
Residential real estate - non-owner occupied		140,234		294		0		402		696		140,930
Total residential real estate		378,136		879		247		859		1,985		380,121
													��
Construction and land development		291,764		0		0		0		0		291,764
Home equity lines of credit		95,206		7		139		14		160		95,366
Consumer		71,778		90		4		2		96		71,874
Leases		14,786		0		0		0		0		14,786
Credit cards		10,197		5		0		1		6		10,203
Total	$	3,514,657	$	2,749	$	11,420	$	2,770	$	16,939	$	3,531,596

* - Pursuant to the CARES Act, loan deferrals granted to borrowers experiencing business interruptions related to the pandemic were not classified as TDRs and not included in past due and/or non-performing loan statistics. As of September 30, 2021 and December 31, 2020, outstanding CARES Act loan deferrals of $355,000 and $37 million are reflected as current, respectively.

Table of Contents

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

Loan Risk Ratings

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

●

~~Other assets especially mentioned (“OAEM”): Loans classified as OAEM have potential weaknesses that deserve management's close~~

OAEM – Loans classified as OAEM have potential weaknesses requiring management's heightened attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date.

●

~~Substandard:~~

Substandard – Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have a well-defined ~~weakness or~~ weaknesses that jeopardize ultimate repayment of the debt. Default is a distinct possibility if the deficiencies are not corrected.

●

Substandard non-performing – Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as TDRs. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more.

Substandard non-performing: Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more. ~~While on non-accrual status, payments of interest are applied to reduce the recorded investment in the loan.~~

●

~~Doubtful:~~

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Table of Contents

~~Stock Yards~~Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Beginning in 2021, Bancorp ~~inc.~~has elected not to disclose revolving loans that have converted to term loans, as activity relating to this disclosure, which is included in the tables presented below as of December 31, 2020, is currently immaterial to Bancorp’s loan portfolio and ~~subsidiary~~is expected to be in the future. As of September 30, 2021, the risk rating of loans based on year of origination was as follows:

													Revolving loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized
September 30, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	329,439	$	324,280	$	129,003	$	92,202	$	91,478	$	104,421	$	23,570	$	1,094,393
OAEM		3,199		4,842		19,741		0		356		1,658		426		30,222
Substandard		6,667		2,374		0		0		0		7,721		499		17,261
Substandard non-performing		0		38		103		0		601		0		29		771
Doubtful		0		0		0		0		0		0		0		0
Total Commercial real estate non-owner occupied	$	339,305	$	331,534	$	148,847	$	92,202	$	92,435	$	113,800	$	24,524	$	1,142,647

Commercial real estate - owner occupied:
Risk rating
Pass	$	142,157	$	204,692	$	101,865	$	86,396	$	38,327	$	49,337	$	5,560	$	628,334
OAEM		2,866		183		1,613		102		1,537		163		581		7,045
Substandard		2,476		5,089		5,993		1,292		634		102		997		16,583
Substandard non-performing		0		165		0		13		32		459		0		669
Doubtful		0		0		0		0		0		0		0		0
Total Commercial real estate owner occupied	$	147,499	$	210,129	$	109,471	$	87,803	$	40,530	$	50,061	$	7,138	$	652,631

Commercial and industrial - term:
Risk rating
Pass	$	228,560	$	155,460	$	64,637	$	59,001	$	30,463	$	33,773	$	0	$	571,894
OAEM		313		191		283		4,121		10		0		0		4,918
Substandard		374		45		3,174		187		114		98		0		3,992
Substandard non-performing		0		760		168		55		0		17		0		1,000
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - term	$	229,247	$	156,456	$	68,262	$	63,364	$	30,587	$	33,888	$	0	$	581,804

Commercial and industrial - PPP
Risk rating
Pass	$	198,965	$	31,557	$	0	$	0	$	0	$	0	$	0	$	230,522
OAEM		0		0		0		0		0		0		0		0
Substandard		0		813		0		0		0		0		0		813
Substandard non-performing		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - PPP	$	198,965	$	32,370	$	0	$	0	$	0	$	0	$	0	$	231,335

(continued)

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

(in thousands)

Substandard

Total

September 30, 2017

Pass

OAEM

Substandard

non-performing

Doubtful

loans

Commercial and industrial
$ 726,194 $ 7,464 $ 14,197 $ 2,873 $ - $ 750,728
Construction and development, excluding undeveloped land
174,310 - - - - 174,310
Undeveloped land
20,485 - 30 474 - 20,989

Real estate mortgage

Commercial investment
575,339 761 420 290 - 576,810
Owner occupied commercial
383,387 10,313 2,869 1,235 - 397,804
1-4 family residential
256,458 3,018 1,172 1,059 - 261,707
Home equity - first lien
51,923 2 - - - 51,925
Home equity - junior lien
63,029 73 233 81 - 63,416
Subtotal: Real estate mortgage
1,330,136 14,167 4,694 2,665 - 1,351,662

Consumer
37,269 102 4 56 - 37,431
Total
$ 2,288,394 $ 21,733 $ 18,925 $ 6,068 $ - $ 2,335,120

December 31, 2016

Commercial and industrial
$ 714,025 $ 14,266 $ 5,850 $ 2,700 $ - $ 736,841
Construction and development, excluding undeveloped land
191,455 - 355 538 - 192,348
Undeveloped land
21,022 - - 474 - 21,496

Real estate mortgage

Commercial investment
538,688 - 5 193 - 538,886
Owner occupied commercial
396,997 7,960 2,111 1,224 - 408,292
1-4 family residential
247,888 - 592 1,018 - 249,498
Home equity - first lien
55,279 - - 46 - 55,325
Home equity - junior lien
66,710 - 426 383 - 67,519
Subtotal: Real estate mortgage
1,305,562 7,960 3,134 2,864 - 1,319,520

Consumer
35,039 - - 131 - 35,170
Total
$ 2,267,103 $ 22,226 $ 9,339 $ 6,707 $ - $ 2,305,375

Table of Contents

(continued)
													Revolving
													loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized
September 30, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	26,429	$	9,353	$	11,567	$	1,712	$	245	$	224	$	268,293	$	317,823
OAEM		0		0		0		0		0		0		5,497		5,497
Substandard		0		0		1,986		0		1,549		0		2,185		5,720
Substandard non-performing		0		0		0		0		0		0		79		79
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - lines of credit	$	26,429	$	9,353	$	13,553	$	1,712	$	1,794	$	224	$	276,054	$	329,119

Residential real estate - owner occupied
Risk rating
Pass	$	164,516	$	101,383	$	32,074	$	18,058	$	15,198	$	64,221	$	0	$	395,450
OAEM		102		0		175		0		87		0		0		364
Substandard		59		0		0		0		110		174		0		343
Substandard non-performing		202		201		134		232		837		306		0		1,912
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - owner occupied	$	164,879	$	101,584	$	32,383	$	18,290	$	16,232	$	64,701	$	0	$	398,069

Residential real estate - non-owner occupied
Risk rating
Pass	$	59,125	$	89,408	$	49,918	$	36,231	$	18,711	$	19,511	$	0	$	272,904
OAEM		476		217		2,099		223		0		468		0		3,483
Substandard		0		0		0		0		0		358		0		358
Substandard non-performing		0		0		45		28		0		227		0		300
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - non-owner occupied	$	59,601	$	89,625	$	52,062	$	36,482	$	18,711	$	20,564	$	0	$	277,045

Construction and land development
Risk rating
Pass	$	115,823	$	107,233	$	42,286	$	18,451	$	3,253	$	1,196	$	15,151	$	303,393
OAEM		0		0		0		0		0		0		249		249
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total Construction and land development	$	115,823	$	107,233	$	42,286	$	18,451	$	3,253	$	1,196	$	15,400	$	303,642

Home equity lines of credit
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	139,754	$	139,754
OAEM		0		0		0		0		0		0		92		92
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		181		181
Doubtful		0		0		0		0		0		0		0		0
Total Home equity lines of credit	$	0	$	0	$	0	$	0	$	0	$	0	$	140,027	$	140,027

~~Stock Yards~~(continued)

Table of Contents

(continued)
													Revolving
													loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized
September 30, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Consumer
Risk rating
Pass*	$	21,473	$	11,035	$	5,384	$	1,587	$	707	$	781	$	63,537	$	104,504
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		1		1
Substandard non-performing		0		124		0		0		0		0		0		124
Doubtful		0		0		0		0		0		0		0		0
Total Consumer	$	21,473	$	11,159	$	5,384	$	1,587	$	707	$	781	$	63,538	$	104,629

Leases
Risk rating
Pass	$	2,939	$	3,964	$	1,502	$	1,527	$	551	$	1,852	$	0	$	12,335
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		13		0		13
Substandard non-performing		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total Leases	$	2,939	$	3,964	$	1,502	$	1,527	$	551	$	1,865	$	0	$	12,348

Credit cards
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	15,821	$	15,821
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total Credit cards	$	0	$	0	$	0	$	0	$	0	$	0	$	15,821	$	15,821

Total loans
Risk rating
Pass	$	1,289,426	$	1,038,365	$	438,236	$	315,165	$	198,933	$	275,316	$	531,686	$	4,087,127
OAEM		6,956		5,433		23,911		4,446		1,990		2,289		6,845		51,870
Substandard		9,576		8,321		11,153		1,479		2,407		8,466		3,682		45,084
Substandard non-performing		202		1,288		450		328		1,470		1,009		289		5,036
Doubtful		0		0		0		0		0		0		0		0
Total Loans	$	1,306,160	$	1,053,407	$	473,750	$	321,418	$	204,800	$	287,080	$	542,502	$	4,189,117

*Pass-rated, revolving consumer loans include $881,000 in overdrawn demand deposit balances.

Table of Contents

As of December 31, 2020, the risk rating of loans based on year of origination was as follows:

													Revolving		Revolving
													loans		loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized		converted
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		to term		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	303,246	$	114,731	$	102,147	$	105,981	$	77,925	$	57,221	$	12,439	$	11,717	$	785,407
OAEM		3,867		16,587		0		0		7,707		615		0		0		28,776
Substandard		4,174		1,901		0		0		1,513		991		430		0		9,009
Substandard non-performing		9,644		0		0		609		0		0		0		25		10,278
Doubtful		0		0		0		0		0		0		0		0		0
Total Commercial real estate non-owner occupied	$	320,931	$	133,219	$	102,147	$	106,590	$	87,145	$	58,827	$	12,869	$	11,742	$	833,470

Commercial real estate - owner occupied:
Risk rating
Pass	$	183,666	$	94,462	$	83,592	$	47,506	$	39,638	$	30,533	$	7,693	$	2,418	$	489,508
OAEM		74		6,534		1,575		796		115		0		200		0		9,294
Substandard		1,408		5,360		1,335		247		117		0		0		0		8,467
Substandard non-performing		91		0		15		500		0		471		0		326		1,403
Doubtful		0		0		0		0		0		0		0		0		0
Total Commercial real estate owner occupied	$	185,239	$	106,356	$	86,517	$	49,049	$	39,870	$	31,004	$	7,893	$	2,744	$	508,672

Commercial and industrial - term:
Risk rating
Pass	$	215,629	$	94,563	$	104,871	$	42,929	$	36,016	$	8,412	$	0	$	7,690	$	510,110
OAEM		60		2,969		7,878		0		283		8		0		0		11,198
Substandard		1,229		2,521		0		91		163		74		0		384		4,462
Substandard non-performing		0		0		0		0		0		6		0		0		6
Doubtful		0		0		0		0		0		0		0		0		0
Total Commercial and industrial - term	$	216,918	$	100,053	$	112,749	$	43,020	$	36,462	$	8,500	$	0	$	8,074	$	525,776

Commercial and industrial - PPP
Risk rating
Pass	$	550,186	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	550,186
OAEM		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0		0
Total Commercial and industrial - PPP	$	550,186	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	550,186

(continued)

Table of Contents

(continued)
													Revolving		Revolving
													loans		loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized		converted
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		to term		Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	26,351	$	14,405	$	2,229	$	1,990	$	290	$	85	$	195,904	$	0	$	241,254
OAEM		0		2,222		0		0		0		0		1,596		0		3,818
Substandard		0		0		0		0		0		0		4,218		0		4,218
Substandard non-performing		0		0		0		0		0		0		88		0		88
Doubtful		0		0		0		0		0		0		0		0		0
Total Commercial and industrial - lines of credit	$	26,351	$	16,627	$	2,229	$	1,990	$	290	$	85	$	201,806	$	0	$	249,378

Residential real estate - owner occupied
Risk rating
Pass	$	94,023	$	34,631	$	23,748	$	19,567	$	27,791	$	37,362	$	0	$	1,528	$	238,650
OAEM		0		0		0		0		0		0		0		0		0
Substandard		13		0		0		115		0		0		0		0		128
Substandard non-performing		49		58		0		100		38		73		0		95		413
Doubtful		0		0		0		0		0		0		0		0		0
Total Residential real estate - owner occupied	$	94,085	$	34,689	$	23,748	$	19,782	$	27,829	$	37,435	$	0	$	1,623	$	239,191

Residential real estate - non-owner occupied
Risk rating
Pass	$	63,537	$	22,422	$	25,466	$	10,587	$	9,609	$	6,451	$	0	$	788	$	138,860
OAEM		137		1,600		140		0		0		92		0		0		1,969
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		29		0		0		72		0		0		101
Doubtful		0		0		0		0		0		0		0		0		0
Total Residential real estate - non-owner occupied	$	63,674	$	24,022	$	25,635	$	10,587	$	9,609	$	6,615	$	0	$	788	$	140,930

Construction and land development
Risk rating
Pass	$	139,611	$	94,066	$	32,539	$	15,384	$	1,175	$	553	$	6,304	$	1,883	$	291,515
OAEM		0		0		0		0		0		0		249		0		249
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0		0
Total Construction and land development	$	139,611	$	94,066	$	32,539	$	15,384	$	1,175	$	553	$	6,553	$	1,883	$	291,764

Home equity lines of credit
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	95,145	$	0	$	95,145
OAEM		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		221		0		221
Doubtful		0		0		0		0		0		0		0		0		0
Total Home equity lines of credit	$	0	$	0	$	0	$	0	$	0	$	0	$	95,366	$	0	$	95,366

(continued)

Table of Contents

(continued)
													Revolving		Revolving
													loans		loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized		converted
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		to term		Total

Consumer
Risk rating
Pass*	$	10,334	$	2,897	$	1,687	$	243	$	420	$	466	$	55,631	$	192	$	71,870
OAEM		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		2		0		2		0		4
Doubtful		0		0		0		0		0		0		0		0		0
Total Consumer	$	10,334	$	2,897	$	1,687	$	243	$	422	$	466	$	55,633	$	192	$	71,874

Leases
Risk rating
Pass	$	4,674	$	1,875	$	2,144	$	1,300	$	2,550	$	2,168	$	0	$	0	$	14,711
OAEM		0		0		0		0		69		0		0		0		69
Substandard		0		0		6		0		0		0		0		0		6
Substandard non-performing		0		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0		0
Total Leases	$	4,674	$	1,875	$	2,150	$	1,300	$	2,619	$	2,168	$	0	$	0	$	14,786

Credit cards
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	10,203	$	0	$	10,203
OAEM		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0		0
Total Credit cards	$	0	$	0	$	0	$	0	$	0	$	0	$	10,203	$	0	$	10,203

Total loans
Risk rating
Pass	$	1,591,257	$	474,052	$	378,423	$	245,487	$	195,414	$	143,251	$	383,319	$	26,216	$	3,437,419
OAEM		4,138		29,912		9,593		796		8,174		715		2,045		0		55,373
Substandard		6,824		9,782		1,341		453		1,793		1,065		4,648		384		26,290
Substandard non-performing		9,784		58		44		1,209		40		622		311		446		12,514
Doubtful		0		0		0		0		0		0		0		0		0
Total Loans	$	1,612,003	$	513,804	$	389,401	$	247,945	$	205,421	$	145,653	$	390,323	$	27,046	$	3,531,596

* - Pass-rated, revolving consumer loans include $536,000 in overdrawn demand deposit balances.

For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit cards based on payment activity:

	September 30,		December 31,
(in thousands)	2021		2020

Credit cards
Performing	$	15,821	$	10,203
Non-performing		0		0
Total credit cards	$	15,821	$	10,203

Table of Contents

In accordance with Section 4013 of the CARES Act and in response to requests from borrowers who experienced business or personal cash flow interruptions related to the pandemic, Bancorp ~~inc.~~extended payment deferrals for those affected borrowers. Depending on the demonstrated need of the customer, Bancorp deferred either the full loan payment or the principal-only portion of respective loan payments, typically for 90 or 180 days, for some borrowers directly impacted by the pandemic. Pursuant to the CARES Act, these loan deferrals were not classified as TDRs and ~~subsidiary~~not included in past due and/or non-performing loan statistics. As of September 30, 2021, outstanding loan deferrals totaled $355,000, representing 0.01% of the total loan portfolio (excluding PPP loans) compared to $37 million, or 1.24% of the total loan portfolio (excluding PPP loans) at December 31, 2020.

Troubled Debt Restructurings

Detail of outstanding TDRs included in total non-performing loans follows:

	September 30, 2021						December 31, 2020
			Specific		Additional				Specific		Additional
			reserve		commitment				reserve		commitment
(in thousands)	Balance		allocation		to lend		Balance		allocation		to lend

Commercial and industrial - term	$	13	$	13	$	0	$	16	$	16	$	0
Residential real estate		0		0		0		0		0		0
Total TDRs	$	13	$	13	$	0	$	16	$	16	$	0

During the three and nine month periods ended September 30, 2021 and 2020, there were 0 loans modified as TDRs and there were 0 payment defaults of existing TDRs within 12 months following the modification. Default is determined at 90 or more days past due, charge-off, or foreclosure.

Bancorp had $862,000 and $147,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at September 30, 2021 and December 31, 2020.

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~~(4)~~(5)

Goodwill and ~~Intangible Assets~~Core Deposit Intangibles

US As of September 30, 2021, goodwill represents $123 million related to the KB acquisition, $12 million related to the 2019 KSB acquisition and $682,000 related to the 1996 purchase of a bank in southern Indiana. The acquisition of TBOC in 2013 generated a bargain purchase gain. As permitted 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 related to the KB acquisition. During this measurement period, Bancorp may record subsequent 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 September 30 of each year or more often as situations dictate.

At September 30, 2021, 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 Commercial Banking 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.

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:

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2021			2020		2021			2020
Balance at beginning of period	$	136,529		$	12,513	$	12,513		$	12,513
Goodwill acquired		0			0		124,016			0
Recast adjustments		(699	)		0		(699	)		0
Impairment		0			0		0			0
Balance at end of period	$	135,830		$	12,513	$	135,830		$	12,513

Bancorp recorded a ~~gross core deposit intangible totaling~~CDI assets of $4.4 million, $1.5 million and $2.5 million ~~as a result of its 2013~~in association with the acquisition of ~~THE BANCorp, Inc. This intangible is being amortized over~~KB in 2021, KSB in 2019 and TBOC in 2013, respectively.

Changes in the ~~expected life~~net carrying amount of CDIs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2021			2020			2021			2020
Balance at beginning of period	$	5,162		$	2,122		$	1,962		$	2,285
Core deposit intangible acquired		0			0			3,404			0
Recast adjustment		999			0			999			0
Amortization		(290	)		(80	)		(494	)		(243	)
Balance at end of period	$	5,871		$	2,042		$	5,871		$	2,042

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(6)

Other Assets

A summary 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.~~major components of other assets follows:

	September 30,		December 31,
*(in thousands)*	2021		2020

Cash surrender value of life insurance other than BOLI	$	19,792	$	18,426
Net deferred tax asset		24,202		22,320
Investments in tax credit related ventures		11,576		9,552
Swap assets		4,180		8,374
Prepaid assets		4,082		2,935
Trust fees receivable		2,557		2,192
Mortgage servicing rights		4,600		2,710
Other real estate owned		7,229		281
Other		10,118		4,575
Total other assets	$	88,336	$	71,365

Bancorp maintains life insurance policies other than BOLI in conjunction with its non-qualified defined benefit retirement and non-qualified compensation plans.

~~Mortgage servicing rights (MSRs)~~Bancorp enters into interest rate swap transactions with borrowers who desire to hedge 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 balance sheet at fair value. For additional information, see the footnote titled “Derivative Financial Instruments.”

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 value is based on a valuation model that calculates the PV of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income.

The estimated fair ~~values~~value of MSRs at ~~both~~ September 30, ~~2017~~ 2021 and December 31, ~~2016~~ 2020 were ~~$2.7 million. Total outstanding principal balances of loans serviced for others were $350.1~~$5.3 million and ~~$372.2~~$3.1 million, at respectively. MSRs with an estimated fair value of $1.7 million were acquired in the KB acquisition. There was 0 valuation allowance recorded for MSRs as of September 30, ~~2017,~~ 2021 and December 31, ~~2016, respectively.~~2020, as fair value exceeded carrying value.

Changes in the net carrying amount of MSRs follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2021			2020			2021			2020
Balance at beginning of period	$	4,657		$	1,888		$	2,710		$	1,372
MSRs acquired		0			0			1,662			0
Additions for mortgage loans sold		177			631			888			1,272
Amortization		(234	)		(99	)		(660	)		(224	)
Impairment		—			—			—			—
Balance at end of period	$	4,600		$	2,420		$	4,600		$	2,420

Total outstanding principal balances of loans serviced for ~~the~~ ~~nine months ended~~ others were $697 million and $428 million at September 30, ~~2017~~ 2021 and ~~2016 are shown in~~December 31, 2020, respectively. Loans serviced for others acquired as part of the ~~following table:~~KB acquisition totaled $233 million at the date of acquisition.

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

Table of Contents

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

~~(5)~~(7)

Income Taxes

Components of income tax expense (benefit) from operations ~~were as~~ follows:

Three months ended

Nine months ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Current income tax expense

Federal
$ 5,211 $ 4,363 $ 12,936 $ 10,958
State
179 287 472 597
Total current income tax expense
5,390 4,650 13,408 11,555

Deferred income tax (benefit) expense

Federal
(1,583 ) (692 ) (2,240 ) (302 )
State
(44 ) (75 ) (30 ) (18 )
Total deferred income tax expense (benefit)
(1,627 ) (767 ) (2,270 ) (320 )
Change in valuation allowance
333 - 459 -
Total income tax expense
$ 4,096 $ 3,883 $ 11,597 $ 11,235

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2021		2020			2021		2020
Current income tax expense:
Federal	$	4,730	$	3,369		$	8,202	$	9,574
State		642		198			1,188		538
Total current income tax expense		5,372		3,567			9,390		10,112

Deferred income tax expense (benefit):
Federal		858		(1,507	)		2,375		(2,653	)
State		672		(476	)		1,462		(1,279	)
Total deferred income tax expense (benefit)		1,530		(1,983	)		3,837		(3,932	)
Change in valuation allowance		0		7			0		9
Total income tax expense	$	6,902	$	1,591		$	13,227	$	6,189

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

							Three months ended						Nine months ended
	Nine months ended September 30,						September 30,						September 30,
	2017			2016			2021			2020			2021			2020
U.S. federal statutory income tax rate		35.0	%		35.0	%		21.0	%		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit								3.6			0.6			3.4			0.7
Excess tax benefit from stock-based compensation arrangements								(0.1	)		(2.6	)		(1.7	)		(0.9	)
Change in cash surrender value of life insurance								(0.2	)		(1.1	)		(0.7	)		(0.6	)
Tax credits		(4.6	)		(9.4	)		(0.3	)		(5.5	)		(0.8	)		(5.8	)
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	)		(0.4	)		(0.3	)		(0.3	)		(0.3	)
State income taxes, net of federal benefit		0.7			0.9
Non-deductible merger expenses								0.1			0			0.5			0
Insurance captive								(0.3	)		0			(0.2	)		0
Other, net		0.3			2.7			(0.4	)		(2.2	)		(0.3	)		(1.0	)
Effective income tax rate		25.9	%		27.0	%
Effective tax rate								23.0	%		9.9	%		20.9	%		13.1	%

~~State~~

Current state income tax expense represents taxes owed ~~in Indiana. State income~~to the states of Kentucky, Indiana and Illinois. Ohio state bank taxes ~~in Kentucky and Ohio~~ are currently based on capital levels and are recorded as other non-interest expense.

~~Bancorp’s results for~~The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to 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 forKentucky corporate income tax ~~expense for such awards.~~

~~Table of Contents~~

~~Stock Yards Bancorp, inc.~~beginning in 2021 and ~~subsidiary~~allows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards.

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~~ 2021 and December 31, ~~2016,~~ 2020, the gross amount of unrecognized tax benefits was immaterial to ~~the~~Bancorp’s consolidated financial ~~statements of the Company.~~statements. Federal and state income tax returns are subject to examination for the years after ~~2012.~~2016.

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~~(6)~~(8)

Deposits

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

September 30,

December 31,

2017

2016

(in thousands)

Non-interest bearing demand
$ 676,824 $ 680,156

Interest bearing deposits:

Interest bearing demand
725,368 768,139
Savings
149,596 140,030
Money market
698,198 682,421

Time deposits of more than $250,000
33,270 40,427
Other time deposits
198,710 209,375
Total time deposits
231,980 249,802

Total interest bearing deposits
1,805,142 1,840,392

Total deposits
$ 2,481,966 $ 2,520,548

~~Maturities of time deposits~~ ~~of more than $250,000, outstanding at September 30, 2017, are summarized as follows:~~

(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

~~Table of Contents~~

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

(in thousands)	September 30, 2021		December 31, 2020

Non-interest bearing demand deposits	$	1,744,790	$	1,187,057
Interest bearing deposits:
Interest bearing demand		1,794,816		1,355,985
Savings		397,875		208,774
Money market		955,200		844,414

Time deposits of $250 thousand or more		89,420		73,065
Other time deposits(1)		359,923		319,339
Total time deposits		449,343		392,404
Total interest bearing deposits		3,597,234		2,801,577
Total deposits	$	5,342,024	$	3,988,634

~~(7)~~(1)

~~Securities Sold Under Agreements to Repurchase~~Includes $4 million and $25 million in brokered deposits as of September 30, 2021 and December 31, 2020, respectively.

~~Securities sold under agreements~~Deposits totaling $1.0 billion were assumed on May 31, 2021 in relation to ~~repurchase, which~~the KB acquisition.

(9)

Securities Sold Under Agreements to Repurchase

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~~ 2021 and December 31, ~~2016, respectively. Bancorp enters into sales of securities under agreement to repurchase at a specified future date. At September 30, 2017,~~ 2020, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities ~~which~~that were owned and controlled by ~~and under the control of~~ Bancorp.

Information concerning SSUAR follows:

(dollars in thousands)	September 30, 2021			December 31, 2020
Outstanding balance at end of period	$	74,406		$	47,979
Weighted average interest rate at end of period		0.04	%		0.05	%

	Three months ended						Nine months ended
	September 30,						September 30,
(dollars in thousands)	2021			2020			2021			2020

Average outstanding balance during the period	$	71,065		$	40,832		$	57,980		$	38,595
Average interest rate during the period		0.03	%		0.07	%		0.04	%		0.11	%
Maximum outstanding at any month end during the period	$	81,964		$	40,655		$	81,964		$	42,722

SSUAR totaling $11 million were assumed on May 31, 2021 in relation to the KB acquisition.

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~~(8)~~(10)

~~Federal Home Loan Bank~~FHLB Advances

Bancorp had one advance totaling $10 million outstanding ~~borrowings~~ ~~totaling $50.1 million and $51.1 million at~~ as of September 30, ~~2017 and~~ 2021, as compared with 37 separate advances totaling $32 million as of December 31, ~~2016, respectively, via 14 separate fixed-rate advances. As of September 30, 2017, for two advances totaling $30 million, both of which are non-callable, interest~~2020. Interest payments are due monthly with principal due at ~~maturity. For~~maturity for the ~~remaining~~lone advance outstanding at September 30, 2021.

Bancorp chose to pay off all outstanding advances during the second quarter with the exception of the $10 million advance noted above, which is associated with a cash flow-related interest rate swap that matures in December 2021. The advances paid off during the second quarter had an average weighted cost of 2.03% prior to their maturity and an early-termination fee of $474,000 was incurred as a result of the payoffs. Bancorp made this decision due to its excess liquidity driven by the substantial deposit growth it achieved during 2020 and the first half of 2021 combined with the near-term outlook for low interest rates. Bancorp believes it will substantially “earn back” the early termination penalty through lower interest expense over two years.

FHLB advances totaling ~~$20.1~~$91 million ~~principal and interest payments are due monthly based~~were assumed on ~~an amortization schedule.~~May 31, 2021 in relation to the KB acquisition, all of which were paid off immediately upon acquisition.

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

(In thousands)	September 30, 2017					December 31, 2016
(dollars in thousands)											As of September 30, 2021					As of December 31, 2020
Maturity													Weighted average					Weighted average
Year	Advance		Fixed Rate			Advance		Fixed Rate			Advance		Fixed Rate			Advance		Fixed Rate
2017	$	30,000		1.24	%	$	30,000		0.70	%
2020		1,753		2.23			1,790		2.23
2021		306		2.12			359		2.12		$	10,000		0.22		$	12,148		0.68
2022												0		0			0		0
2023												0		0			268		1.00
2024		2,505		2.36			2,661		2.36			0		0			1,389		2.36
2025		5,615		2.43			6,025		2.43			0		0			2,827		2.43
2026		8,658		1.99			8,936		1.99			0		0			5,401		1.96
2027												0		0			5,323		1.73
2028		1,273		1.48			1,304		1.48			0		0			4,283		2.27

Total	$	50,110		1.61	%	$	51,075		1.30	%	$	10,000		0.22	%	$	31,639		1.52	%

~~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~~CRE and residential real estate mortgage loans under a blanket mortgage collateral ~~agreement~~pledge agreements and FHLB stock. Bancorp ~~at times utilizes~~views these ~~borrowings~~advances as an effective lower-costing alternative to ~~match~~brokered deposits to fund ~~long-term fixed rate loans.~~loan growth. At September 30, ~~2017,~~ 2021 and December 31, 2020, the amount of available credit from the FHLB totaled ~~$367.3 million.~~$892 million and $804 million, respectively.

Bancorp also had $80 million in FFP lines available from correspondent banks at both September 30, 2021 and December 31, 2020, respectively.

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

~~(9)~~

~~Other Comprehensive Income~~

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

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 )

~~(10)~~

~~Preferred Stock~~

Bancorp has a class of preferred stock (no 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 of this stock has been issued to date.

~~Table of Contents~~

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

~~(11)~~

~~Net Income Per Share~~

~~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:~~

Three months ended

Nine months ended

(in thousands, except per share data)

September 30,

September 30,

2017

2016

2017

2016

Net income
$ 11,704 $ 10,467 $ 33,097 $ 30,411
Average basic shares outstanding
22,542 22,385 22,524 22,325
Dilutive securities
422 418 460 386

Average shares outstanding including dilutive securities including dilutive securities
22,964 22,803 22,984 22,711

Net income per share, basic
$ 0.52 $ 0.47 $ 1.47 $ 1.36
Net income per share, diluted
$ 0.51 $ 0.46 $ 1.44 $ 1.34

~~(12)~~

~~Defined Benefit Retirement Plan~~

Bancorp sponsors an unfunded, non-qualified, defined benefit retirement plan for three key officers (two current and one 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 are fully vested as of September 2017. Actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from Bancorp’s assets. Net periodic benefits costs, which include interest cost and amortization of net losses, totaled $34 thousand and $33 thousand 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.

~~(13)~~

~~Stock-Based Compensation~~

~~The fair value of all 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. No additional shares were made available. As of ~~September 30, 2017, there were 285,133 shares available for future awards.~~

~~Options, which have not been 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 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 shares 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 entitled to dividend payments during the vesting period. For grants in 2015 and after, forfeitable dividends are deferred until shares are vested.~~

~~Table of Contents~~

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

Grants of performance stock units (“PSUs”) vest based upon service and a 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 value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Beginning in 2015, grants require a one year post-vesting holding period. For 2015~~, 2016 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.~~

Grants of restricted stock units (“RSUs”) to 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 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:

For three months ended

For nine months ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Stock-based compensation expense before income taxes
$ 670 $ 573 $ 2,012 $ 1,646
Less: deferred tax benefit
(235 ) (200 ) (704 ) (576 )
Reduction of net income
$ 435 $ 373 $ 1,308 $ 1,070

~~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 used cash of $216 thousand during the first nine months of 2017 for purchase of shares upon vesting of restricted stock units, net of cash received for options exercised. This compares to cash received of $1.6 million during the first nine months of 2016 for similar activity.

~~Table of Contents~~

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

~~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:

2017

2016

Dividend yield
2.72 % 2.94 %
Expected volatility
19.47 % 19.31 %
Risk free interest rate
2.29 % 1.70 %
Expected life of SARs (in years)
7.0 7.3

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.

~~Table of Contents~~

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

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

Weighted

Weighted

Aggregate

Weighted

average

Options

average

intrinsic

average

remaining

and SARs

Exercise

exercise

value

fair

contractual

(in thousands)

price

price

(in thousands)

value

life (in years)

At December 31, 2015

Vested and exercisable
656 $ 14.02 - 19.44 $ 15.75 $ 6,191 $ 3.39 3.7
Unvested
266 15.24 - 24.55 18.66 1,733 3.29 7.7
Total outstanding
922 14.02 - 24.55 16.59 7,924 3.36 4.8

Granted
88 25.76 - 33.08 25.84 1,866 3.56
Exercised
(272 ) 14.02 - 17.89 16.38 4,155 3.73
Forfeited
(3 ) 14.02 - 15.84 15.18 60 2.94

At December 31, 2016

Vested and exercisable
475 14.02 - 24.56 15.72 14,820 3.16 4.3
Unvested
260 15.24 - 33.08 21.53 6,623 3.43 7.8
Total outstanding
735 14.02 - 33.08 17.78 21,443 3.26 5.5

Granted
46 40.00 - 40.00 40.00 - 6.34
Exercised
(47 ) 14.02 - 17.89 15.52 1,168 3.27
Forfeited
- - - - -

At September 30, 2017

Vested and exercisable
519 14.02 - 25.76 16.39 11,218 3.15 4.3
Unvested
215 15.24 - 40.00 26.45 2,567 4.17 7.9
Total outstanding
734 14.02 - 40.00 19.17 $ 13,785 3.45 5.3

Vested year-to-date
92 $ 15.24 - 25.76 $ 19.34 $ 1,723 $ 3.18

~~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 grant price.~~ 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.

~~Table of Contents~~

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

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

Grant date

weighted-

Number

average cost

Unvested at December 31, 2015
155,858 $ 18.98

2016 activity:

Shares awarded
51,122 25.78
Restrictions lapsed and shares released
(49,265 ) 17.98
Shares forfeited
(12,480 ) 20.69
Unvested at December 31, 2016
145,235 $ 21.57

2017 activity:

Shares awarded
28,625 44.85
Restrictions lapsed and shares released
(46,220 ) 19.76
Shares forfeited
(7,154 ) 25.03
Unvested at September 30, 2017
120,486 $ 27.59

~~Bancorp~~ awarded PSUs to executive officers of Bancorp, the 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.

~~The following table outlines~~ ~~outstanding PSU grants:~~

Vesting

Expected

Grant

period

Fair

shares to

year

in years

value

be awarded

2015
3 $ 20.02 51,910
2016
3 22.61 58,786
2017
3 35.66 24,756

~~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)~~(11)

Commitments and Contingent Liabilities

As of September 30, ~~2017,~~ 2021 and December 31, 2020, Bancorp had various commitments outstanding that arose in the normal course of business ~~including standby letters of credit and commitments to extend credit,~~ 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, 2021		December 31, 2020
Commercial and industrial	$	666,520	$	555,077
Construction and land development		258,933		266,550
Home equity		234,903		175,132
Credit cards		42,048		32,321
Overdrafts		51,881		33,564
Letters of credit		31,043		24,425
Other		76,028		54,385
Future loan commitments		311,369		249,318
Total off balance sheet commitments to extend credit	$	1,672,725	$	1,390,772

Commitments to extend credit are ~~an agreement~~agreements to lend to ~~a customer~~customers either as unsecured or, in the case of secured, as long as collateral is available as agreed upon and there is no violation of any condition established in the ~~contract.~~contracts. 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,~~ 2021 and December 31, 2020, Bancorp had accrued ~~$350 thousand~~$4.3 million and $5.4 million, respectively, in other liabilities for ~~inherent risks related~~its estimate of credit losses for off balance sheet credit exposures. A net benefit of $1.4 million was recorded for the provision for off balance sheet credit exposures for the nine months ended September 30, 2021, as compared to ~~unfunded~~net expense of $2.4 million for the same period of 2020. The reduction in the ACL for off balance sheet credit ~~commitments.~~exposures between December 31, 2020 and September 30, 2021 is attributed to nearly all loan segments experiencing a decrease in their reserve loss percentages consistent with generally improving model factors, particularly unemployment forecasts.

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.

Certain commercial customers require confirmation of Bancorp’s letters of credit by other banks since Bancorp does not have a rating by a national rating agency. Terms of the agreements range from one month to a year with certain agreements requiring between one and six months’ notice to cancel. If an event of default on all contracts had occurred at September 30, 2021, Bancorp would have been required to make payments of approximately $2.2 million, or the maximum amount payable under those contracts. No payments have ever been required because of default on these contracts. These agreements are normally secured by collateral acceptable to Bancorp, which limits credit risk associated with the agreements.

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,~~ 2021, 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.

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~~(16)~~(12)

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:~~

●

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

~~Table of Contents~~

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

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

●

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 use of~~Level 2 – Significant other observable inputs ~~and minimum use of~~other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use 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 onpricing an ~~actual sale or immediate settlement of the~~ asset or liability.

~~Bancorp’s investment securities available-for-sale and interest rate swaps are recorded at~~The methods of determining the 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 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.

Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements generally 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~~’s inability to perform and the change in value of derivative~~ assets and liabilities ~~attributable to credit risk was not significant during 2017.~~

~~Table of Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~presented in this note are consistent with the methodologies disclosed in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020.

~~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

Assets

Total

Level 1

Level 2

Level 3

Investment securities available-for-sale

Government sponsored enterprise obligations
$ 372,664 $ - $ 372,664 $ -
Mortgage-backed securities - government agencies
146,720 - 146,720 -
Obligations of states and political subdivisions
51,622 - 51,622 -
Corporate equity securities
516 516 - -

Total investment securities available-for-sale
571,522 516 571,006 -

Interest rate swaps
182 - 182 -

Total assets
$ 571,704 $ 516 $ 571,188 $ -

Liabilities

Interest rate swaps
$ 148 $ - $ 148 $ -

	Fair Value Measurements Using:						Total
September 30, 2021 (in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Available for sale debt securities:
U.S. Treasury and other U.S. Government obligations	$	83,712	$	0	$	0	$	83,712
Government sponsored enterprise obligations		0		146,287		0		146,287
Mortgage backed securities - government agencies		0		771,722		0		771,722
Obligations of states and political subdivisions		0		67,424		0		67,424
Other		0		1,003		0		1,003

Total available for sale debt securities		83,712		986,436		0		1,070,148

Interest rate swaps		0		4,180		0		4,180

Total assets	$	83,712	$	990,616	$	0	$	1,074,328

Liabilities:
Interest rate swaps	$	0	$	4,226	$	0	$	4,226

(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 $ -

	Fair Value Measurements Using:						Total
December 31, 2020 (in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Available for sale debt securities:
Government sponsored enterprise obligations	$	0	$	138,078	$	0	$	138,078
Mortgage backed securities - government agencies		0		437,585		0		437,585
Obligations of states and political subdivisions		0		11,315		0		11,315

Total available for sale debt securities		0		586,978		0		586,978

Interest rate swaps		0		8,374		0		8,374

Total assets	$	0	$	595,352	$	0	$	595,352

Liabilities:
Interest rate swaps	$	0	$	8,391	$	0	$	8,391

There were no transfers into or out of Level 3 of the fair value hierarchy during 2021 or 2020.

~~Bancorp had no financial instruments classified within Level 3~~

Table of ~~the valuation hierarchy for~~Contents

Discussion of assets ~~and liabilities~~ measured at fair value on a ~~recurring~~non-recurring basis at ~~September 30, 2017 or December 31, 2016.~~

~~Table of Contents~~

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

MSRs – On at least a quarterly basis, MSRs are ~~recorded at fair value upon capitalization, 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~~ 2021 and December 31, ~~2016~~ 2020, there was no 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 or~~ 2021 and December 31, ~~2016. See Note 4 for more information regarding MSRs.~~2020.

Collateral dependent loans – For ~~impaired~~collateral-dependent loans inwhere Bancorp has determined that the ~~table below, fair value~~liquidation or foreclosure of the collateral is ~~calculated as carrying value of loans with a specific valuation allowance, less~~probable, or where the ~~specific allowance,~~borrower is experiencing financial difficulty and the ~~carrying value~~Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, ~~dependent loans that have been charged down to their fair value. Fair value of impaired loans was primarily~~the ACL is measured based on the difference between the estimated fair value of the collateral ~~securing these loans. Impaired loans are classified within Level 3~~and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value ~~hierarchy. Collateral~~ of the loan’s collateral is determined by third party or internal appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, comparable sales, or cost) vary based on the status of the project or property. The unobservable inputs may ~~be real~~vary depending on the individual assets with noone of the three methods being the predominant approach. Bancorp reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 8% to 10% of the appraised value. For non-real estate ~~and/or business assets including equipment, inventory, and/or accounts receivable. Bancorp determines~~loans, fair value of ~~real estate~~the loan’s collateral ~~based on independent appraisals performed by qualified licensed appraisers. These appraisals~~ may ~~utilize a single valuation approach~~be determined using an appraisal, net book value per the borrower’s financial statements, or ~~a combination of approaches including comparable sales and the income approach. Appraised values are~~aging reports, adjusted or discounted ~~for costs to sell and may be discounted further~~ based on management’s historical knowledge, changes in market conditions from the ~~date~~time of the ~~most recent appraisal, and/or~~valuation and management’s expertise ~~and~~or knowledge of the ~~customer~~client and ~~the customer’s~~client’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~~

OREO –OREO is primarily comprised of ~~asset value, based on information provided by the borrower, following methodologies similar to those described for~~ real ~~estate. As~~estate acquired in partial or full satisfaction of ~~September 30, 2017, total impaired collateral dependent loans charged down to their~~loans. OREO is recorded at its estimated fair value less estimated selling and impaired loans with a valuation allowance were $3.2 million, and the specific allowance totaled $722 thousand, resulting in a fair value of $2.5 million, compared with total collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance of $4.2 million, and the specific allowance allocation totaling $1.3 million, resulting in a fair value of $2.9 millionclosing costs at ~~December 31, 2016. Losses represent charge offs and changes in specific allowances for the period indicated.~~

Other real estate owned (“OREO”), which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is based on appraisals performed by 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~~’s historical knowledge and/or changes in market conditions from~~ the date of transfer, with any excess of the ~~most recent appraisal. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. For OREO in~~related loan balance over the ~~table below,~~ fair value isless expected selling costs charged to the ACL. Subsequent changes in fair value are reported as adjustments to the carrying ~~value of only parcels~~amount and are recorded against earnings. Bancorp obtains the valuation of OREO with material balances from third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with noone of the three methods being the predominant approach. Bancorp reviews the appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which ~~have a carrying value equal~~typically range from 8% to 10% of the appraised value. Losses represent write-downs which occurred during the period indicated. At September 30, 2017 and December 31, 2016, carrying value of all other real estate owned was $2.6 million and $5.0 million, respectively.

~~Table of Contents~~

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

~~Below are carrying~~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.~~basis follows:

(in thousands)

Fair value at September 30, 2017

Losses for 9 month

period ended

Total

Level 1

Level 2

Level 3

September 30, 2017

Impaired loans
$ 2,530 $ - $ - $ 2,530 $ (280 )
Other real estate owned
2,640 - - 2,640 (171 )

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

(in thousands)

Fair value at December 31, 2016

Losses for 9 month

period ended

Total

Level 1

Level 2

Level 3

September 30, 2016

Impaired loans
$ 2,933 $ - $ - $ 2,933 $ (1,612 )
Other real estate owned
4,488 - - 4,488 (62 )

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

									Losses recorded
									Three months		Nine months
	Fair Value Measurements Using:						Total		ended		ended
September 30, 2021 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2021		September 30, 2021

Collateral dependent loans	$	0	$	0	$	5,151	$	5,151	$	—	$	—
Other real estate owned		0		0		7,229		7,229		0		0

									Losses recorded
									Three months		Nine months
	Fair Value Measurements Using:						Total		ended		ended
December 31, 2020 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2020		September 30, 2020

Collateral dependent loans	$	0	$	0	$	7,546	$	7,546	$	0	$	0
Other real estate owned		0		0		281		281		0		0

~~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~~There were no 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~~ on a non-recurring basis at September 30, ~~2017, there were no transfers between Levels 1, 2, or 3.~~ 2021 and December 31,2020.

Table of Contents

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, 2021
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average

Collateral dependent loans	$	5,151	Appraisal	Appraisal discounts		39.3	%
Other real estate owned		7,229	Appraisal	Appraisal discounts		31.4

Significant

Weighted

Fair

Valuation

unobservable

average of

December 31, 2020

(dollars in thousands)

Value

technique

input

input

Fair Value

Valuation Technique

Unobservable Inputs

Weighted Average

Impaired loans - collateral dependent

2,530

Appraisal

Appraisal discounts

15.0

Collateral dependend loans

7,546

Appraisal

Appraisal discounts

10.7

Other real estate owned

2,640

Appraisal

Appraisal discounts

23.4

281

Appraisal

Appraisal discounts

36.0

Table of Contents

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

~~(17)~~(13)

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,~~The estimated fair values ~~and placement in the~~of Bancorp’s financial instruments not measured at fair value ~~hierarchy of Bancorp’s financial instruments are as~~on a recurring or non-recurring basis 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

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 - -

~~Table of Contents~~

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

(in thousands)	Carrying				Fair Value Measurements Using:
September 30, 2021	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	584,941	$	584,941	$	584,941	$	0	$	0
Mortgage loans held for sale		10,201		10,490		0		10,490		0
Federal Home Loan Bank stock		9,376		9,376		0		9,376		0
Loans, net		4,132,584		4,158,330		0		0		4,158,330
Accrued interest receivable		13,749		13,749		13,749		0		0

Liabilities
Non-interest bearing deposits	$	1,744,790	$	1,744,790	$	1,744,790	$	0	$	0
Transaction deposits		3,147,891		3,147,891		0		3,147,891		0
Time deposits		449,343		451,258		0		451,258		0
Securities sold under agreement to repurchase		74,406		74,406		0		74,406		0
Federal funds purchased		10,908		10,908		0		10,908		0
Federal Home Loan Bank advances		10,000		10,042		0		10,042		0
Accrued interest payable		398		398		398		0		0

~~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~~

(in thousands)	Carrying				Fair Value Measurements Using:
December 31, 2020	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	317,945	$	317,945	$	317,945	$	0	$	0
Mortgage loans held for sale		22,547		23,389		0		23,389		0
Federal Home Loan Bank stock		11,284		11,284		0		11,284		0
Loans, net		3,479,676		3,513,916		0		0		3,513,916
Accrued interest receivable		13,094		13,094		13,094		0		0

Liabilities
Non-interest bearing deposits	$	1,187,057	$	1,187,057	$	1,187,057	$	0	$	0
Transaction deposits		2,409,173		2,409,173		0		2,409,173		0
Time deposits		392,404		395,734		0		395,734		0
Securities sold under agreement to repurchase		47,979		47,979		0		47,979		0
Federal funds purchased		11,464		11,464		0		11,464		0
Federal Home Loan Bank advances		31,639		33,180		0		33,180		0
Accrued interest payable		391		391		391		0		0

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~~impact estimates.

Table of Contents

(14)

Accumulated Other Comprehensive Income (Loss)

~~Stock Yards Bancorp, inc. and subsidiary~~The following table illustrates activity within the balances of AOCI by component:

	Net unrealized			Net unrealized			Minimum
	gains (losses)			gains (losses)			pension
	on available for			on cash			liability
(in thousands)	sale debt securities			flow hedges			adjustment			Total
Three months ended September 30, 2021
Balance, June 30, 2021	$	2,295		$	(58	)	$	(447	)	$	1,790
Net current period other comprehensive income		(4,453	)		32			0			(4,421	)
Balance, September 30, 2021	$	(2,158	)	$	(26	)	$	(447	)	$	(2,631	)

Three months ended September 30, 2020
Balance, June 30, 2020	$	9,466		$	(281	)	$	(369	)	$	8,816
Net current period other comprehensive income		(29	)		85			0			56
Balance, September 30, 2020	$	9,437		$	(196	)	$	(369	)	$	8,872

	Net unrealized			Net unrealized			Minimum
	gains (losses)			gains (losses)			pension
	on available for			on cash			liability
(in thousands)	sale debt securities			flow hedges			adjustment			Total
Nine months ended September 30, 2021
Balance, January 1, 2021	$	9,310		$	(122	)	$	(447	)	$	8,741
Net current period other comprehensive income (loss)		(11,468	)		96			0			(11,372	)
Balance, September 30, 2021	$	(2,158	)	$	(26	)	$	(447	)	$	(2,631	)

Nine months ended September 30, 2020
Balance, January 1, 2020	$	1,085		$	(39	)	$	(369	)	$	677
Net current period other comprehensive income (loss)		8,352			(157	)		0			8,195
Balance, September 30, 2020	$	9,437		$	(196	)	$	(369	)	$	8,872

Table of Contents

~~(18)~~(15)

Preferred Stock

Bancorp has one class of preferred stock (0 par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of the class or any series within the class will be determined by the Board of Directors prior to any issuance. None of this stock has been issued to date.

(16)

Net Income Per Share

The following table reflects net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:

	Three months ended				Nine months ended
	September 30,				September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Net income	$	23,162	$	14,533	$	50,056	$	41,133

Weighted average shares outstanding - basic		26,485		22,582		24,360		22,553
Dilutive securities		241		220		242		206
Weighted average shares outstanding- diluted		26,726		22,802		24,602		22,759

Net income per share - basic	$	0.87	$	0.64	$	2.05	$	1.82
Net income per share - diluted		0.87		0.64		2.03		1.81

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

Three months ended

Nine months ended

(shares in thousands)

September 30,

2021

2020

2021

2020

Antidilutive SARs

202

Table of Contents

(17)

Stock-Based Compensation

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

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. In 2018, shareholders approved an additional 500,000 shares for issuance under the plan. As of September 30, 2021, there were 351,000 shares available for future awards. The 2005 Stock Incentive Plan expired in April 2015 and SARs granted under this plan expire as late as 2025. The 2015 Stock Incentive Plan has no defined expiration date.

SAR Grants – SARs granted have a vesting schedule of 20% per year and expire ten years after the grant date unless forfeited due to employment termination.

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 impact the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:

Assumptions	2021			2020
Dividend yield		2.52	%		2.51	%
Expected volatility		25.19	%		20.87	%
Risk free interest rate		1.22	%		1.25	%
Expected life (in years)		7.1			7.1

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 underlying shares for the expected term calculated 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 actual experience of past like-term 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. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. For grants in 2015 and forward, dividends are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.

PSU Grants – PSUs vest based upon service and a 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 market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one-year post-vesting holding period and therefore the fair value of such grants incorporates a liquidity discount related to the holding period of 6.1% and 4.4% for 2021 and 2020.

RSU Grants – 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, therefore the fair value of the RSUs equals market value of underlying shares on the date of grant.

In the first quarters of 2021 and 2020, Bancorp awarded 7,758 and 6,570 RSUs to non-employee directors of Bancorp with a grant date fair value of $315,000 and $270,000, respectively.

Bancorp utilized cash of $208,000 and $224,000 during the firstnine months of 2021 and 2020, respectively, for the purchase of shares upon the vesting of RSUs.

Table of Contents

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

	Three months ended September 30, 2021
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	88		$	312		$	79		$	686		$	1,165
Deferred tax benefit		(18	)		(66	)		(17	)		(144	)		(245	)
Total net expense	$	70		$	246		$	62		$	542		$	920

	Three months ended September 30, 2020
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	88		$	424		$	67		$	264		$	843
Deferred tax benefit		(19	)		(90	)		(14	)		(56	)		(179	)
Total net expense	$	69		$	334		$	53		$	208		$	664

	Nine months ended September 30, 2021
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	264		$	978		$	233		$	1,953		$	3,428
Deferred tax benefit		(55	)		(206	)		(49	)		(411	)		(721	)
Total net expense	$	209		$	772		$	184		$	1,542		$	2,707

	Nine months ended September 30, 2020
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	265		$	1,064		$	202		$	1,105		$	2,636
Deferred tax benefit		(56	)		(223	)		(42	)		(231	)		(552	)
Total net expense	$	209		$	841		$	160		$	874		$	2,084

Detail of unrecognized stock-based compensation expense follows:

	Stock
(in thousands)	*Appreciation*		*Restricted*		*Restricted*		*Performance*
Year ended	*Rights*		*Stock Awards*		*Stock Units*		*Stock Units*		*Total*

Remainder of 2021	$	88	$	314	$	79	$	659	$	1,140
2022		309		1,074		3		1,506		2,892
2023		234		869		0		700		1,803
2024		127		628		0		0		755
2025		68		376		0		0		444
2026		11		34		0		0		45
Total estimated expense	$	837	$	3,295	$	82	$	2,865	$	7,079

Table of Contents

The following table summarizes SARs activity and related information:

													Weighted
							*Weighted*				*Weighted*		*average*
							*average*		*Aggregate*		*average*		*remaining*
				*Exercise*			*exercise*		*intrinsic*		*fair*		*contractual*
(in thousands, except per share data)	*SARs*			*price*			*price*		*value(1)*		*value*		*life (in years)*

Outstanding, January 1, 2020		641		$14.02	-	$40.00	$	25.06	$	10,250	$	4.10		5.3
Granted		48		37.30	-	37.30		37.30		154		5.80
Exercised		(96	)	14.02	-	25.76		16.33		2,401		2.88
Forfeited		—			—			0		—		—
Outstanding, December 31, 2020		593		$15.24	-	$40.00	$	27.47	$	7,706	$	4.44		5.1

Outstanding, January 1, 2021		593		$15.24	-	$40.00	$	27.47	$	7,706	$	4.44		5.1
Granted		31		47.17	-	50.71		50.48		251		9.69
Exercised		(77	)	15.24	-	15.84		15.31		2,815		2.58
Forfeited		0			—			0		—		—
Outstanding, September 30, 2021		547		$15.24	-	$50.71	$	30.46	$	15,417	$	5.00		5.2

Vested and exercisable		388		$15.24	-	$40.00	$	26.49	$	12,492	$	4.30		4.1
Unvested		159		33.08	-	50.71		40.20		2,926		6.70		7.8
Outstanding, September 30, 2021		547		$15.24	-	$50.71	$	30.46	$	15,417	$	5.00		5.2

Vested in the current year		53		$25.76	-	$40.00	$	34.00	$	1,316	$	5.40

(1)–Aggregate intrinsic value for SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price.

The following table summarizes activity for RSAs granted:

				Grant date
				weighted
(in thousands, except per share data)	RSAs			average cost

Unvested at January 1, 2020		108		$	34.31
Shares awarded		36			39.30
Restrictions lapsed and shares released		(41	)		32.38
Shares forfeited		(4	)		36.63
Unvested at December 31, 2020		99		$	36.85

Unvested at January 1, 2021		99		$	36.85
Shares awarded		39			46.90
Restrictions lapsed and shares released		(34	)		35.50
Shares forfeited		(5	)		40.61
Unvested at September 30, 2021		99		$	41.05

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Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period for which began January 1 of the award year, are as follows:

	Vesting				Expected
Grant	*period*		*Fair*		*shares to*
year	*in years*		*value*		*be awarded*
2019		3	$	32.03		62,291
2020		3		32.27		65,111
2021		3		44.44		47,280

(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~~non-performance 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

	Receiving				Paying
	September 30,		December 31,		September 30,		December 31,
(dollars in thousands)	2021		2020		2021		2020

Notional amount	$	127,607	$	119,940	$	127,607	$	119,940
Weighted average maturity (years)		7.3		7.8		7.3		7.8
Fair value	$	4,180	$	8,374	$	4,194	$	8,391

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~~ matures 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,~~AOCI, and is subsequently reclassified into earnings as an adjustment to interest expense in periods infor which the hedged forecasted transaction ~~affects~~impacts 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 related fair ~~values as of September 30, 2017 and December 31, 2016.~~value:

(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, 2021			December 31, 2020
$	10,000	12/6/2021	US 3 Month LIBOR		1.89	%	$	26	$	16	10,000	December 6, 2021	Three Month LIBOR		1.89	%	$	(33	)	$	(160	)
	20,000	12/6/2020	US 3 Month LIBOR		1.79	%		8		9
$	30,000				1.82	%	$	34	$	25

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~~(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 Basel III rules also establish~~edBanking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 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 the Bank must hold a 2.5% capital conservation buffer composed of ~~2.5%, to be phased in over three years through December 31, 2018,~~Common Equity Tier 1 Risk-Based Capital above the ~~regulatory~~ minimum risk-based capital ~~ratios. When fully phased in~~requirements for the ~~buffer will result in the following minimum ratios:~~

~~a common equity tier~~ Common Equity Tier 1 ~~risk-based capital~~ Risk-Based Capital ratio, ~~of 7.0%,~~

~~a tier~~ Tier 1 ~~risk-based capital~~ Risk-Based Capital ratio ~~of 8.5%,~~ and

~~a total risk-based capital~~ 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.

~~Table of Contents~~

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

~~As of~~ ~~September 30, 2017, Bancorp meets the requirements~~necessary to be considered ~~well capitalized under~~ adequately-capitalized. At September 30, 2020, the ~~rules,~~adequately-capitalized minimums, including the capital conservation buffer, were a 6.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and ~~is not subject~~10.5% Total Risk-Based Capital ratio. The capital conservation buffer was phased in starting in 2016 at 0.625% and was fully implemented at 2.5% effective January 1, 2019.

Bancorp continues to ~~limitations due~~exceed the regulatory requirements for all calculations. 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~~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					Actual					Minimum for adequately capitalized					Minimum for well capitalized
September 30, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021																Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	358,610		13.64	%	$	210,328		8.00	%	NA		NA			$	581,998		12.61	%	$	369,314		8.00	%		NA		NA
Bank		346,040		13.20			209,721		8.00		$	262,152		10.00	%		564,054		12.26			368,132		8.00		$	460,166		10.00	%

Common equity tier 1 risk-based capital(1)
Consolidated		333,312		12.67			118,382		4.50		NA		NA				539,601		11.69			207,739		4.50			NA		NA
Bank		320,742		12.23			118,016		4.50			157,355		6.00			564,051		11.34			207,074		4.50			299,108		6.50

Tier 1 risk-based capital (1)
Consolidated		333,312		12.67			157,843		6.00		NA		NA				539,601		11.69			276,985		6.00			NA		NA
Bank		320,742		12.23			157,355		6.00			157,355		6.00			564,051		11.34			276,099		6.00			368,132		8.00

Leverage (2)
Consolidated		333,312		11.02			120,984		4.00		NA		NA				539,601		8.98			240,340		4.00			NA		NA
Bank		320,742		10.61			120,921		4.00			151,151		5.00			564,051		8.69			240,011		4.00			300,014		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

	~~(1)~~	~~Ratio is computed in relation to risk-weighted assets.~~
	~~(2)~~	~~Ratio is computed in relation to average assets.~~
	NA	~~Not applicable. Regulatory framework does not define well capitalized for holding companies.~~

Table of Contents

(dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
December 31, 2020	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	470,648		13.36	%	$	281,887		8.00	%		NA		NA
Bank		456,302		12.99			281,106		8.00		$	351,383		10.00	%

Common equity tier 1 risk-based capital (1)
Consolidated		430,886		12.23			158,556		4.50			NA		NA
Bank		416,540		11.85			158,122		4.50			228,399		6.50

Tier 1 risk-based capital (1)
Consolidated		430,886		12.23			211,407		6.00			NA		NA
Bank		416,540		11.85			210,830		6.00			281,106		8.00

Leverage (2)
Consolidated		430,886		9.57			180,123		4.00			NA		NA
Bank		416,540		9.26			179,845		4.00			224,807		5.00

~~Stock Yards Bancorp, inc. and subsidiary~~(1) Ratio is computed in relation to risk-weighted assets.

(2) Ratio is computed in relation to average assets.

NA –Not Applicable

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~~(20)~~(20)

Segments

~~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~~banking and ~~securities brokerage~~investment products sales activity. WM&T provides ~~financial management services including~~ investment management, financial & retirement planning and trust ~~and~~& estate ~~administration, and~~services, as well as retirement plan ~~services.~~management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

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~~tax-exempt activity. All ~~tax exempt~~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 $136 million, of which $682,000 ~~related~~relates to a bank acquisition in 1996, ~~which~~ $12 million relates to the 2019 KSB acquisition and $123 million relates to the KB 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.~~and a receivable related to fees earned that have not been collected.

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

			Wealth				Three months ended September 30, 2021								Three months ended September 30, 2020
	Commercial		management
(in thousands)	banking		and trust		Total		Commercial Banking			WM&T		Total			Commercial Banking		WM&T		Total

Three months ended September 30, 2017
Net interest income	$	26,089	$	75	$	26,164	$	45,414		$	69	$	45,483		$	33,619	$	76	$	33,695
Provision for loan losses		150		-		150
Provision for credit losses								(1,525	)		0		(1,525	)		4,968		0		4,968
Wealth management and trust services		-		5,025		5,025		0			7,128		7,128			0		5,657		5,657
All other non-interest income		6,078		-		6,078		10,486			0		10,486			7,386		0		7,386
Non-interest expense		18,491		2,826		21,317
Income before income taxes		13,526		2,274		15,800
Non-interest expenses								31,072			3,486		34,558			22,512		3,134		25,646
Income before income tax expense								26,353			3,711		30,064			13,525		2,599		16,124
Income tax expense		3,284		812		4,096		6,070			832		6,902			1,027		564		1,591
Net income	$	10,242	$	1,462	$	11,704	$	20,283		$	2,879	$	23,162		$	12,498	$	2,035	$	14,533

Segment assets	$	3,153,886	$	2,027	$	3,155,913	$	6,177,355		$	3,833	$	6,181,188		$	4,361,576	$	3,553	$	4,365,129

Three months ended September 30, 2016
Net interest income	$	24,690	$	70	$	24,760
Provision for loan losses		1,250		-		1,250
Wealth management and trust services		-		4,800		4,800
All other non-interest income		6,558		-		6,558
Non-interest expense		17,722		2,796		20,518
Income before income taxes		12,276		2,074		14,350
Income tax expense		3,142		741		3,883
Net income	$	9,134	$	1,333	$	10,467

Segment assets	$	2,936,542	$	2,123	$	2,938,665

	Nine months ended September 30, 2021						Nine months ended September 30, 2020

(in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total

Net interest income	$	124,672	$	220	$	124,892	$	99,423	$	246	$	99,669
Provision for credit losses		1,147		0		1,147		17,918		0		17,918
Wealth management and trust services		0		20,234		20,234		0		17,601		17,601
All other non-interest income		27,012		0		27,012		20,600		0		20,600
Non-interest expenses		97,249		10,459		107,708		63,063		9,567		72,630
Income before income tax expense		53,288		9,995		63,283		39,042		8,280		47,322
Income tax expense		11,058		2,169		13,227		4,392		1,797		6,189
Net income	$	42,230	$	7,826	$	50,056	$	34,650	$	6,483	$	41,133

Segment assets	$	6,177,355	$	3,833	$	6,181,188	$	4,361,576	$	3,553	$	4,365,129

4259

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(21)

Revenue from Contracts with Customers

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

Wealth

Commercial

management

(in thousands)

banking

and trust

Total

Nine months ended September 30, 2017

Net interest income
$ 76,350 $ 230 $ 76,580
Provision for loan losses
1,650 - 1,650
Wealth management and trust services
- 15,272 15,272
All other non-interest income
18,303 - 18,303
Non-interest expense
54,756 9,055 63,811
Income before income taxes
38,247 6,447 44,694
Income tax expense
9,295 2,302 11,597
Net income
$ 28,952 $ 4,145 $ 33,097

Segment assets
$ 3,153,886 $ 2,027 $ 3,155,913

Nine months ended September 30, 2016

Net interest income
$ 71,985 $ 194 $ 72,179
Provision for loan losses
2,500 - 2,500
Wealth management and trust services
- 14,219 14,219
All other non-interest income
17,999 - 17,999
Non-interest expense
51,914 8,337 60,251
Income before income taxes
35,570 6,076 41,646
Income tax expense
9,064 2,171 11,235
Net income
$ 26,506 $ 3,905 $ 30,411

Segment assets
$ 2,936,542 $ 2,123 $ 2,938,665

	Three months ended September 30, 2021						Three months ended September 30, 2020

(in thousands)	Commercial Banking		WM&T		Total		Commercial		WM&T		Total
Wealth management and trust services	$	0	$	7,128	$	7,128	$	0	$	5,657	$	5,657
Deposit service charges		1,768		0		1,768		998		0		998
Debit and credit card income		3,887		0		3,887		2,218		0		2,218
Treasury management fees		1,771		0		1,771		1,368		0		1,368
Mortgage banking income(1)		915		0		915		1,979		0		1,979
Net investment product sales commissions and fees		780		0		780		431		0		431
Bank owned life insurance(1)		275		0		275		172		0		172
Other(2)		1,090		0		1,090		220		0		220
Total non-interest income	$	10,486	$	7,128	$	17,614	$	7,386	$	5,657	$	13,043

	Nine months ended September 30, 2021						Nine months ended September 30, 2020

(Dollars in thousands)	Commercial Banking		WM&T		Total		Commercial		WM&T		Total
Wealth management and trust services	$	0	$	20,234	$	20,234	$	0	$	17,601	$	17,601
Deposit service charges		3,945		0		3,945		3,081		0		3,081
Debit and credit card income		9,444		0		9,444		6,261		0		6,261
Treasury management fees		5,041		0		5,041		3,901		0		3,901
Mortgage banking income(1)		3,662		0		3,662		4,447		0		4,447
Net investment product sales commissions and fees		1,789		0		1,789		1,288		0		1,288
Bank owned life insurance(1)		642		0		642		527		0		527
Other(2)		2,489		0		2,489		1,095		0		1,095
Total non-interest income	$	27,012	$	20,234	$	47,246	$	20,600	$	17,601	$	38,201

(1) Outside of the scope of ASC 606.

(2) Outside of the scope of ASC 606, with the exception of safe deposit fees which were nominal for all periods.

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. Revenue sources within the scope of ASC 606 are discussed below:

Bancorp earns fees from its deposit customers for transaction-based, account management and overdraft services. Transaction-based fees, which include services such as ATM use fees and stop payments 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 transaction fees are recognized at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account analysis 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 customers’ account balances.

Table of Contents

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 customers do not permit performance-based fees and accordingly, none of the fee income earned by WM&T is performance-based. Trust fees receivable were $2.6 million and $2.2 million at September 30, 2021 and December 31, 2020, respectively.

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 values 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 $437,000 and $417,000 for the nine month periods ended September 30, 2021 and 2020.

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 the nine months ended September 30, 2021.

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(22)

Leases

Bancorp has operating leases for various branch locations with terms ranging from two years to 19 years, some of which include options to extend the leases in five-year increments. A total of seven operating leases were added as a result of the KB acquisition. Options reasonably expected to be exercised are included in determination of the right-of-use asset. Bancorp elected to use a practical expedient to expense short-term lease obligations associated with leases with original terms of 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:

(dollars in thousands)	September 30, 2021			December 31, 2020
Balance Sheet
Operating lease right-of-use asset	$	15,449		$	12,100
Operating lease liability		16,938			13,476

Weighted average remaining lease term (years)		9.5			8.6
Weighted average discount rate		3.02	%		3.37	%

Maturities of lease liabilities:
One year or less	$	654		$	2,087
Year two		2,634			2,107
Year three		2,673			2,141
Year four		2,408			1,899
Year five		1,924			1,469
Greater than five years		9,308			5,882
Total lease payments	$	19,601		$	15,585
Less imputed interest		2,663			2,109
Total	$	16,938		$	13,476

	*Three months ended*		*Three months ended*
(in thousands)	*September 30, 2021*		*September 30, 2020*
Income Statement
Components of lease expense:
Operating lease cost	$	616	$	468
Variable lease cost		57		44
Less sublease income		9		0
Total lease cost	$	664	$	512

	Nine months ended		Nine months ended
(in thousands)	September 30, 2021		September 30, 2020
Income Statement
Components of lease expense:
Operating lease cost	$	1,623	$	1,411
Variable lease cost		170		131
Less sublease income		36		38
Total lease cost	$	1,757	$	1,504

	*Nine months ended*		*Nine months ended*
(in thousands)	*September 30, 2021*		*September 30, 2020*
Cash flow Statement
Supplemental cash flow information:
Operating cash flows from operating leases	$	1,898	$	1,186

As of September 30, 2021, Bancorp had not entered into any lease agreements that had yet to commence.

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

The consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly owned subsidiaries, SYB and the Captive, collectively referred to as “Bancorp” or the “Company.” All significant inter-company transactions and accounts have been eliminated in consolidation.

Bancorp is a FHC headquartered in Louisville, Kentucky. Established in 1904, SYB is a state-chartered non-member financial institution that provides services in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets through 63 full-service banking center locations. The captive is a Nevada-based, wholly-owned insurance subsidiary of the Company, which was retained in conjunction with the KB acquisition and provides insurance coverage not currently provided by Bancorp’s commercial policies to Bancorp and SYB as well as a group of third-party insurance captives.

This section presents management’s perspective on our financial condition and results of operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This item discusses results of operations for Stock Yards Bancorp, Inc. (“Bancorp” or “Company”), and its subsidiary, Stock Yards Bank & Trust Company (“Bank”) for the three and nine months ended September 30, 2017 and compares these periods with the same periods of the previous year. Unless otherwise indicated, all references in this discussion to the Bank include Bancorp. In addition, the discussion describes changes in the financial condition of Bancorp and the Bank that have occurred during the first nine months of 2017 compared with same period in 2016. This discussion should be read in conjunction with the consolidated financial statements and accompanying ~~notes~~footnotes presented in Part 1 Item 1 “Financial Statements” and other information appearing in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of Bancorp’s future financial outcomes. In addition to historical information, this ~~report.~~discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

Cautionary Statement Regarding Forward-Looking Statements

This ~~report~~document contains ~~forward-looking~~ statements ~~under~~relating to future results of Bancorp that are considered “forward-looking” as defined by Section 27A of the ~~Private~~ Securities ~~Litigation Reform~~ Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part I Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that ~~involve~~may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the statement. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “aim,” “can,” “conclude,” “continue,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “outlook,” “possible,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “will likely,” “would,” or other similar expressions. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Forward-looking statements detail management’s expectations regarding the future and are based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements to reflect events or circumstances that occur after the date forward-looking statements are made, except as required by applicable law.

There is no assurance that any list of risks and ~~uncertainties. Although Bancorp believes assumptions underlying forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate.~~uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from ~~results discussed~~those expressed or implied in forward-looking statements include, among other things:

●

impact of COVID-19 on Bancorp’s business, including the impact of the actions taken by governmental authorities to try and contain the pandemic or address the impact of the pandemic on the U.S. economy (including, without limitation, the CARES Act and other relief efforts), and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of Bancorp’s borrowers and other customers;

●

changes in or forecasts of future political and economic conditions;

●

accuracy of assumptions and estimates used in establishing the ACL for loans, ACL for off-balance sheet credit exposures and other estimates;

●

impairment of investment securities, goodwill, MSRs, other intangible assets or DTAs;

●

ability to effectively navigate an economic slowdown or other economic or market disruptions;

●

changes in laws and regulations or the interpretation thereof;

●

changes in fiscal, monetary, and/or regulatory policies;

●

changes in tax polices including but not limited to changes in federal and state statutory rates;

●

behavior of securities and capital markets, including changes in market volatility and liquidity;

●

ability to effectively manage capital and liquidity;

●

long-term and short-term interest rate fluctuations, as well as the shape of the U.S. Treasury yield curve;

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●

the magnitude and frequency of changes to the FFTR implemented by the Federal Open Market Committee of the FRB;

●

competitive product and pricing pressures;

●

projections of revenue, expenses, capital expenditures, losses, EPS, dividends, capital structure, etc.;

●

descriptions of plans or objectives for future operations, products, or services;

●

integration of acquired financial institutions;

●

changes in the credit quality of Bancorp’s customers and counterparties, deteriorating asset quality and charge-off levels;

●

changes in technology instituted by Bancorp, its counterparties or competitors;

●

changes to or the effectiveness of Bancorp’s overall internal control environment;

●

adequacy of Bancorp’s risk management framework, disclosure controls and procedures and internal control over financial reporting;

●

changes in applicable accounting standards, including the introduction of new accounting standards;

●

changes in investor sentiment or consumer/business spending or savings behavior;

●

ability to appropriately address social, environmental and sustainability concerns that may arise from business activities;

●

integration of acquired businesses or future acquisitions;

●

occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics or outbreaks of hostilities, and Bancorp’s ability to deal effectively with disruptions caused by the foregoing;

●

ability to maintain the security of its financial, accounting, technology, data processing and other operational systems and facilities;

●

ability to withstand disruptions that may be caused by any failure of its operational systems or those of third parties;

●

ability to effectively defend itself against cyberattacks or other attempts by unauthorized parties to access information of Bancorp, its vendors or its customers or to disrupt systems; and

●

other risks and uncertainties reported from time-to-time in Bancorp’s filings with the SEC, including Part I Item 1A “Risk Factors”of Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020.

Bancorp executed a definitive Agreement and Plan of Merger (“agreement”), dated as of August 3, 2021, to acquire Commonwealth Bancshares, Inc. and its subsidiary Commonwealth Bank & Trust Company (collectively referred to as “Commonwealth”). This document also contains statements regarding the proposed acquisition transaction that are not statements of historical fact and are considered forward-looking statements within the criteria described above. These statements are likewise subject to various risks and uncertainties that may cause actual results and outcomes of the proposed transaction to differ, possibly materially, from the anticipated results or outcomes expressed or implied in these forward-looking statements. In addition to factors disclosed in reports filed by Bancorp with the SEC, risks and uncertainties for Bancorp, Commonwealth and the combined company include, but are not limited to: the possibility that some or all of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; the risk that integration of Commonwealth’s operations with those of Bancorp will be materially delayed or will be more costly or difficult than expected; the parties’ inability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory and other approvals; the failure of the proposed transaction to close for any other reason; diversion of management's attention from ongoing business operations and opportunities due to the ~~following: economic~~merger; the challenges of integrating and retaining key employees; the effect of the announcement of the merger on Bancorp’s, Commonwealth’s or the combined company’s respective customer and employee relationships and operating results; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; dilution caused by Bancorp’s issuance of additional shares of common stock in connection with the merger; the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market 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,business, results of operations orand financial condition of ~~Bancorp’s customers;~~Bancorp, Commonwealth and ~~other risks detailed in Bancorp’s filings with~~ the ~~Securities~~combined company; and ~~Exchange Commission, all of which are difficult to predict~~general competitive, economic, political and ~~many of which are beyond the control of Bancorp.~~market conditions and fluctuations.

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Acquisition of Kentucky Bancshares, Inc.

~~Stock Yards~~On May 31, 2021, Bancorp ~~inc.~~completed its acquisition of Kentucky Bancshares, Inc. and its wholly owned subsidiary,

~~Overview~~ Kentucky Bank, collectively defined as “KB,” a commercial bank and trust company operating 19 branches throughout central and eastern Kentucky with approximately $1.3 billion in assets, $755 million in loans (including PPP), $396 million in AFS debt securities and $1.0 billion in deposits at the time of ~~2017 through September 30, 2017~~acquisition. Kentucky Bancshares, Inc. was also the holding company for an insurance captive, which Bancorp acquired and retained. Bancorp acquired all outstanding common stock of Kentucky Bancshares, Inc. in a combined stock and cash transaction that resulted in total consideration paid to Kentucky Bancshares, Inc. shareholders of $233 million.

Bancorp ~~completed~~ has recorded goodwill of $123 million and incurred pre-tax merger related expenses totaling $0 and $18.5 million for the ~~first~~three and nine months ended September 30, 2021, respectively, as a result of ~~2017 with net~~the KB acquisition. Net income from the Kentucky Bancshares, Inc. acquisition is expected to be accretive to Bancorp’s overall operating results beginning in 2022.

The acquisition of ~~$33.1 million, an 8.8% increase over~~KB had a significant impact on the ~~comparable period in 2016. The increase is primarily due to higher net interest income, higher non-interest income,~~ACL and ~~a reduction in provision for~~ loan ~~losses. These increases were partially offset by higher non-interest expense. Diluted earnings per share~~loss provisioning for the ~~first~~ nine months ~~of 2017 were $1.44, compared with $1.34~~ending September 30, 2021. In total, acquisition-related activity served to increase the ACL $14.2 million for the ~~first~~ nine months ended September 30, 2021. This increase consisted of ~~2016. Bancorp's performance~~$6.8 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision expense), and $7.4 million attributed to the acquired non-PCD portfolio, which represents the acquisition-related provision expense for the ~~first~~ nine months ~~of 2017 reflected several positive factors, including:~~ended September 30, 2021.

Pending Acquisition of Commonwealth Bancshares, Inc. and its Subsidiary Commonwealth Bank & Trust Company

Effective August 3, 2021, Bancorp executed a definitive Agreement and Plan of Merger (“agreement”), pursuant to which Bancorp will acquire all of the outstanding common stock of privately-owned Commonwealth Bancshares, Inc. Commonwealth Bancshares, Inc., headquartered in Louisville, Kentucky, is the holding company for Commonwealth Bank & Trust Company (collectively referred to as “Commonwealth”), which operates 15 retail branches, including nine in Jefferson County, four in Shelby county and two in Northern Kentucky.

Under the terms of the Agreement, the Company will acquire all outstanding common stock in a combined stock and cash transaction, resulting in total consideration to Commonwealth’s shareholders of approximately $188 million based on estimates as of October 29, 2021. Bancorp will fund the cash payment portion of the acquisition through existing resources on-hand.

The acquisition is expected to close during the fourth quarter of 2021, subject to customary regulatory approval and completion of customary closing conditions. As of September 30, 2021, Commonwealth reported approximately $1.2 billion in assets, $711 million in loans (excluding PPP), $1.0 billion in deposits and $89 million in tangible common equity. Commonwealth also maintains a Wealth Management and Trust Department with total assets under management of $2.6 billion at September 30, 2021. The combined franchise will serve customers through 78 branches with total assets of approximately $7.4 billion, $4.9 billion in gross loans, $6.3 billion in deposits and over $7.1 billion in trust assets under management.

Issued but Not Yet Effective Accounting Standards Updates

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

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Business Segment Overview

Bancorp is divided into two reportable segments: Commercial Banking and WM&T:

Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, treasury management services, 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 in the Commercial Banking segment.

WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

Overview – Impact of the COVID-19 Pandemic on Financial Condition and Results of Operations

The COVID-19 pandemic in the U.S. and efforts to contain both the virus and the related economic fallout have had a complex and significant impact on the economy, the banking industry and Bancorp. While the distribution of vaccinations, continued easing of restrictions on public commerce and business activities, and stabilizing unemployment levels have been positive developments in recent months, the overall impact of the pandemic upon Bancorp, the Bank and its customers remains uncertain.

Bancorp’s financial condition and results of operations for the three and nine months ended September 30, 2021 have been significantly impacted by the following pandemic-related factors, among others:

●

The c~~ontinued positive effect of solid loan growth over the past 12 months, which has increased Bancorp’s net~~sustained low interest ~~income nearly 6% compared with that for the third quarter of 2016;~~rate environment and related NIM compression

●

~~A six basis point increase~~Significant participation in ~~net interest margin sequentially from~~ the ~~second quarter of 2017;~~SBA’s PPP

●

~~A reduction in the provision~~ ~~for loan losses as credit quality remained excellent;~~Overall excess balance sheet liquidity

●

~~Steady growth in fee income from~~The FRB’s Seasonally Adjusted National Civilian Unemployment Rate forecast and the ~~Wealth Management~~resulting impact to the ACL for loans and ~~Trust Group;~~off balance sheet credit exposures

The FRB’s decision to lower the FFTR 150 bps in March of 2020 in response to the pandemic lowered the FFTR to a range of 0%-0.25% and Prime to 3.25%, where both remained as of September 30, 2021. Consistent with the rate drops, key benchmark rates, such as the five-year treasury rate and one-month LIBOR, declined dramatically. While the interest rate environment has improved in recent quarters, key rates remain well below pre-pandemic levels.

Bancorp’s participation in the PPP has resulted in approximately 5,500 PPP loan originations totaling $918 million ($887 million net of unearned deferred fees and costs) since the program’s inception as part of the CARES Act, which was signed into law in March 2020. While the first round of PPP expired in August 2020, legislative action created a second round of funding for the program and subsequently extended the program to May 31, 2021.

As part of the first round of the PPP, Bancorp originated approximately 3,400 PPP loans totaling $657 million ($637 million net of unearned deferred fees and costs). As of September 30, 2021, 96% of the dollars originated in the first round have been forgiven. Further, approximately 99% of the $19.6 million in net fees received for this round have been recognized life to date. As these borrowers were required to begin making payments in July, accelerated forgiveness activity was experienced during the third quarter of 2021. Remaining round one originations are expected to be forgiven in the coming months.

As part of the second round of the PPP, Bancorp originated over 2,100 PPP loans totaling $261 million ($250 million net of unearned deferred fees and costs). As of September 30, 2021, 24% of the dollars originated in the second round have been forgiven and 34% of the $11.4 million in net fees received for this round have been recognized life to date. As these borrowers are not required to make payments for 16 months, Bancorp expects a significant portion of these borrowers will seek forgiveness in early to mid-2022 in connection with their tax return preparation.

As of September 30, 2021, outstanding PPP loans originated by KB and acquired by Bancorp totaled $12 million.

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Interest and fee income earned on the PPP portfolio totaled $4.4 million and $18.4 million for the three and nine month periods ending September 30, 2021, respectively, representing increases of $242,000 and $10.8 million over the same periods of the prior year. As of September 30, 2021, Bancorp had $8 million of net unearned deferred fees related to the PPP that have yet to be recognized and as a result, PPP loan forgiveness will have a major impact on operating results for the remainder of 2021 and the first part of 2022.

As a result of the PPP originations, forgiveness activity, record deposit levels and historically low interest rates, excess liquidity has created NIM compression, as well as challenges associated with deploying idle cash. Bancorp has made substantial investments in the AFS debt securities portfolio during 2021 an effort to deploy excess liquidity, however, prepayment activity within the MBS portfolio has made it challenging to grow the portfolio.

The ACL for loans (excluding acquisition related activity) decreased $5 million between December 31, 2020 and September 30, 2021, a stark contrast from the large increase recorded between December 31, 2019 and September 30, 2020, which included a $16 million reserve build that was separate and subsequent to the increases recorded effective January 1, 2020 in relation to the initial adoption of CECL. The pandemic had a material impact on ACL calculations in 2020, as provisioning surged amidst changes in forecasted economic conditions, especially the FRB’s Seasonally Adjusted National Civilian Unemployment Rate. After peaking towards the middle of last year, unemployment forecasts have improved, as have other underlying CECL model factors, resulting in the provision reduction recorded during the first nine months of 2021.

While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced a decrease between December 31, 2020 and September 30, 2021. A net benefit of $1.4 million was recorded to provision for credit losses for off balance sheet exposures during the first nine months of 2021, as loss factors associated with the calculation have improved in recent months and line of credit utilization continues to increase, although it remains below pre-pandemic levels. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.

Bancorp has not incurred any significant challenges to its ability to maintain its systems and controls in light of the measures taken to prevent the spread of COVID-19 and has not incurred significant resource constraints through the implementation of its business continuity plans and does not anticipate incurring such issues in the future. Bancorp has not made, and at this time does not expect to make, any material staffing or compensation changes as a result of the pandemic.

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Overview – Operating Results (FTE)

The following table presents an overview of Bancorp’s financial performance for the three months ended September 30, 2021 and 2020:

(dollars in thousands, except per share data)							Variance
Three months ended September 30,	2021			2020			$/bp		%

Net income	$	23,162		$	14,533		$	8,629		59	%
Diluted earnings per share	$	0.87		$	0.64		$	0.23		36	%
ROA		1.50	%		1.34	%		16 bps		12	%
ROE		13.92	%		13.57	%		35 bps		3	%

Additional discussion follows under the section titled “Results of Operations.”

General highlights for the three months ended September 30, 2021 compared to September 30, 2020:

●

~~A tax benefit from~~Net income totaled $23.2 million, resulting in diluted EPS of $0.87 for the ~~wind-down~~three months ended September 30, 2021, a 36% increase over $0.64 for the same period of ~~a tax-credit partnership; and~~2020.

●

~~Solid retur~~nsThe three months ended September 30, 2021 represented the first full quarter of activity associated with the KB acquisition, which contributed approximately $8.3 million in net interest income, $3.0 million in non-interest income and $6.5 million in non-interest expense.

●

Net interest income increased $11.8 million, or 35%, for the three months ended September 30, 2021 compared to the same period of 2020. The increase was driven by the KB acquisition, strong organic loan growth and a $984,000 decrease in interest expense stemming from the strategic lowering of deposit rates in tandem with FRB interest rate actions to levels at or below those offered during the Great Recession, where they remained as of September 30, 2021.

●

NIM decreased 12 bps to 3.14% for the three months ended September 30, 2021 compared to 3.26% for the same period in 2020. Substantial growth in federal funds sold, interest bearing due from banks and the AFS debt securities portfolio resulting from excess liquidity and efforts to deploy it, coupled with a sustained low rate environment that has continued to put pressure on ~~average~~loan yields drove NIM compression for the three months ended September 30, 2021 compared to the same period of 2020.

●

Total loans (excluding PPP loans) increased $1.1 billion, or 40%, compared to September 30, 2020, driven by adding $755 million in loans (including PPP) on May 31, 2021 in relation to the KB acquisition and $376 million of organic growth. Average loans (excluding PPP loans) also increased $1.1 billion, or 39%, for the three months ended September 30, 2021 compared to the same period in 2020, $738 million of which was attributed to the acquisition.

●

As a result of generally improving CECL model factors, including an improved unemployment forecast, a net benefit of $1.5 million was recorded for total provision for credit losses during the three months ended September 30, 2021. In contrast, total provision for credit loss expense of $5.0 million was recorded for the three months ended September 30, 2020. The adoption of CECL (ASC 326) effective January 1, 2020 and subsequent pandemic-related developments, such as elevated unemployment and historic declines in line of credit utilization amidst the evolving pandemic resulted in elevated provisioning for credit losses throughout 2020.

●

Deposit balances increased $1.6 billion compared to September 30, 2020, as a result of assuming approximately $1.0 billion in deposits on May 31, 2021 related to the KB acquisition and the general trend of customers maintaining elevated levels of liquidity. Deposits have remained elevated for several quarters and finished at record levels as of September 30, 2021 (both including and excluding acquisition-related activity), as PPP funding and multiple federal stimulus packages have led to customers generally holding higher levels of liquidity.

●

Total non-interest income increased $4.6 million, or 35%, for the three-month period ended September 30, 2021 compared to the same period of 2020. As previously noted, the quarter benefitted from the first full quarter of activity related to the KB acquisition, which totaled approximately $3.0 million. All non-interest income revenue streams experienced significant increases over the same quarter of the prior year, with the exception of mortgage banking, which experienced a significant decrease as a result of slowing volumes compared to the pandemic-driven re-finance rush that benefitted 2020.

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●

Non-interest expenses increased $8.9 million, or 35%, for the quarter ended September 30, 2021 compared to the same period of 2020. The first full quarter of activity related to the KB acquisition added approximately $6.5 million in non-interest expenses. Compensation and employee benefits combined to drive over half of the increase over the same quarter of the prior year, driven largely by acquisition-related growth in FTEs and higher incentive compensation, while the majority of other non-interest expense categories also saw significant increases for the three months ended September 30, 2021 compared to the same period of last year.

The following table presents an overview of Bancorp’s financial performance for the nine months ended September 30, 2021 and 2020:

(dollars in thousands, except per share data)							Variance
Nine months ended September 30,	2021			2020			$/bp		%

Net income	$	50,056		$	41,133		$	8,923		22	%
Diluted earnings per share	$	2.03		$	1.81		$	0.22		12	%
ROA		1.25	%		1.33	%		(8) bps		-6	%
ROE		12.37	%		13.22	%		(85) bps		-6	%

General highlights for the nine months ended September 30, 2021 compared to September 30, 2020:

●

Bancorp completed its acquisition of KB during the second quarter. At the time of acquisition, KB had approximately $1.3 billion in assets, $755 million in loans (including PPP), $396 million in AFS debt securities and ~~equity.~~$1.0 billion in deposits.

●

Net income totaled $50.1 million, resulting in diluted EPS of $2.03 for the nine months ended September 30, 2021, a 12% increase over $1.81 for the same period of 2020.

●

The nine months ended September 30, 2021 include four months of activity associated with the KB acquisition, which contributed approximately $11.2 million in net interest income, $4.3 million in non-interest income and $8.8 million in non-interest expense (excluding one-time merger related expenses). In addition, one-time merger related expenses totaling $19.0 million (including $525,000 related to the pending Commonwealth acquisition) and credit loss expense on the acquired loan portfolio of $7.4 million were recorded for the nine months ended September 30, 2021.

●

Net interest income increased $25.2 million, or 25%, for the nine months ended September 30, 2021 compared to the same period of 2020, as PPP forgiveness activity accelerated fee recognition and strong growth in the non-PPP loan portfolio attributed to the acquisition and organic production drove a $20.0 million, or 18%, increase in total interest income. Further, a $5.2 million, or 53%, decrease in interest expense was driven by the lowering of deposit rates in tandem with FRB interest rate actions to levels at or below those offered during the Great Recession, where they remained as of September 30, 2021.

●

NIM decreased 11 bps to 3.29% for the nine months ended September 30, 2021 compared to 3.40% for the same period in 2020. Despite the continued erosion of yields on earning assets attributed to the FRB lowering the FFTR a total of 150 bps in March 2020, net interest income increased $25.3 million, or 25%, driven by both accelerated fee recognition associated PPP forgiveness activity and substantial growth in the non-PPP loan portfolio. These rate drops drove the FFTR to a range of 0%-0.25% and Prime to 3.25%, where both respectively remained as of September 30, 2021. The five-year treasury rate and one-month LIBOR tumbled in tandem with these cuts as well, and while the five-year treasury has staged a recovery over the first nine months of 2021, it remains well below pre-pandemic levels. Given the timing of the cuts, the full effects of the dramatically lower interest rate environment were not felt in the first quarter of last year, benefiting NIM for the nine months ended September 30, 2020 compared to the same period of this year.

●

Total loans (excluding PPP loans) increased $1.1 billion, or 40%, compared to September 30, 2020. While loans totaling $722 million were added on May 31, 2021 as a result of the KB acquisition (excluding PPP), strong organic growth also contributed to the substantial increase. Average loans (excluding PPP loans) increased $549 million, or 19%, for the nine months ended September 30, 2021 compared to the same period in 2020, $329 million of which was attributed to the acquisition.

●

Total provision for credit losses was $1.1 million for the nine months ended September 30, 2021, representing a $16.8 million, or 94%, decrease compared to the same period of 2020. The adoption of CECL (ASC 326) effective January 1, 2020 and subsequent pandemic-related developments, such as elevated unemployment and historic declines in line of credit utilization amidst the evolving pandemic drove elevated provisioning for the nine months ended September 30, 2020. While a cumulative net benefit of $6.3 million was recorded for credit losses on loans and off balance sheet credit exposures during the nine months ended September 30, 2021 as a result generally improving CECL model factors, including an improved unemployment forecast, a provision of $7.4 million was recorded in relation to the acquisition of Kentucky Bancshares.

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●

Deposit balances increased $1.6 billion compared to September 30, 2020, as a result of assuming $1.0 billion in deposits on May 31, 2021 related to the KB acquisition and the general trend of customers maintaining elevated levels of liquidity. Deposits have remained elevated for several quarters and finished at record levels as of September 30, 2021 (both including and excluding acquisition-related activity), as PPP funding and multiple federal stimulus packages have led to customers holding higher levels of liquidity.

●

Total non-interest income increased $9.0 million, or 24%, for the nine-month period ended September 30, 2021 compared to the same period of 2020. As previously noted, the nine months ended September 30, 2021 benefitted from four months of activity related to the KB acquisition, which totaled approximately $4.3 million. All non-interest income revenue streams experienced significant increases over the same period of the prior year, with the exception of mortgage banking, which experienced a significant decrease as a result of slowing volumes compared to the pandemic-driven re-finance rush that benefitted 2020.

●

Non-interest expenses increased $35.1 million, or 48%, for the nine months ended September 30, 2021 compared to the same period of 2020. As previously noted, one-time merger-related expenses totaling $19.0 million were recorded for the nine months ended September 30, 2021, driving a large portion of the increase. Excluding these one-time costs, activity related to the KB acquisition added approximately $8.8 million in non-interest expenses. Compensation and employee benefits combined to make up 62% of the remaining increase over the same period of 2020, driven largely by acquisition-related growth in FTEs and higher incentive compensation, while the majority of other non-interest expense categories also saw significant increases for the nine months ended September 30, 2021 compared to the same period of last year.

Results of Operations

Net Interest Income - Overview

As is the case with most banks, ~~Bancorp~~’sBancorp’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~~New business volume is 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~~Comparative information regarding net interest income increased $4.4 million, or 6.1%, for the first nine months of 2017, compared with 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.follows:

~~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.

(dollars in thousands)							Variance
As of and for the three months ended September 30,	2021			2020			$/bp		%

Net interest income	$	45,483		$	33,695		$	11,788		35	%
Net interest income (FTE)		45,643			33,768			11,875		35	%
Net interest spread		3.08	%		3.13	%		(5) bps		-2	%
Net interest margin		3.14	%		3.26	%		(12) bps		-4	%
Total average interest earning assets	$	5,760,760		$	4,120,400		$	1,640,360		40	%

~~Total non-interest income in the~~ first nine months of 2017 increased $1.4 million, or 4.2%, compared with the same period in 2016, and comprised 30.0% of total revenues, as compared to 31.6% for the same period in 2016. Continuing the trends of 2016, Bancorp’s wealth management and trust department (WM&T) led the increase with a 7.4%, or $1.1 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 as compared to the same period 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% 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.

(dollars in thousands)							Variance
As of and for the nine months ended September 30,	2021			2020			$/bp		%

Net interest income	$	124,892		$	99,669		$	25,223		25	%
Net interest income (FTE)		125,178			99,834			25,344		25	%
Net interest spread		3.22	%		3.22	%		0 bps		0	%
Net interest margin		3.29	%		3.40	%		(11) bps		-3	%
Total average interest earning assets	$	5,091,596		$	3,923,255		$	1,168,341		30	%

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

~~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, is a measure of a company's capital which is useful in evaluating the quality and adequacy of capital. The ratio of tangible common equity to total tangible assets was 10.54% as of September 30, 2017, compared with 10.26% at December 31, 2016. 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.~~

a)	~~Results Of Operations~~

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.~~

~~Table of Contents~~

~~Stock Yards~~NIM and net interest spread calculations above exclude the sold portion of certain participation loans. These sold loans are recorded on Bancorp’s balance sheet as required by GAAP because Bancorp ~~inc. and subsidiary~~retains some form of effective control; however, Bancorp receives no net interest income on the sold portion. These participation loans sold are excluded from analysis, as Bancorp believes it provides a more accurate depiction of the performance of its loan portfolio.

~~Net Interest Income~~At September 30, 2021, Bancorp’s loan portfolio was composed of approximately 71% fixed and 29% variable rate loans, with the fixed rate portion pricing (including PPP loans) generally based on a spread to the five-year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 66%) or one-month LIBOR (approximately 34%). Excluding PPP loans, Bancorp’s loan portfolio at September 30, 2021 was composed of approximately 69% fixed and 31% variable rate loans, respectively.

~~The following table present~~sBenchmark rates such as the five-year treasury and one-month LIBOR currently remain well below pre-pandemic levels and as a result, the average ~~balance sheets~~interest rate environment experienced for the three and nine month periods ended September 30, ~~2017~~2021 was substantially lower than that experienced for the same periods of 2020. The following table details the volatility experienced within the interest rate environment over the past twelve months by comparing period end and ~~2016 along~~quarterly average rates:

	September 30,			June 30,			March 31,			December 31,			September 30,
	2021			2021			2021			2020			2020

Five-year Treasury note - period end		0.98	%		0.87	%		0.92	%		0.36	%		0.28	%
Five-year Treasury note - quarterly average		0.80	%		0.84	%		0.62	%		0.37	%		0.27	%
Prime rate - period end		3.25	%		3.25	%		3.25	%		3.25	%		3.25	%
Prime rate - quarterly average		3.25	%		3.25	%		3.25	%		3.25	%		3.25	%
One-month LIBOR - period end		0.08	%		0.10	%		0.12	%		0.14	%		0.15	%
One-month LIBOR - quarterly average		0.09	%		0.10	%		0.12	%		0.15	%		0.16	%

With 66% of the variable rate loan portfolio tied to Prime and the majority with floor rates of 4.00%, short-term rates would have to increase over 75 bps for these loans to move above their floor rates given Prime is at 3.25% as of September 30, 2021. Beyond potential ongoing pricing pressure/competition and the ~~related calculation~~absolute low level of ~~tax-equivalent net interest income, net interest margin~~rates, the current economic outlook and ~~net~~prospects of a sustained low-rate environment continues to pose challenges regarding potential ongoing NIM compression.

Net Interest Income (FTE) – Three months ended September 30, 2021 compared to September 30, 2020

Net interest spread and NIM were 3.08% and 3.14%, for the ~~related periods. See~~three months ended September 30, 2021 compared to 3.13% and 3.26% for the ~~notes following~~same period in 2020, respectively. NIM during the ~~tables for further explanation.~~three months ended September 30, 2021 was significantly impacted by the following:

~~Average Balances and Interest Rates - Taxable Equivalent Basis~~

Three months ended September 30,

2017

2016

Average

Average

Average

Average

(Dollars in thousands)

balances

Interest

rate

balances

Interest

rate

Earning assets:

Federal funds sold and interest bearing deposits
$ 120,927 $ 388 1.27
%
$ 72,673 $ 95 0.52
%
Mortgage loans held for sale
3,515 48 5.42 5,070 66 5.18
Securities:

Taxable
387,696 1,920 1.96 406,481 1,984 1.94
Tax-exempt
51,905 388 2.97 59,981 426 2.83
FHLB stock and other securities
7,666 83 4.30 6,347 63 3.95
Loans, net of unearned income
2,289,435 25,484 4.42 2,171,772 23,511 4.31
Total earning assets
2,861,144 28,311 3.93 2,722,324 26,145 3.82

Less allowance for loan losses
25,434 23,634
2,835,710 2,698,690
Non-earning assets:

Cash and due from banks
41,550 41,682
Premises and equipment
41,395 42,665
Accrued interest receivable and other assets
108,433 100,109

Total assets
$ 3,027,088 $ 2,883,146

Interest bearing liabilities:

Deposits:

Interest bearing demand deposits
$ 725,822 $ 418 0.23
%
$ 698,874 $ 232 0.13
%
Savings deposits
150,332 55 0.15 136,292 11 0.03
Money market deposits
691,726 741 0.43 655,912 346 0.21
Time deposits
232,773 379 0.65 247,237 352 0.57
Securities sold under agreements to repurchase
73,806 33 0.18 68,835 38 0.22
Federal funds purchased and other short term borrowings
27,535 77 1.11 23,471 19 0.32
FHLB advances
50,221 244 1.93 44,194 184 1.66

Total interest bearing liabilities
1,952,215 1,947 0.40 1,874,815 1,182 0.25

Non-interest bearing liabilities:

Non-interest bearing demand deposits
697,815 656,689
Accrued interest payable and other liabilities
46,194 42,597
Total liabilities
2,696,224 2,574,101

Stockholders’ equity
330,864 309,045

Total liabilities and stockholders’ equity
$ 3,027,088 $ 2,883,146
Net interest income
$ 26,364 $ 24,963
Net interest spread
3.53
%
3.57
%
Net interest margin
3.66
%
3.65
%

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

~~Average Balances and Interest Rates - Taxable Equivalent Basis~~

Nine months ended September 30,

2017

2016

Average

Average

Average

Average

(Dollars in thousands)

balances

Interest

rate

balances

Interest

rate

Earning assets:

Federal funds sold and interest bearing deposits
$ 97,543 $ 798 1.09
%
$ 100,653 $ 395 0.52
%
Mortgage loans held for sale
3,656 145 5.30 4,918 185 5.02
Securities:

Taxable
406,476 5,944 1.96 413,508 6,135 1.98
Tax-exempt
53,568 1,186 2.96 61,417 1,298 2.82
FHLB stock and other securities
6,801 229 4.50 6,347 190 4.00
Loans, net of unearned income
2,275,320 74,055 4.35 2,113,744 68,238 4.31

Total earning assets
2,843,364 82,357 3.87 2,700,587 76,441 3.78

Less allowance for loan losses
24,891 23,057
2,818,473 2,677,530
Non-earning assets:

Cash and due from banks
40,547 40,097
Premises and equipment
41,798 41,500
Accrued interest receivable and other assets
106,035 94,263

Total assets
$ 3,006,853 $ 2,853,390

Interest bearing liabilities:

Deposits:

Interest bearing demand deposits
$ 739,295 $ 1,076 0.19
%
$ 710,417 $ 735 0.14
%
Savings deposits
147,471 123 0.11 134,004 35 0.03
Money market deposits
693,656 1,968 0.38 652,406 1,060 0.22
Time deposits
239,250 1,070 0.60 254,172 1,086 0.57
Securities sold under agreements to repurchase
67,556 100 0.20 60,438 100 0.22
Federal funds purchased and other short term borrowings
20,581 125 0.81 25,021 57 0.30
FHLB advances
50,541 715 1.89 43,533 552 1.69

Total interest bearing liabilities
1,958,350 5,177 0.35 1,879,991 3,625 0.26

Non-interest bearing liabilities:

Non-interest bearing demand deposits
680,831 637,812
Accrued interest payable and other liabilities
43,437 34,844
Total liabilities
2,682,618 2,552,647

Stockholders’ equity
324,235 300,743

Total liabilities and stockholders’ equity
$ 3,006,853 $ 2,853,390
Net interest income
$ 77,180 $ 72,816
Net interest spread
3.52
%
3.52
%
Net interest margin
3.63
%
3.60
%

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

N~~otes to the average balance and interest rate tables:~~

●

~~Net~~A sustained low interest ~~income,~~rate environment, driven by the ~~most significant component~~lowering of the ~~Bank's earnings is total interest income less total interest expense. The level~~FFTR in March 2020 to a range of ~~net interest income is determined by mix and volume~~0% - 0.25%, which resulted in Prime dropping to 3.25%, where it remained as of ~~interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates.~~September 30, 2021.

●

~~Net interest spread is~~PPP originations, which began in the ~~difference between taxable equivalent~~ ~~rates earned~~second quarter of 2020 and continued through expiration of the program on ~~interest earning assets less~~May 31, 2021, as well as the related forgiveness activity, which accelerates the recognition of fee income on these loans and continues to have a significant effect on NIM. The PPP portfolio contributed a 14 bps benefit to NIM during the third quarter of 2021, as a result of the forgiveness-driven fee recognition. By comparison, the PPP portfolio had a negative impact of 12 bps on NIM for the third quarter of 2020 due to the large amount of originations that occurred over the three-month period ended September 30, 2020 and the effect that these low-yielding, 1% stated rate ~~expensed~~notes had on ~~interest bearing liabilities.~~NIM for that period.

●

~~Net~~Overall excess balance sheet liquidity, which contributed approximately 26 bps of NIM compression for the three months ended September 30, 2021. By comparison, excess balance sheet liquidity contributed approximately 11 bps of NIM compression for the same period of 2020. Excess liquidity within the banking system in general has also led to a highly competitive loan rate environment.

●

Substantial balance sheet growth, both organic and acquisition-related, which resulted in total average earning asset growth of $1.6 billion, or 40%, and average interest-bearing liability growth of $987 million, or 38%, for the three months ended September 30, 2021 compared to the same period of 2020. Approximately $1.0 billion of average earning asset growth and $800 million of interest-bearing liability growth was attributed to the acquisition for the three months ended September 30, 2021 compared to the same period of 2020.

●

The lowering of deposit rates in tandem with FRB interest ~~margin represents net~~rate actions and beyond to levels at or below rates offered during the Great Recession, where they remained as of September 30, 2021.

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Net interest income increased $11.9 million, or 35%, for the three months ended September 30, 2021 compared to the same period of 2020, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth and substantial investment in the AFS debt securities portfolio.

Total average interest earning assets increased $1.6 billion, or 40%, to $5.8 billion for the three months ended September 30, 2021, as compared to the same period of 2020, with the average rate earned on total interest earning assets contracting 26 bps to 3.24%.

●

Average total loan balances increased $729 million, or 21%, for the three months ended September 30, 2021 compared to the same period of 2020. Average non-PPP loan growth of $1.1 billion, or 39%, was driven by $738 million of acquisition-related growth and strong organic growth, which was partially offset by a ~~taxable equivalent basis~~$360 million, or 56%, decline in average PPP loan balances, as forgiveness activity has accelerated in 2021.

●

Average AFS debt securities grew $593 million for the three months ended September 30, 2021 compared to the same period of 2020. While approximately $288 million of this growth was attributed to the acquisition, Bancorp has invested $325 million in the AFS debt securities portfolio in 2021, as a ~~percentage~~means of average interest earning assets. Net interest margin is affected by both interest rate spread and the level of non-interest bearing sources of funds, primarily consisting of demand deposits and stockholders~~’ equity.~~deploying excess liquidity.

Total interest income increased $10.9 million, or 30%, to $47.1 million for the three months ended September 30, 2021, as compared to the same period of 2020.

●

Interest and fee income on loans increased $9.5 million, or 28%, to $43.4 million and the yield on the total loan portfolio increased 21 bps to 4.13% for the three months ended September 30, 2021 compared to the same period of 2020, attributed largely to fee income associated with the PPP portfolio. While average balances on the non-PPP loan portfolio grew substantially and interest income on the non-PPP loan portfolio increased $9.3 million, or 31%, for the three months ended September 30, 2021 compared to the same period of 2020 largely as a result of the KB acquisition, the yield on the non-PPP loan portfolio decreased 24 bps to 3.98% as a result of the substantially lower interest rate environment.

●

Despite significant growth in average AFS debt securities and a $1.3 million increase interest income on the portfolio for the three months ended September 30, 2021 compared to the same period of 2020, the lower interest rate environment experienced over the past twelve months weighed heavily on fixed income security yields, which decreased 54 bps, or 30%.

Total average interest bearing liabilities increased $987 million, or 38%, to $3.6 billion for the three-month period ended September 30, 2021 compared with the same period in 2020, with the total average cost declining 21 bps to 0.16%.

●

Average interest bearing deposits increased $1.0 billion, or 40%, for the three months ended September 30, 2021 compared to the same period in 2020, with interest-bearing demand deposits accounting for $555 million of the increase. Average interest bearing deposits added as a result of the KB acquisition drove $797 million of the increase along with significant federal stimulus action over the past year, such as PPP funding, which has propelled deposit balances to record levels over the past 12 months. Further, general economic uncertainty surrounding the pandemic has resulted in the customer base maintaining higher levels of liquidity, similar to customer behavior seen during the Great Recession.

●

Consistent with the higher interest bearing deposit balances noted above, average SSUAR balances increased $30 million, or 74%, for the three months ended September 30, 2021 compared to the same period of 2020. SSUAR balances added as a result of the KB acquisition accounted for $11 million of the increase.

●

Average FHLB advances decreased $49 million, or 83%, for the three months ended September 30, 2021 compared to the same period of 2020, as advances have continued to mature without renewal or replacement over the past year, including a $20 million three month advance relating to a cash flow hedge interest rate swap. In addition, Bancorp elected to pay down certain advances during the first quarter of 2021 prior to maturity without incurring pre-payment penalties.

Total interest expense decreased $984,000, or 40%, for the three months ended September 30, 2021 compared to the same period of 2020, a direct result of deposit rate reductions implemented in response to the falling interest rate environment and to a lesser extent, the reduction in interest expense on FHLB advances.

●

Total interest bearing deposit expense decreased $704,000, or 33%, driving a 17 bps decrease in the cost of average total interest bearing deposits.

●

Interest expense on FHLB advances declined $282,000, or 85%, as a result of the substantial reduction in average FHLB advances outstanding.

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Net Interest Income (FTE) – Nine months ended September 30, 2021 compared to September 30, 2020

Net interest spread and NIM were 3.22% and 3.29%, for the six months ended September 30, 2021 compared to 3.22% and 3.40% for the same period in 2020, respectively. NIM during the nine months ended September 30, 2021 was significantly impacted by the following:

●

A sustained low interest rate environment, driven by the lowering of the FFTR in March 2020 to a range of 0% - 0.25%, which resulted in Prime dropping to 3.25%, where it remained as of September 30, 2021.

●

PPP originations, which began in the second quarter of 2020 and continued through expiration of the program on May 31, 2021, as well as the related forgiveness activity, which accelerates the recognition of fee income on these loans and continues to have a significant effect on NIM. The PPP portfolio contributed a 20 bps benefit to NIM for the nine months ended September 30, 2021 as a result of forgiveness-driven fee recognition. In comparison, the PPP portfolio had a negative impact of 9 bps on NIM for the nine months ended September 30, 2020 due to the large amount of originations that occurred in 2020 and the affect that these low-yielding, 1% stated rate notes had on NIM for the period.

●

Overall excess balance sheet liquidity, which contributed approximately 19 bps of NIM compression for the nine months ended September 30, 2021. By comparison, excess balance sheet liquidity contributed approximately 13 bps of NIM compression for the same period of 2020. Excess liquidity within the banking system in general has led to a highly competitive loan rate environment.

●

Substantial balance sheet growth, both organic and acquisition-related, which resulted in total average earning asset growth of $1.2 billion, or 30%, and average interest-bearing liability growth of $663 million, or 26%, for the nine months ended September 30, 2021 compared to the same period of 2020. Approximately $481 million of average earning asset growth and $363 million of interest-bearing liability growth was attributed to the acquisition for the nine months ended September 30, 2021 compared to the same period of 2020.

●

The lowering of deposit rates in tandem with FRB interest rate actions and beyond to levels at or below rates offered during the Great Recession, where they remained as of September 30, 2021.

Net interest income increased $25.3 million, or 25%, for the nine months ended September 30, 2021 compared to the same period of 2020, due to interest and fee income associated with the PPP portfolio, substantial growth in the non-PPP loan portfolio and AFS debt securities portfolio, and the aforementioned lowering of deposit rates.

Total average interest earning assets increased $1.2 billion, or 30%, to $5.1 billion for the nine months ended September 30, 2021, as compared to the same period of 2020, with the average rate earned on total interest earning assets contracting 32 bps to 3.41%.

●

Average total loans increased $632 million, or 19%, for the nine months ended September 30, 2021 compared to the same period of 2020. Average non-PPP loan balances grew $549 million, or 19%, for the nine months ended September 30, 2021 compared to the same period of 2020, approximately $329 million of which was attributed to the acquisition, the remaining increase being the result of the strong organic growth. Average PPP loan balances increased $83 million, or 21%, for the nine months ended September 30, 2021 compared to the same period of 2020, as the prior year period had yet to experience the full effects of second round PPP originations.

●

Average AFS debt securities grew $397 million, or 92%, for the nine months ended September 30, 2021 compared to the same period of 2020. The majority of this increase was attributed to strategic efforts to deploy excess liquidity through AFS debt security purchases, while $129 million of the increase was attributed to the acquisition.

Total interest income increased $20.2 million, or 18%, to $129.9 million for the nine months ended September 30, 2021, as compared to the same period of 2020.

●

Interest and fee income on loans increased $18.8 million, or 18%, to $120.6 million for the nine months ended September 30, 2021 compared to the same period of 2020, driven by accelerated recognition of the fee income related to forgiveness activity within the PPP portfolio and the contribution attributed to the KB acquisition.

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●

Significant growth in average AFS debt securities drove an increase of $1.8 million, or 27%, for interest income on the portfolio for the nine months ended September 30, 2021 compared to the same period of 2020. However, the lower interest rate environment experienced over the past twelve months weighed heavily on fixed income security yields, which decreased 69 bps, or 34%.

Total average interest bearing liabilities increased $663 million, or 26%, to $3.2 billion for the nine-month period ended September 30, 2021 compared with the same period in 2020, with the total average cost declining 32 bps to 0.19%.

●

Average interest bearing deposits increased $688 million, or 28%, for the nine months ended September 30, 2021 compared to the same period in 2020, with interest-bearing demand deposits accounting for $429 million of the increase. Interest bearing deposits added as a result of the KB acquisition accounted for $358 million of the increase along with significant federal stimulus action, such as PPP funding, which has propelled deposit balances to record levels over the past 12 months. Further, general economic uncertainty surrounding the pandemic has resulted in the customer base maintaining higher levels of liquidity, similar to customer behavior seen during the Great Recession.

●

Consistent with the higher interest bearing deposit balances noted above, average SSUAR balances increased $19 million, or 50%, for the nine months ended September 30, 2021 compared to the same period of 2020. SSUAR added as a result of the KB acquisition drove $5 million of the increase.

●

Average FHLB advances decreased $46 million, or 70%, for the nine months ended September 30, 2021 compared to the same period of 2020, as advances have continued to mature without renewal or replacement over the past year, including a $20 million three month advance relating to a cash flow hedge interest rate swap. In addition, Bancorp elected to pay down certain advances during the first quarter of 2021 prior to maturity without incurring pre-payment penalties. During the second quarter of 2021, Bancorp chose to payoff $14 million of term advances, with a weighted average cost of 2.03%, prior to their maturity incurring an early-termination fee of $474,000, recorded as a component non-interest expense. Bancorp made this decision due to its excess liquidity driven by the substantial deposit growth it achieved over the past 12 months, combined with the near-term outlook for low interest rates.

Total interest expense decreased $5.2 million, or 53%, for the nine months ended September 30, 2021 compared to the same period of 2020, a direct result of deposit rate reductions implemented in response to the falling interest rate environment and to a lesser extent, the reduction in interest expense on FHLB advances.

●

Total interest bearing deposit expense decreased $4.3 million, or 50%, driving a 28 bps decrease in the cost of average total interest bearing deposits.

●

Interest expense on FHLB advances declined $822,000, or 73%, as a result of the substantial reduction in average FHLB advances outstanding.

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Average Balance Sheets and Interest Rates (FTE) – Three-Month Comparison

	Three months ended September 30,
	2021								2020
	Average				Average				Average				Average
(dollars in thousands)	Balance		Interest		Rate				Balance		Interest		Rate

Interest earning assets:
Federal funds sold and interest bearing due from banks	$	532,549	$	208		0.15	%		$	194,100	$	54		0.11	%
Mortgage loans held for sale		8,875		53		2.37				28,520		173		2.41
Available for sale debt securities:
Taxable		1,009,674		3,206		1.26				433,923		1,973		1.81
Tax-exempt		25,038		122		1.93				8,166		55		2.68
Total securities		1,034,712		3,328		1.28				442,089		2,028		1.82

Federal Home Loan Bank stock, at cost		11,364		83		2.90				11,284		56		1.97

SBA Paycheck Protection Program (PPP) loans		281,420		4,423		6.24				640,998		4,181		2.59
Non-PPP loans		3,891,840		39,013		3.98				2,803,409		29,725		4.22
Total loans		4,173,260		43,436		4.13				3,444,407		33,906		3.92

Total interest earning assets		5,760,760		47,108		3.24				4,120,400		36,217		3.50

Less allowance for credit losses on loans		61,324								48,331

Non-interest earning assets:
Cash and due from banks		65,682								47,535
Premises and equipment, net		77,855								57,121
Bank owned life insurance		52,631								32,988
Goodwill		136,369								12,513
Accrued interest receivable and other		107,203								103,274
Total assets	$	6,139,176							$	4,325,500

Interest bearing liabilities:
Deposits:								��
Interest bearing demand	$	1,700,631	$	470		0.11	%		$	1,145,791	$	298		0.10	%
Savings		400,288		37		0.04				198,533		6		0.01
Money market		965,518		168		0.07				772,600		159		0.08
Time		459,348		728		0.63				404,914		1,644		1.62
Total interest bearing deposits		3,525,785		1,403		0.16				2,521,838		2,107		0.33

Securities sold under agreements to repurchase		71,065		6		0.03				40,832		7		0.07
Federal funds purchased		10,983		5		0.18				8,877		2		0.09
Federal Home Loan Bank advances		10,000		51		2.02				59,487		333		2.23


Total interest bearing liabilities		3,617,833		1,465		0.16				2,631,034		2,449		0.37

Non-interest bearing liabilities:
Non-interest bearing demand deposits		1,771,432								1,186,007
Accrued interest payable and other		89,812								82,410
Total liabilities		5,479,077								3,899,451

Stockholders’ equity		660,099								426,049
Total liabilities and stockholder's equity	$	6,139,176							$	4,325,500

Net interest income			$	45,643							$	33,768

Net interest spread						3.08	%							3.13	%

Net interest margin						3.14	%							3.26	%

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Average Balance Sheets and Interest Rates (FTE) – Nine-Month Comparison

	Nine months ended September 30,
	2021							2020
	Average				Average			Average				Average
(dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate

Interest earning assets:
Federal funds sold and interest bearing due from banks	$	361,713	$	358		0.13	%	$	216,014	$	673		0.42	%
Mortgage loans held for sale		10,703		175		2.19			17,202		359		2.79
Available for sale debt securities:
Taxable		813,199		8,245		1.36			422,687		6,434		2.03
Tax-exempt		18,030		228		1.69			11,057		217		2.62
Total securities		831,229		8,473		1.36			433,744		6,651		2.05

Federal Home Loan Bank stock, at cost		11,312		204		2.41			11,284		197		2.33

SBA Paycheck Protection Program (PPP) loans		473,185		18,359		5.19			390,120		7,573		2.59
Non-PPP loans		3,403,454		102,285		4.02			2,854,891		94,244		4.41
Total loans		3,876,639		120,644		4.16			3,245,011		101,817		4.19

Total interest earning assets		5,091,596		129,854		3.41			3,923,255		109,697		3.73

Less allowance for credit losses on loans		57,620							42,894

Non-interest earning assets:
Cash and due from banks		55,707							45,032
Premises and equipment, net		66,818							57,455
Bank owned life insurance		41,962							32,813
Goodwill		67,674							12,513
Accrued interest receivable and other		97,984							90,267
Total assets	$	5,364,121						$	4,118,441

Interest bearing liabilities:
Deposits:
Interest bearing demand	$	1,515,903	$	1,242		0.11	%	$	1,086,866	$	1,460		0.18	%
Savings		303,150		59		0.03			185,892		29		0.02
Money market		902,040		423		0.06			755,747		1,362		0.24
Time		413,885		2,624		0.85			418,080		5,825		1.86
Total interest bearing deposits		3,134,978		4,348		0.19			2,446,585		8,676		0.47

Securities sold under agreements to repurchase		57,980		16		0.04			38,595		31		0.11
Federal funds purchased		10,505		11		0.14			9,208		33		0.48
Federal Home Loan Bank advances		19,398		301		2.07			65,751		1,123		2.28


Total interest bearing liabilities		3,222,861		4,676		0.19			2,560,139		9,863		0.51

Non-interest bearing liabilities:
Non-interest bearing demand deposits		1,517,423							1,067,969
Accrued interest payable and other		82,599							74,738
Total liabilities		4,822,883							3,702,846

Stockholders’ equity		541,238							415,595
Total liabilities and stockholder's equity	$	5,364,121						$	4,118,441

Net interest income			$	125,178						$	99,834

Net interest spread						3.22	%						3.22	%

Net interest margin						3.29	%						3.40	%

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Supplemental Information - Average Balance Sheets and Interest Rates (FTE)

●

Average loan balances include the principal balance of non-accrual loans, as well as unearned income such as loan premiums, discounts, fees/costs and exclude participation loans accounted for as secured borrowings. Participation loans averaged $5 million and $8 million for the three-month periods ended September 30, 2021 and 2020, respectively, and $7 million and $8 million for the nine-month periods ended September 30, 2021 and 2020, respectively.

●

Interest income on a ~~fully tax equivalent~~FTE basis includes additional ~~amount~~samounts of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal taxes yielding the same after-tax income. Interest income on municipal securities and tax-exempt loans has been calculated on a ~~fully tax equivalent~~FTE basis using a federal income tax rate of ~~35%~~21%. Approximate tax equivalent adjustments to interest income were ~~$199 thousand~~$160,000 and ~~$203 thousand, respectively,~~$73,000 for the ~~three month~~three-month periods ended September 30, ~~2017~~2021 and ~~2016~~2020, respectively, and ~~$599 thousand~~$286,000 and ~~$637 thousand, respectively,~~$165,000 for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2021 and ~~2016.~~2020, respectively.

●

~~Average balances for loans include~~Interest income includes loan fees of $4.1 million ($3.7 million associated with the ~~principal balance of non-accrual loans~~PPP) and ~~exclude participation loans accounted for as secured borrowings. These participation loans averaged~~ ~~$19.4~~$2.8 million ~~and $16.3~~($2.5 million ~~respectively,~~associated with the PPP) for the ~~three month~~three-month periods ended September 30, ~~2017~~2021 and ~~2016~~2020, respectively, and ~~$18.9~~$16.3 million ($14.9 million associated with the PPP) and ~~$11.2~~$5.6 million ~~respectively,~~($4.6 million associated with the PPP) for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2021 and ~~2016.~~2020, respectively. Interest income on loans may be impacted by the level of prepayment fees collected and accretion related to purchased loans.

~~Fully taxable equivalent net interest income of $~~26.4 million for the three months ended September 30, 2017 increased $1.4 million, or 5.6%, from $25.0 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 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 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.
●
Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense. The level of net interest income is determined by mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates.

●

NIM represents net interest income on a FTE basis as a percentage of total average interest earning assets.

~~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.

●

Net interest spread (FTE) is the difference between taxable equivalent rates earned on total interest earning assets less the cost of interest bearing liabilities.

●

The fair market value adjustment on investment securities resulting from ASC 320, “Investments – Debt and Equity Securities” is included as a component of other assets.

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

Average earning assets increased $138.8 million or 5.1% to $2.9 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, as compared with the same period in 2016. Increases in the volume of interest bearing demand deposits, savings deposits, money market deposit accounts, securities sold under agreements to repurchase, and FHLB advances, were partially offset by decreases in volume of time deposits, and other short term borrowing products.

Asset/Liability Management and Interest Rate Risk

Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, 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.

Interest Rate Simulation Sensitivity Analysis

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~~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 simulation analysis, which shows minimal~~Bancorp’s interest rate simulation sensitivity ~~indicates~~analysis details that ~~Bancorp is asset sensitive as~~ increases in interest rates of 100 toand 200 ~~basis points~~bps would have a ~~positive~~negative effect on ~~net~~ interest ~~income. If~~income, respectively. These results are attributed to over half of the variable rate loan portfolio being currently at or near floor rates, ~~raise 200 basis points,~~as these yields will not increase until short-term rates exceed these floor rates. For example, a significant portion of the variable rate loan portfolio is tied to Prime, with floor rates of 4.00%. Given Prime is at 3.25% as of September 30, 2021, short-term rates would have to increase over 75 bps for these loans to move above their floor rates.

The decrease 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 slower than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in athe down 100 ~~basis point rate scenario.~~bps scenario, as rates on non-maturity deposits cannot be lowered sufficiently to offset declining interest income. These estimates are summarized below.

		~~Net~~ ~~interest~~ ~~income %~~ ~~change~~
~~Increase 200 bp~~		~~2.12~~
~~Increase 100 bp~~		~~1.03~~
~~Decrease 100 bp~~		~~(4.27~~)
~~Decrease 200 bp~~		~~(11.10)~~

	Change in Rates
		-200		-100		+100			+200
	Basis Points		Basis Points			Basis Points			Basis Points
% Change from base net interest income at September 30, 2021		N/A		-3.36	%		-2.54	%		-1.76	%

~~Approximately 61% of Bancorp’s loan portfolio has fixed rates and 39% of its~~Bancorp’s loan portfolio is ~~priced at variable rates. With the Prime rate~~ currently ~~at 4.25%,~~composed of approximately 71% fixed and ~~after the .25% increase in Prime in June of 2017, the majority of Bancorp’s~~29% variable rate loans, ~~now have~~with the fixed rate portion pricing (including PPP loans) generally based on a spread to the five-year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 66%) or one-month LIBOR (approximately 34%). Bancorp’s loan portfolio (excluding PPP loans) at September 30, 2021 was composed of approximately 69% fixed and 31% variable rate loans.

Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at ~~or above their floors.~~

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

~~Undesignated~~the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments ~~described in Note~~ ~~18 to Bancorp’s consolidated financial statements~~and 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. For additional information, see the footnote titled “Assets and Liabilities Measured and Reported at Fair Value.”

~~Derivatives~~In addition, Bancorp uses derivative financial instruments as part of its interest rate risk management, including interest rate swaps. These interest rate swaps are designated as cash flow hedges as described in ~~Note~~ ~~18 to Bancorp’s consolidated financial statements are recognized on~~ the ~~consolidated balance sheet at fair value, with changes in fair value due to changes in prevailing interest rates, recorded net~~footnote titled “Derivative Financial Instruments.” For these derivatives, the effective portion of ~~tax in other comprehensive income.~~

~~Provision for Loan Losses~~

~~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~~gains or losses is ~~calculated after considering credit quality factors,~~reported as a component of OCI, and ~~ultimately relies on~~is subsequently reclassified into earnings as an ~~overall internal analysis of risk~~adjustment to interest expense in the loan portfolio. The provision reflects an allowance methodology that is driven by risk ratings, historical losses, and qualitative factors. The provision for the first nine months of 2017, and the resulting allowance level, reflected a number of factors, including stable and acceptable credit quality metrics, modest loan growth during the period, and an expansion of the historical look-back period from 24 quarters to 28 quarters. This expansion of the look-back period was applied to all classes and segments of the portfolio. 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 at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available 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.hedged forecasted transaction impacts earnings.

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

Provision for Credit Losses

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

(dollars in thousands)

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Balance at the beginning of the period
$ 25,115 $ 23,141 $ 24,007 $ 22,441
Provision for loan losses
150 1,250 1,650 2,500
Loan charge-offs, net of recoveries
(317 ) (22 ) (709 ) (572 )
Balance at the end of the period
$ 24,948 $ 24,369 $ 24,948 $ 24,369
Average loans, net of unearned income
$ 2,289,436 $ 2,188,089 $ 2,275,320 $ 2,124,921
Provision for loan losses to average loans (1)
0.01 % 0.06 % 0.07 % 0.12 %
Net loan charge-offs to average loans (1)
0.01 % 0.00 % 0.03 % 0.03 %
Allowance for loan losses to average loans
1.09 % 1.11 % 1.09 % 1.15 %
Allowance for loan losses to period-end loans
1.07 % 1.10 % 1.07 % 1.10 %

(1) Amounts not annualized

	Three months ended						Nine months ended
	September 30,						September 30,
(dollars in thousands)	2021			2020			2021			2020

Beginning balance	$	59,424		$	47,708		$	51,920		$	26,791
KB acquisition - PCD loans (goodwill adjustment)		—			—			6,757			—
CECL - cumulative adjustment		—			—			—			9,856
Adjusted balance		59,424			47,708			58,677			36,647
Provision for credit losses - loans		(1,000	)		4,418			(4,900	)		15,518
Provision for credit losses - KB acquisition		—			—			7,397			—
Total charge-offs		(2,215	)		(1,698	)		(5,779	)		(1,970	)
Total recoveries		324			73			1,138			306
Net loan (charge-offs) recoveries		(1,891	)		(1,625	)		(4,641	)		(1,664	)
Ending balance	$	56,533		$	50,501		$	56,533		$	50,501
Average loans	$	4,173,260		$	3,444,407		$	3,876,639		$	3,245,011
Provision for credit losses on loans to average loans (1)		-0.02	%		0.13	%		0.06	%		0.48	%
Net loan (charge-offs) recoveries to average loans (1)		-0.05	%		-0.05	%		-0.12	%		-0.05	%
ACL on loans to total loans		1.35	%		1.45	%		1.35	%		1.45	%
ACL on loans to total loans (excluding PPP) (2)		1.43	%		1.78	%		1.43	%		1.78	%
ACL on loans to average loans		1.35	%		1.47	%		1.46	%		1.56	%

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.

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

(in thousands)

Three months

Nine months

ended September 30,

ended September 30,

Net loan charge-offs (recoveries)

2017

2016

2017

2016

Commercial and industrial
$ 280 $ 18 $ 642 $ 375
Construction and development, excluding undeveloped land
- (11 ) - (21 )
Undeveloped land
- - - -
Real estate mortgage - commercial investment
(16 ) (67 ) (52 ) (226 )
Real estate mortgage - owner occupied commercial
- (9 ) - 305
Real estate mortgage - 1-4 family residential
(1 ) 64 (5 ) 63
Home equity
(5 ) (34 ) 4 (34 )
Consumer
59 61 120 110
Total net loan charge-offs (recoveries)
$ 317 $ 22 $ 709 $ 572

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

~~Non-interest~~ ~~Income and Expenses~~
(1) Ratios are not annualized
(2) See the section titled “Non-GAAP Financial Measures” for reconcilement of Non-GAAP to GAAP measures

The ~~following table sets forth major components~~ACL for loans totaled $57 million as of ~~non-interest income and expenses for~~ ~~the three and nine month periods ended~~ September 30, ~~2017~~2021 compared to $52 million at December 31, 2020, representing an ACL to total loans ratio of 1.35% and ~~2016.~~

Three months

Nine months

ended September 30,

ended September 30,

(In thousands)

2017

2016

% Change

2017

2016

% Change

Non-interest income:

Wealth management and trust services
$ 5,025 $ 4,800 4.7
%
$ 15,272 $ 14,219 7.4
%
Service charges on deposit accounts
2,522 2,544 (0.9 ) 7,368 6,952 6.0
Bankcard transactions
1,492 1,455 2.5 4,412 4,198 5.1
Mortgage banking
781 1,072 (27.1 ) 2,380 2,896 (17.8 )
Gain (loss) on calls of securities available for sale
31 - 0.0 31 - 0.0
Securities brokerage
551 558 (1.3 ) 1,584 1,539 2.9
Bank owned life insurance
204 216 (5.6 ) 964 657 46.7
Other
497 713 (30.3 ) 1,564 1,757 (11.0 )
Total non-interest income
$ 11,103 $ 11,358 (2.2
)%
$ 33,575 $ 32,218 4.2
%

Non-interest expenses:

Salaries and employee benefits
$ 12,983 $ 12,048 7.8
%
$ 39,244 $ 36,214 8.4
%
Net occupancy
1,621 1,646 (1.5 ) 4,765 4,716 1.0
Data processing
1,920 1,747 9.9 5,909 5,172 14.2
Furniture and equipment
316 277 14.1 861 853 0.9
FDIC insurance
242 356 (32.0 ) 716 1,035 (30.8 )
Amortization of investment in tax credit partnerships
616 1,015 (39.3 ) 1,847 3,046 (39.4 )
Other
3,619 3,429 5.5 10,469 9,215 13.6
Total non-interest expenses
$ 21,317 $ 20,518 3.9
%
$ 63,811 $ 60,251 5.9
%

1.47% for those periods, respectively. 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~~ACL to total loans (excluding PPP loans) was 1.43% at September 30, ~~2017, a 12.5% increase~~2021 compared to ~~$2.4 billion~~1.74% at December 31, 2020. Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled $231 million (net of unamortized deferred fees) at September 30, ~~2016. AUM are stated~~2021 and $550 million at ~~market value~~December 31, 2020, Bancorp did not generally reserve for potential losses for these loans within the ACL. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

Upon adoption of ASC 326 effective January 1, 2020, Bancorp recorded an increase of $8.2 million to the ACL for loans and ~~while the 2017 increase was partially the result of~~ a ~~rising stock market during the period, primarily it represents a continuance~~corresponding decrease to retained earnings, net of the ~~2016 trend~~DTA impact. In addition, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassed between the amortized cost basis of loans and corresponding ACL, which were subsequently charged-off in the third quarter of 2020 with no resulting impact to provision expense. The adjustment upon adoption of ASC 326 raised the ACL for ~~new clients added. WM&T revenue, which constitutes an average~~loans balance to $37 million on January 1, 2020.

Due to continued improvement in the unemployment forecast, updates to Bancorp’s CECL modeling and strong historic credit metrics, benefits (excluding acquisition-related activity) of ~~45% of non-interest income, increased $225 thousand, or 4.7%~~$1.0 million and ~~$1.1~~$4.9 million ~~or 7.4%~~were recorded for the three and nine month periods ended September 30, ~~2017 respectively,~~2021, respectively. Offsetting the reduction for the nine-month period ended September 30, 2021, was credit loss expense on loans associated with the non-PCD loan portfolio added as a result of the KB acquisition, which was recorded during the second quarter and totaled $7.4 million.

The activity noted above drove provision expense decreases of $5.4 million and $13.0 million compared to the same periods of 2020. The significantly higher expense recorded for the three and nine months ended September 30, 2020 was the result of adopting of CECL effective January 1, 2020 and the subsequent pandemic-related developments experienced in ~~2016. Recurring fees, which generally comprise over 98%~~the first three quarters of 2021, particularly elevated unemployment forecasts.

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In addition to the provision activity noted above for the first nine months of 2021, the ACL for loans was also increased $6.8 million as a result of the ~~WM&T revenue,~~PCD loan portfolio added through the KB acquisition during the second quarter, with the corresponding offset recorded to goodwill (as opposed to provision expense). Partially offsetting this increase was net charge off activity of $1.9 million and $4.6 million for the three and nine-month periods ended September 30, 2021, respectively, serving to reduce the ACL for loans. Net charge off activity for 2021 has been highlighted by the charge off of two CRE relationships totaling $4.4 million, as the charged off amounts were fully reserved and had no income statement impact for the three and nine months ended September 30, 2021, in addition to a $555,000 recovery of a note that was fully charged off in 2020.

Provision for credit losses on loans at September 30, 2021 represents the amount of expense that, based on Management’s judgment, is required to maintain the ACL for loans at an appropriate level under the CECL model. The determination of the amount of the ACL for loans is complex and involves a high degree of judgment and subjectivity. See the footnote titled “Basis of Presentation and Summary of Significant Accounting Policies” for detailed discussion regarding Bancorp’s ACL methodology by loan segment in this document and Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020.

While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures experienced a decrease between December 31, 2020 and September 30, 2021. Net benefits were recorded for the three and nine-month periods ended September 30, 2021, respectively, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.

Bancorp’s loan portfolio is diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis and Cincinnati metropolitan markets. The adequacy of the allowance is monitored on an ongoing basis and it is the opinion of management that the balance of the allowance at September 30, 2021 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.

Non-interest Income

	Three months ended September 30,										Nine months ended September 30,
(dollars in thousands)	2021		2020		$ Change			% Change			2021		2020		$ Change			% Change

Wealth management and trust services	$	7,128	$	5,657	$	1,471			26	%	$	20,234	$	17,601	$	2,633			15	%
Deposit service charges		1,768		998		770			77			3,945		3,081		864			28
Debit and credit card income		3,887		2,218		1,669			75			9,444		6,261		3,183			51
Treasury management fees		1,771		1,368		403			29			5,041		3,901		1,140			29
Mortgage banking income		915		1,979		(1,064	)		(54	)		3,662		4,447		(785	)		(18	)
Net investment product sales commissions and fees		780		431		349			81			1,789		1,288		501			39
Bank owned life insurance		275		172		103			60			642		527		115			22
Other		1,090		220		870			395			2,489		1,095		1,394			127
Total non-interest income	$	17,614	$	13,043	$	4,571			35	%	$	47,246	$	38,201	$	9,045			24	%

Total non-interest income increased ~~$340 thousand or 7.4% and $1.4~~$4.6 million, or ~~10.7%~~35%, and $9.0 million, or 24%, for the ~~respective~~three and nine-month periods ended September 30, 2021 compared to the same periods of 2020, respectively. Non-interest income comprised 27.9% and 27.4% of total revenues, defined as net interest income and non-interest income, for the three and nine month periods ended September 30, ~~2017, as~~2021 compared to 27.9% and 27.7% for the same periods of 2020, respectively. WM&T services comprised 40.5% and 42.8% of total non-interest income for the three and nine-month periods ended September 30, 2021 compared to 43.4% and 46.1% for the same periods of 2020, respectively. The KB acquisition added $3.0 million and $4.3 million in ~~2016.~~ total non-interest income for the three and nine-month periods ended September 30, 2021, concentrated most notably in deposit service charges, debit and credit card income, and mortgage banking income.

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WM&T Services:

The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $1.5 million, or 26%, and $2.6 million, or 15%, for the three and nine month periods ended September 30, 2021, as compared with the same periods of 2020, respectively. Stock market appreciation, coupled with record net new business development, drove the substantial revenue increases for these periods. WM&T income of $333,000 and $455,000 was recorded in relation to the KB acquisition for the three and nine-month periods ended September 30, 2021.

Recurring fees earned for managing 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 the vast majority of WM&T revenue, increased $1.3 million, or 23% and $2.8 million, or 17% for the three and nine-month periods ended September 30, 2021, as compared with the same periods of 2020. The increases for the three and nine month periods stem from significant stock market appreciation experienced in addition to both organic and acquisition-related growth in net new business.

A portion of WM&T revenue, most notably executor ~~insurance,~~ and ~~some~~certain 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.~~activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees increased $180,000 and decreased ~~$115 thousand and $393 thousand~~$192,000, for the three and nine ~~months~~month periods ended September 30, ~~2017,~~2021, as compared towith the same periods ~~in 2016, primarily due~~of 2020. The increase for the three-month period is attributed to ~~a decrease in~~ estate fees recorded during the third quarter of 2021, while the decrease for the nine month period was driven by a large estate fee recorded in the first quarter of 2020.

AUM, stated at market value, totaled $4.5 billion at September 30, 2021 compared with $3.4 billion at September 30, 2020 and $3.9 billion at December 31, 2020. The large increase in AUM between September 30, 2020 and September 30, 2021 is attributed mainly to ~~period.~~ significant stock market appreciation experienced in addition to growth in net new business and AUM of $250 million added through the KB acquisition.

Contracts between WM&T and their ~~clients~~customers do not permit ~~performance based~~performance-based fees and accordingly, none of the ~~fees earned by~~ WM&T ~~are~~revenue is 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.

~~Table~~

Detail of ~~Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~WM&T Service Income by Account Type:

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2021		2020		2021		2020

Investment advisory	$	3,148	$	2,491	$	8,823	$	7,190
Personal trust		1,855		1,482		5,481		5,572
Personal investment retirement		1,330		1,118		3,823		3,181
Company retirement		503		355		1,302		1,049
Foundation and endowment		208		152		581		434
Custody and safekeeping		40		34		112		94
Brokerage and insurance services		25		18		69		37
Other		19		7		43		44

Total WM&T services income	$	7,128	$	5,657	$	20,234	$	17,601

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

• ~~Approximately 80% of WM&T’s assets are actively managed.~~

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

• ~~The amount of custody and safekeeping accounts is insignificant, and~~

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

Assets Under Management by Account Type

September 30, 2017

September 30, 2016

Assets

Assets

(in thousands)

Managed

Non-
managed
(1)

Managed

Non-
managed
(1)

Personal trust accounts
$ 567,222 $ 96,005 $ 512,905 $ 62,221
Personal investment retirement accounts
340,159 7,142 311,215 10,024
Corporate retirement accounts
56,515 382,803 53,190 335,613
Investment advisory accounts
995,769 20,169 867,776 -
Foundation and endowment accounts
220,722 - 224,213 -

Total fiduciary accounts
$ 2,180,387 $ 506,119 $ 1,969,299 $ 407,858
Custody and safekeeping accounts
- 59,490 - 35,773

Totals
$ 2,180,387 $ 565,609 $ 1,969,299 $ 443,631
Total managed and non-managed assets
$ 2,745,996 $ 2,412,930

~~(1) Non-managed assets represent those for which WM&T does not have investment discretion.~~

~~Table of Contents~~

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

~~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:~~

	•	~~Managed assets are invested in instruments for which market values can be readily determined.~~
	•	~~The majority of these instruments are sensitive to market fluctuations.~~
	•	~~The composition of WM&T’s managed assets is divided approximately 60% in equities and 40% in fixed income securities, and this composition is relatively consistent from year to year, and~~

~~No Stock Yards Bank propriety mutual funds exist, and therefore no such investment options are available to WM&T clients.~~

Managed Assets by Class of Investment

As of September 30,

(in thousands)

2017

2016

Interest bearing deposits
$ 122,787 $ 127,570
US Treasury and government agency obligations
42,293 50,020
State, county and municipal obligations
132,431 126,394
Money market mutual funds
8,211 13,718
Equity mutual funds
548,972 453,995
Other mutual funds - fixed, balanced, and municipal
310,779 319,240
Other notes and bonds
120,155 88,463
Common and preferred stocks
795,732 688,543
Real estate mortgages
373 392
Real estate
43,664 44,572
Other miscellaneous assets (1)
54,990 56,392

Total managed assets
$ 2,180,387 $ 1,969,299

~~(1) Includes rights, warrants, annuities, insurance policies, unit investment trusts, and oil and gas rights.~~

~~Table of Contents~~

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

~~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~~ 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 predominantly based on AUM and tailored for ~~individual~~individual/company 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, recurring AUM fee structures are in place for investment management, irrevocable trusts, revocable trusts, ~~IRA~~personal investment retirement accounts and accounts holding only fixed income securities. ~~There are also fee structures for estate settlements, which are non-recurring, and~~Company retirement plan services ~~which typically~~can consist of a one-time conversion fee with recurring AUM fees to follow. ~~All fees~~While there are ~~based on the market value of each account and are tiered based on account size. Fees~~also fee structures for estate settlements, income received is often non-recurring in nature. Fee structures are agreed upon at the time ~~the~~of account ~~is opened and these~~opening and any subsequent revisions are communicated in writing to the customer. Fees earned are not ~~performance based~~performance-based nor are they based on investment strategy or transactions.

Wealth Management and Trust Services Income

Three months

Nine months

ended September 30,

ended September 30,

(In thousands)

2017

2016

2017

2016

Personal trust accounts
$ 1,691 $ 1,707 $ 5,523 $ 5,427
Personal retirement accounts
832 778 2,426 2,229
Corporate retirement accounts
373 408 1,161 1,162
Investment advisory accounts
1,895 1,681 5,471 4,789
Foundation and endowment
135 126 400 364
Custody and safekeeping
36 27 119 73
Brokerage and insurance
9 13 28 35
Other
54 60 144 140

Total
$ 5,025 $ 4,800 $ 15,272 $ 14,219

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Assets Under Management by Account Type:

~~Other Non-interest~~ ~~Income~~AUM (not included on balance sheet) increased from $3.9 billion at December 31, 2020 to $4.5 billion at September 30, 2021 as follows:

	September 30, 2021						December 31, 2020
(in thousands)	Managed		Non-managed (1)		Total		Managed		Non-managed (1)		Total
Investment advisory	$	1,754,255	$	36,468	$	1,790,723	$	1,547,742	$	72,696	$	1,620,438
Personal trust		914,433		130,292		1,044,725		721,150		112,053		833,203
Personal investment retirement		578,739		3,385		582,124		506,005		3,241		509,246
Company retirement		37,423		608,217		645,640		40,006		481,222		521,228
Foundation and endowment		318,572		2,620		321,192		281,986		2,532		284,518

Subtotal	$	3,603,422	$	780,982	$	4,384,404	$	3,096,889	$	671,744	$	3,768,633
Custody and safekeeping		—		121,159		121,159		—		83,004		83,004

Total	$	3,603,422	$	902,141	$	4,505,563	$	3,096,889	$	754,748	$	3,851,637

(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion.

As of both September 30, 2021 and ~~Non-interest Expense~~December 31, 2020, approximately 80%, respectively, of AUM were actively managed. Company retirement plan accounts primarily consist of participant-directed assets. The amount of custody and safekeeping accounts are insignificant.

~~Service~~Managed Trust Assets under Management by Class of Investment:

(in thousands)	September 30, 2021		December 31, 2020

Interest bearing deposits	$	117,852	$	168,344
Treasury and government agency obligations		23,584		31,719
State, county and municipal obligations		113,420		119,344
Money market mutual funds		3,470		58,493
Equity mutual funds		883,681		752,476
Other mutual funds - fixed, balanced, and municipal		553,632		441,275
Other notes and bonds		167,771		165,828
Common and preferred stocks		1,598,320		1,238,973
Real estate mortgages		2,101		190
Real estate		59,397		51,682
Other miscellaneous assets (1)		80,194		68,565

Total managed assets	$	3,603,422	$	3,096,889

(1) Includes client directed instruments including rights, warrants, annuities, insurance policies, unit investment trusts,and oil and gas rights.

Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 68% in equities and 32% in fixed income securities as of September 30, 2021 compared to 64% and 36% as of December 31, 2020. This composition has been relatively consistent from period to period and the WM&T Department holds no proprietary mutual funds.

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Additional Sources of Non-interest income:

Deposit service charges, ~~on deposit accounts~~ ~~decreased $22 thousand~~which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased $770,000, or ~~1% while increasing $416 thousand,~~77%, and $864,000, or ~~6.0%~~28%, for the three and nine month periods ~~of 2017, respectively,~~ended September 30, 2021, as compared with the same periods of 2020, respectively. These increases were attributed largely to the contribution associated with the KB acquisition, however, the prior year periods were also negatively impacted by the pandemic. Consistent with the industry, customer behavior and transaction volume have been impacted by the pandemic and continued government efforts to minimize its impact on the economy, such as stimulus payments, PPP funding and more lucrative unemployment compensation. Deposit balances have remained at or near record levels for several months as a result, which has in ~~2016. The decline quarter over quarter was driven by a~~turn led to fewer overdrawn accounts. These trends have significantly exacerbated the industry-wide decline in the volume of fees assessed on overdrawn checking accounts. This component of service charge income is generally driven by transaction volume, which can fluctuate throughout 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 the nine month period ended September 30, 2017, as compared to the same period in 2016. Fees chargedearned on overdrawn checking accounts ~~declined 4% year~~experienced over ~~year.~~the past several years. While Bancorp has experienced notable improvement since first experiencing significant pandemic-related declines in transaction volume in April 2020, Management ~~expects~~is not able to predict when, or if, this ~~source~~revenue stream will return to pre-pandemic levels.

Debit and credit card income consists of interchange revenue, ~~to slowly decline due to changes in customer behavior~~ancillary fees and ongoing regulatory restrictions. Service charges were further impacted by the introduction of a new checking account product in the third quarter of 2016. The product provides ancillary services to customers, while carrying a monthly service charge. The income associated with the new checking account product was approximately $641 thousandincentives received from card processors. Debit and credit card revenue increased $1.7 million, or 75%, and $3.2 million, or 51%, for the ~~first 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,~~three and ~~$214 thousand, or 5.1% for the first nine months of 2017, as compared~~nine-month periods ended September 30, 2021, as compared with the same periods ~~in 2016. Bankcard~~of 2020, as a result of increased transaction ~~revenue primarily represents income~~volume and continued expansion of the ~~Bank derives from customers’ use of debit~~customer bases, both organically and through acquisition-related activity. Debit and credit ~~cards.~~card revenue of approximately $1.1 million and $1.5 million was added for the three and nine-month periods ended September 30, 2021 as a result of the KB acquisition. Total debit card income increased $1.2 million, or 81%, and $2.3 million, or 53%, and total credit card income increased $449,000, or 63%, and $896,000, or 46%, for the three and nine-month periods ended September 30, 2021 compared the same periods of the prior year.

Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp ~~began offering credit cards to business customers late in 2015. Revenue on credit cards totaled $276 thousand~~ and ~~$795 thousand~~increased $403,000, or 29%, and $1.1 million, or 29%, for the three and nine month periods ~~of 2017, respectively,~~ending September 30, 2021, as compared ~~to $206 thousand and $520 thousand for~~with the same periods of 2020, respectively. New product sales and expansion of its customer base have helped Bancorp’s Treasury Management department overcome challenges presented by the pandemic. Demand for Bancorp’s treasury products has increased during the pandemic, as these products allow customers to operate more efficiently in ~~2016.~~a decentralized environment. In addition, sales efforts involving existing customers has led to increases in online services, reporting, ACH origination, remote deposit and fraud mitigation services during the first three quarters of 2021. Bancorp ~~expects volume of credit card transactions~~anticipates this income category will continue to increase ~~as this product is expanded~~based on continued customer base growth and the expanding suite of services offered within the commercial customer base. Interchange income on debit cards declined $35 thousand and $66 thousand in the three and nine month periods of 2017, respectively, compared to the same periods in 2016. Bancorp expects future decreases in interchange rates on debit cards as merchants structure their technology and processes to take advantage of lower transactional pricing options, which do not favor Bancorp or the banking industry as a whole.

~~Table of Contents~~

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

Bancorp’s treasury management platform.

Mortgage banking ~~revenue~~income primarily includes gains on sales of mortgage ~~loans. Bancorp~~’sloans and loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary ~~market.~~market, primarily to FNMA. Interest rates on the mortgage loans sold are locked with the borrower and investor prior to loan closing, ~~the loans,~~ thus Bancorp bears no interest rate risk related to ~~these loans. The department~~loans held for sale. Bancorp offers conventional, VA and FHA financing for purchases and refinances, as well as programs for first-time ~~home buyers. Changes in interest~~homebuyers. Interest rates on mortgage loans directly ~~impact~~influence the volume of business transacted by the ~~mortgage banking~~mortgage-banking department. Mortgage banking revenue decreased ~~$291 thousand~~$1.1 million, or ~~27.1%~~54%, and ~~$516 thousand,~~$785,000, or ~~17.8%~~18%, for the ~~respective~~ three and nine month periods ended September 30, ~~2017~~2021, as compared with the same periods ~~in 2016, primarily due to lower transaction volume. In Bancorp’s primary market~~ of ~~Louisville, Kentucky the housing inventory~~2020, respectively. Mortgage banking revenue of approximately $330,000 and $592,000 was ~~low, particularly in the first half of 2017, contributing to this decline.~~

~~Securities brokerage commissions and fees decreased $7 thousand or 1.3% while increasing $45 thousand, or 2.9%,~~added for the ~~respective~~ three and ~~nine month~~nine-month periods ended September 30, ~~2017~~2021 as ~~compared with~~a result of the ~~same~~KB acquisition. The following activity also influenced mortgage banking income for the periods ~~in 2016. Revenue fluctuations correspond primarily to overall brokerage volume. Brokerage~~noted above:

●

Sustained low long-term rates have incentivized refinancing and purchasing activity, which has resulted in elevated mortgage banking income over the past year. Including the gain on sale earned, Bancorp sold $46 million and $188 million loans during the three and nine-month periods ended September 30, 2021 compared to $94 million and $191 million for the same periods of 2020, respectively. Bancorp expects volume to continue normalizing as the pool of potential customers who have yet to refinance shrinks, general housing inventory remains limited and interest rates rise above the absolute low levels experienced over the past year.

●

Beginning in the fourth quarter of 2020, the Bank elected to retain a select portion of FNMA qualified secondary market single family residential real estate loan production from the mortgage banking department on balance sheet in an effort to deploy a portion of excess liquidity in lieu of buying mortgage-backed securities within the AFS debt securities portfolio. Continuing into 2021, approximately $63 million in 15 and 30 year fixed rate loans were retained in the first nine months of 2021 as part of this strategy, forgoing approximately $2.2 million in year-to-date gain on sale that would typically have been recognized in Mortgage banking income.

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Net investment product sales commissions and fees ~~earned consist~~are generated primarily ofon stock, bond and mutual fund sales, as well as wrap fees on brokerage accounts. Wrap fees ~~are~~represent 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~~financial advisors primarily through its branch network via an arrangement with a third party broker-dealer, while larger managed accounts are serviced ~~in the Bank’s~~by Bancorp’s WM&T ~~department.~~

~~Bank Owned Life Insurance (BOLI) income totaled~~ ~~$204 thousand~~Department. Net investment product sales commissions and fees increased $349,000, or 81%, and $501,000, or 39%, for the ~~third quarter~~three and ~~$964 thousand for the first~~ nine ~~months of 2017,~~month periods ended September 30, 2021, as compared ~~to $216 thousand and $657 thousand for~~with the same periods ~~in 2016. The year to date increase in 2017 over 2016, was primarily due to $348 thousand in death benefit proceeds recorded in~~of 2020, respectively. Net investment product sales commissions and fees associated with the ~~second quarter of 2017.~~ KB acquisition totaled approximately $239,000 and $298,000 for the three and nine-month periods ended September 30, 2021.

BOLI assets represent the cash surrender value ~~for~~of life insurance policies on certain ~~current~~active and ~~prior~~non-active employees who have provided consent for Bancorp to be the beneficiary offor 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. BOLI income increased $103,000, or 60%, and $115,000, or 22%, for the three and nine month periods ending September 30, 2021 compared to the same periods of the prior year attributed almost entirely to the contribution of the KB acquisition.

Other non-interest income ~~decreased $216 thousand~~increased $870,000 and $1.4 million for the three and nine-month periods ended September 30, 2021 as compared with the same periods of 2020, respectively. These increases were driven by a plethora of activity, most notably the addition of the insurance captive, stronger market returns on insurance policies outside of traditional BOLI, increased swap fee income and gains on OREO sold.

Non-interest Expenses

	Three months ended September 30,										Nine months ended September 30
(dollars in thousands)	2021		2020		$ Change			% Change			2021		2020		$ Change			% Change

Compensation	$	17,381	$	13,300	$	4,081			31	%	$	45,888	$	37,296	$	8,592			23	%
Employee benefits		3,662		2,853		809			28			10,290		8,891		1,399			16
Net occupancy and equipment		2,732		2,177		555			25			7,021		6,045		976			16
Technology and communication		3,173		2,323		850			37			8,189		6,385		1,804			28
Debit and credit card processing		1,479		649		830			128			3,160		1,908		1,252			66
Marketing and business development		1,011		523		488			93			2,357		1,548		809			52
Postage, printing, and supplies		630		472		158			33			1,499		1,355		144			11
Legal and professional		700		544		156			29			1,828		1,795		33			2
FDIC insurance		387		435		(48	)		(11	)		1,141		894		247			28
Amortization of investments in tax credit partnerships		53		52		1			2			315		141		174			123
Capital and deposit based taxes		556		1,076		(520	)		(48	)		1,541		3,331		(1,790	)		(54	)
Merger expenses		525		-		525			100			19,025		-		19,025			100
FHLB early termination penalty		-		-		-			0			474		-		474			100
Other		2,269		1,242		1,027			83			4,980		3,041		1,939			64
Total non-interest expenses	$	34,558	$	25,646	$	8,912			35	%	$	107,708	$	72,630	$	35,078			48	%

Total non-interest expenses increased $8.9 million, or ~~30.3%~~35%, and ~~$193 thousand,~~$35.1 million, or ~~11%~~48%, for the ~~respective~~three and nine-month periods ended September 30, 2021 compared to the same periods of 2020, respectively. Compensation and employee benefits comprised 60.9% and 52.2% of Bancorp’s total non-interest expenses for the three and nine-month periods ended September 30, 2021, compared to 63.0% and 63.6% for the same periods of 2020, respectively. Excluding merger expenses, compensation and employee benefits comprised 61.8% and 63.3% of total non-interest expenses for the three and nine-month periods ended September 30, 2021. On-going non-interest expense totaling $6.5 million and $8.8 million were added for the three and nine-month periods ended September 30, 2021 as a result of the KB acquisition (excluding merger expenses).

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Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $4.1 million, or 31%, and $8.6 million, or 23%, for the three and nine month periods ended September 30, 2017 compared with the same periods in 2016. The primary driver of the decline was swap fee income, which declined $116 thousand in the third quarter and $251 thousand for the first nine months of 2017,2021, as compared with the same periods of 2020, respectively. The increases were attributed to growth in ~~2016. These fees are an infrequent source of revenue due~~full time equivalent employees, annual merit-based salary increases and higher incentive compensation expense. Net full time equivalent employees totaled 793 at September 30, 2021 compared to 641 at December 31, 2020 and 626 at September 30, 2020. The large increase compared to prior periods was attributed to the ~~unique nature~~addition of 156 FTEs as a result of the ~~transactions. This category contains~~KB acquisition. Compensation expense totaling approximately $3.0 million and $3.9 million was recorded for the three and nine-month periods ended September 30, 2021 as a ~~variety~~result of ~~other income sources none of which resulted in individually significant variances.~~the acquisition.

~~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~~$809,000 or ~~7.8% for the third quarter of 2017,~~28%, and ~~$3.0~~$1.4 million, or ~~8.4%~~16%, for the ~~first~~three and nine ~~months of 2017,~~month periods ended September 30, 2021, as compared with the same periods ~~in 2016. The increases are largely due to higher compensation expenses, reflecting addition~~ of ~~personnel and to a lesser extent, increased health care costs. The additions to staff were driven by expanding market presence in Cincinnati and Indianapolis, along~~2020, consistent with the need for front line lending and loan support staff across all markets. The Bank’s employee health insurance is a self-insured plan and related expenses fluctuate with claims experience. At September 30, 2017, Bancorp had 581 full-timeoverall increase in full time equivalent employees ~~compared with 558 at September 30, 2016.~~

~~Net occupancy~~noted above. Employee benefits expense ~~decreased $25 thousand or 1.5%~~totaling approximately $444,000 and $653,000 was recorded for the ~~third quarter~~three and ~~increased $49 thousand or 1.0% for the~~ nine months ended September 30, ~~2017, as compared with~~2021, respectively, in relation to 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.

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

~~Data processing expense increased~~ $173 thousand or 9.9% in the third quarter of 2017 and $737 thousand, or 14.2% in the first nine months of 2017, as compared with the same periods in 2016. The increase was primarily a result of increases in computer infrastructure and maintenance costs. These expenses include ongoing computer software amortization, equipment depreciation, and expenditures related to investments in technology needed to maintain and improve the quality of delivery channels and internal resources.

~~Furniture~~Net occupancy and equipment ~~expense~~ ~~increased $39 thousand or 14.1% in the third quarter of 2017~~expenses primarily include depreciation, rent, property taxes, utilities and ~~$8 thousand or 0.9% for the first nine months of 2017, as compared with the same periods in 2016.~~maintenance. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense.

~~FDIC insurance expense decreased~~ ~~$114 thousand~~ Net occupancy increased $555,000, or ~~32%~~25%, and ~~$319 thousand,~~$976,000, or ~~30.7%~~16%, for the ~~respective~~ three and nine month periods of 2017, as compared with the same periods in 2016. The expense assessment is calculated by the FDIC on a quarterly basis. During 2016 the FDIC revised the assessment criteria to more closely align 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 for the third quarter of 2017 and $1.2 million for the first nine months of 2017,~~ended September 30, 2021, as compared with the same periods of ~~2016. This expense reflects~~2020, respectively. The KB acquisition resulted in the addition of 19 locations throughout central and eastern Kentucky and was the primary driver of the increases over prior period, contributing net occupancy and equipment expenses totaling approximately $608,000 and $837,000 for the three and nine month periods ending September 30, 2021, respectively.

Technology and communication expenses include computer software amortization, ofequipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources. Technology expense increased $850,000, or 37%, and $1.8 million, or 28%, for the three and nine-month periods ended September 30, 2021, attributed mainly to the acquisition. Expenses totaling approximately $897,000 and $1.2 million were recorded as a result of the KB acquisition for the three and nine-month periods ended September 30, 2021, respectively. The KB system conversion occurred in August 2021and technology-related expenses are expected to moderate into the fourth quarter.

Bancorp outsources processing for debit and commercial credit card operations, which generate significant revenue for the Company. These expenses fluctuate consistent with transaction volumes. Debit and credit card processing expense increased $830,000 and $1.3 million for the three and nine month periods ending September 30, 2021 compared to the same period of last year, correlating in part with the increase in transaction volume and customer base expansion resulting from both organic and acquisition-related growth that served to increase debit and credit card non-interest income. Related expense associated with the KB acquisition totaled $651,000 and $868,000 for the three and nine-month periods ended September 30, 2021.

Marketing and business development expenses include all costs associated with promoting Bancorp including community support, retaining customers and acquiring new business. Marketing and business development expenses increased $488,000, or 93%, and $809,000, or 52%, for the three and nine month periods ending September 30, 2021, as compared to the same periods of 2020. The increases correspond with more physical customer interaction as a result of continued easing of pandemic-related restrictions, which has led to increased travel and entertainment expense compared to the same periods of 2020. Marketing and business development expense associated with the KB acquisition totaled $157,000 and $208,000 for the three and nine months ended September 30, 2021.

Legal and professional fees increased $156,000, or 29%, and $33,000, or 2%, for the three and nine-month periods ended September 30, 2021 compared to the same periods of last year, respectively. Legal and professional fees related to the merger are captured in merger expenses below. Legal and professional expenses unrelated to the merger, but attributable to KB totaled approximately $132,000 for the three and nine months ended September 30, 2021.

FDIC insurance decreased $48,000, or 11%, and increased $247,000, or 28%, for the three and nine month periods ended September 30, 2021, as compared to the same period of 2020. FDIC insurance expense related to the KB acquisition totaled $75,000 and $105,000 for the three and nine-month periods ended September 30, 2021. The three-month decrease was attributed mainly to a lower assessment rate, and thus a lower premium for the third quarter. The nine month period increase was driven by the acquisition and PPP-driven larger balance sheet in addition to the first quarter of 2020 benefitting from the last portion of small institution credits first issued by the FDIC in 2019 upon the national FDIC Reserve Ratio reaching its targeted level.

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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~~net of related expenses, results in a positive effect on net income. ~~See~~Amounts of credits and corresponding expenses can vary widely depending upon the ~~Income Taxes section below~~timing and magnitude of the underlying investments. Amortization expense associated with these investments increased $1,000 and $174,000 for ~~details on amortization and income tax impact for these credits.~~

~~Other non-interest expenses increased~~ ~~$190 thousand or 5.5% and $1.3 million or 13.6% in~~ the ~~respective~~ three and nine month periods ending September 30, ~~2017, as~~2021 compared ~~with~~to the same period of last year. No tax credit amortization was recorded in relation to the KB acquisition of the three and nine-month periods in 2016. The quarterly increase was largely 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:

●

$~~382 thousand of net recoveries on sales of foreclosed assets in 2016 compared with a net recovery in 2017 of $39 thousand.~~

●

~~Legal and professional fees increased $351 thousand primarily as a result of expenses associated with elevated collection efforts on impaired credits.~~

●

~~Local Franchise taxes based upon deposit balances which Bancorp pays in lieu of income taxes in Kentucky and Ohio, were up $174~~ ~~thousand during the nine month period. Deposit growth drove the increased expense.~~

●

~~As described above,~~ during 2016 Bancorp introduced a checking product that offers benefits to account owners. The expense associated with the product totaled $145 thousand for the first nine months of 2017 as opposed to $28 thousand for the same period in 2016.

●

~~Losses relating to check and debit card fraud increased $84 thousand for the first nine months of 2017 over the same period in 2016.~~

●

~~In the third quarter of 2017 we recorded a $266~~ ~~thousand liability related to an estimated loss from certain administrative proceedings arising in the course of our business.~~

●

~~Other non-interest expenses~~ ~~also include other insurance, advertising, printing, mail and telecommunications, none of which had individually significant variances.~~

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~~Stock Yards Bancorp, inc. and subsidiary~~ended September 30, 2021.

~~Income Taxes~~

~~Bancorp recorded income tax expense of~~ ~~$4.1~~Capital and deposit based taxes decreased $520,000, or 48%, and $1.8 million, ~~and $11.6 million~~or 54%, for the three and nine month periods ended September 30, ~~2017, respectively, as~~2021 compared to the same periods of 2020 consistent with ~~$3.9 million~~the state of Kentucky transitioning financial institutions from a capital-based franchise tax to the Kentucky corporate income tax effective January 1, 2021. Capital and ~~$11.2~~deposit based tax expense related to the KB acquisition was $82,000 and $109,000 for the three and nine month periods ended September 30, 2021, respectively.

Merger expenses represent non-recurring expenses associated with completion of the KB acquisition and consist primarily of investment banker fees, various compensation-related expenses, legal fees, early termination fees relating to various contracts and system conversion expenses. Merger expenses totaled $525,000 and $19.0 million for the ~~same~~three and nine-month periods ended September 30, 2021. Merger expenses for the three-month period ended September 30, 2021 were attributed to the pending Commonwealth acquisition.

An early termination fee of $474,000 was recorded during the second quarter of 2021 in ~~2016. The effective rate~~relation to the pre-payment of FHLB advances totaling $14 million prior to their respective contractual maturities. Bancorp chose to payoff these term advances, with a weighted average cost of 2.03%, due to its excess liquidity driven by the substantial deposit growth it achieved over the past 12 months, combined with the near-term outlook for ~~both~~low interest rates.

Other non-interest expenses increased $1.0 million, or 83%, and $1.9 million, or 64%, for the three and nine month periods ended September 30, 2021, as compared to the same periods of 2020. These increases were driven by a number of factors, including the first full quarter of other non-interest expenses attributed to the KB acquisition, including amortization of the CDI related to KB’s deposit portfolio, expenses associated with the addition of the insurance captive and other miscellaneous expenses. Further, large credits to expense were recorded in the prior year associated with a gain on a bank-owned property sold in the first quarter of 2020 and the reversal of an accrual in the second quarter of 2020 related to a potential IRS penalty that was ultimately dismissed.

Income Tax Expense

A comparison of income tax expense and ETR follows:

	Three months ended September 30,											Nine months ended September 30,
(dollars in thousands)	2021			2020			$ Change		% Change			2021			2020			$ Change		% Change

Income before income tax expense	$	30,064		$	16,124		$	13,940		86	%	$	63,283		$	47,322		$	15,961		34	%
Income tax expense		6,902			1,591			5,311		334			13,227			6,189			7,038		114
Effective tax rate		23.0	%		9.9	%							20.9	%		13.1	%

Fluctuations in the ETR are primarily attributed to the following:

●

Bancorp invests in certain partnerships that yield federal income tax credits. Taken as a whole, the tax benefit of these investments exceeds amortization expense, resulting in a positive impact on net income. The timing and magnitude of these transactions may vary widely from period to period. The ETR for 2020 included the anticipated full year benefit of a large historic tax credit project that was completed in December, serving to reduce the ETR by 5.5% and 5.8% for the three and nine months ended September 30, 2020.

●

The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity. The ETR was reduced 0.1% and 1.7% for the three and nine months ended September 30, 2021 compared to reductions of 2.6% and 0.9% for the same periods of 2020, respectively, as a result of varying levels of exercise activity.

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●

The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021 and allows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards. These changes served to increase the ETR 3.6% and 3.4% for the three and nine months ended September 30, 2021.

Financial Condition – September 30, 2021 Compared to December 31, 2020

Overview

Total assets increased $1.6 billion, or 34%, to $6.2 billion at September 30, 2021 from $4.6 billion at December 31, 2020. Total assets of $1.3 billion were added on May 31, 2021 as a result of the KB acquisition, including loans of $755 million (including PPP) and total AFS debt securities of $396 million. In addition, goodwill of $123 million was recorded in relation to the transaction. Further, total loans (excluding loans added through the acquisition and the PPP portfolio) grew $221 million, or 7%, between December 31, 2020 and September 30, 2021.

Total liabilities increased $1.3 billion, or 32%, to $5.5 billion at September 30, 2021 from $4.2 billion at December 31, 2020. Total liabilities of $1.2 billion were assumed on May 31, 2021 as a result of the KB acquisition, including total deposits of $1.0 billion. Excluding deposits assumed through the acquisition, deposit balances remained at record levels as of September 30, 2021, growing $353 million, or 9%, since December 31, 2020, as federal stimulus efforts have bolstered deposits and uncertainty surrounding the pandemic has resulted in Bancorp’s customer base maintaining higher balances in general over the past several months.

Cash and Cash Equivalents

Cash and cash equivalents increased $267 million, or 84%, ending at $585 million at September 30, 2021 compared to $318 million at December 31, 2020. The average balance of cash and cash equivalents increased $156 million, or 60%, over the past twelve months. Bancorp continues to maintain higher levels of liquidity attributable to the PPP, continued growth in deposits and the overall interest rate environment.

AFS Debt Securities

AFS debt securities increased $483 million, or 82%, to $1.1 billion at September 30, 2021 compared to $587 million at December 31, 2020. AFS debt securities totaling $396 million were added as a result of the KB acquisition, approximately $91 million of which were sold shortly after acquisition. In addition, Bancorp continued to actively invest in the securities portfolio during 2021 in an effort to deploy a portion of excess liquidity, a strategy enacted in the latter half of 2020, by purchasing $325 million of AFS debt securities for the nine months ended September 30, ~~2017,~~2021. Partially offsetting growth associated with purchasing activity was ~~25.9%~~scheduled amortization and elevated prepayment activity, largely within the MBS portfolio, as well as market depreciation stemming from an upward move in ~~2017~~the interest rate environment experienced through the first nine months of 2021. As a result of the activity above, average AFS debt securities grew $397 million, or 92%, over the past twelve months.

Premises and Equipment

Premises and equipment are presented on the consolidated balance sheets net of related depreciation on the respective assets as well as fair value adjustments associated with purchase accounting. As result of the KB acquisition, which added 19 locations throughout central and eastern Kentucky, premises and equipment increased $19 million, or 33%, to $77 million at September 30, 2021 from $58 million at December 31, 2020.

BOLI

Bank-owned life insurance assets increased $20 million, or 59%, to $53 million at September 30, 2021, compared to ~~27.1%~~$33 million at December 31, 2020, the increase stemming directly from life insurance assets added as a result of the KB acquisition.

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Goodwill

At September 30, 2021, Bancorp had $136 million in goodwill recorded on its balance sheet, including $124 million recorded in association with the acquisition of KB. As permitted under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and ~~27.0%~~assumed liabilities related to the KB acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the ~~three~~acquisition date. Net adjustments attributed to the KB acquisition totaling $700,000 reduced goodwill attributed to KB to $123 million as of September 30, 2021.

Other Assets and Other Liabilities

Other assets increased $17 million, or 24%, to $88 million at September 30, 2021. Other liabilities decreased $8 million, or 9%, to $80 million at September 30, 2021.

The increase in other assets was attributed to OREO added due to foreclosure of a large CRE property, additional investment in tax credit partnerships and general increases in other assets related to the KB acquisition. Partially offsetting the increase was market depreciation on interest rate swap assets stemming from an improving interest rate environment, which also served to decrease to correlating interest rate swap liabilities. The remaining decrease in other liabilities was attributed to the reduction of various accrued liabilities.

As of September 30, 2021, Bancorp did not incur any impairment with respect to its other intangible assets (MSRs and CDIs) or other long-lived assets.

Loans

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

(dollars in thousands)	September 30, 2021		December 31, 2020		$ Change			% Change

Commercial real estate - non-owner occupied	$	1,142,647	$	833,470	$	309,177			37	%
Commercial real estate - owner occupied		652,631		508,672		143,959			28	%
Total commercial real estate		1,795,278		1,342,142		453,136			34	%

Commercial and industrial - term		581,804		525,776		56,028			11	%
Commercial and industrial - term - PPP		231,335		550,186		(318,851	)		-58	%
Commercial and industrial - lines of credit		329,119		249,378		79,741			32	%
Total commercial and industrial		1,142,258		1,325,340		(183,082	)		-14	%

Residential real estate - owner occupied		398,069		239,191		158,878			66	%
Residential real estate - non-owner occupied		277,045		140,930		136,115			97	%
Total residential real estate		675,114		380,121		294,993			78	%

Construction and land development		303,642		291,764		11,878			4	%
Home equity lines of credit		140,027		95,366		44,661			47	%
Consumer		104,629		71,874		32,755			46	%
Leases		12,348		14,786		(2,438	)		-16	%
Credits cards		15,821		10,203		5,618			55	%
Total loans (1)	$	4,189,117	$	3,531,596	$	657,521			19	%

(1) Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs.

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Composition of loans, net of deferred fees and costs, by primary loan portfolio class and bifurcated between Bancorp’s legacy loan portfolio and the loan portfolio attributed to KB:

	As of September 30, 2021
(dollars in thousands)	Legacy		KB		Total

Commercial real estate - non-owner occupied	$	907,477	$	235,170	$	1,142,647
Commercial real estate - owner occupied		552,732		99,899		652,631
Total commercial real estate		1,460,209		335,069		1,795,278

Commercial and industrial - term		522,262		59,542		581,804
Commercial and industrial - term - PPP		219,775		11,560		231,335
Commercial and industrial - lines of credit		293,612		35,507		329,119
Total commercial and industrial		1,035,649		106,609		1,142,258

Residential real estate - owner occupied		309,315		88,754		398,069
Residential real estate - non-owner occupied		126,089		150,956		277,045
Total residential real estate		435,404		239,710		675,114

Construction and land development		289,189		14,453		303,642
Home equity lines of credit		91,620		48,407		140,027
Consumer		87,599		17,030		104,629
Leases		12,348		-		12,348
Credits cards		13,749		2,072		15,821
Total loans (1)	$	3,425,767	$	763,350	$	4,189,117

(1) Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs.

Total loans increased $658 million, or 19%, from December 31, 2020 to September 30, 2021, driven by the addition of $755 million in loans associated with the KB acquisition. Loan balances attributed to the acquired portfolio and related market grew to $763 million as of September 30, 2021, and while organic growth was also strong for the nine months ended September 30, ~~2016, respectively. Refer to Footnote 5 to~~2021, significant forgiveness-related contractions was experienced within the ~~consolidated financial statements for a reconciliation of the statutory~~PPP portfolio between December 31, 2020 and ~~effective income tax rates.~~September 30, 2021.

~~Bancorp invests in certain partnerships with customers that yield federal income tax credits,~~Excluding the loan portfolio acquired through the KB acquisition, loan contraction of $97 million, or 3%, was experienced between December 31, 2020 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~~2021, as 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.

~~Commitments~~

~~Bancorp uses a variety of financial instruments~~aforementioned forgiveness activity resulted 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. A discussion of Bancorp’s commitments is included in Note 15.~~

~~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.

b)	~~Financial Condition~~

~~Balance Sheet~~

~~Total assets~~ ~~increased $116.4~~PPP portfolio balances declining $319 million, or ~~3.8%~~58%, to $3.2 billion at September 30, 2017 as compared to $3.0 billion at December 31, 2016. Loans increased $29.7 million, or 1.3%, period to period, with increases primarily in commercial 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 million during the first nine months of ~~2017. The majority~~2021. Partially offsetting the large decline in PPP balances was organic growth of ~~this increase~~$221 million, or 7%, over half of which, or $118 million, was attributed to strong loan production within the ~~result~~CRE portfolio. Further, the strategic retention of ~~short-term investments made at quarter end largely offset by maturities during~~a portion of qualified secondary market single family residential real estate loan production from the mortgage banking department and gradually improving line of credit utilization helped drive growth of $55 million and $41 million in the residential real estate and C&I line of credit portfolios, respectively, over the first nine months of ~~2017. Included in securities available-for-sale are short-term U.S. government sponsored entities. These securities, which totaled $150 million~~2021.

While improving for the third straight quarter, line of credit usage remained well below pre-pandemic levels through the first nine months of 2021, as the availability of the more favorable PPP lending facility continued to disparage utilization until the program expired on May 31, 2021. Overall, total line of credit usage did increase to 40.6% at September 30, ~~2017 and $100 million~~2021 compared to 38.0% at December 31, ~~2016, normally have a maturity of less than one month,~~2020 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~~37.0% at September 30, ~~2017~~2020.

PPP loans of $231 million ($239 million gross of unamortized deferred fees and costs) were outstanding at September 30, 2021, including $12 million attributed to the KB acquisition. Bancorp has $8 million in net unrecognized fees related to the PPP as ~~compared~~of September 30, 2021, which would be recognized immediately once the loans are paid off or forgiven by the SBA. The timing of such forgiveness is expected to ~~unrealized losses~~have a major impact on operating results for the remainder of ~~$1.9 million at December 31, 2016. Funds from maturing available-for-sale investments were held as cash, or invested short term,~~2021 and into early to ~~fund future loan growth.~~mid-2022.

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~~Stock Yards~~ Bancorp ~~inc.~~originated $637 million PPP loans ($657 million gross of unamortized fees and ~~subsidiary~~costs) as part of round one of the program, which expired in August of 2020. As of September 30, 2021, 96% of the dollars originated in round one have been forgiven. In addition, approximately 99% of the $19.6 million in fee income received for round one originations has been recognized life to date.

~~Total liabilities~~ ~~increased $96.0~~Bancorp originated $250 million ~~December~~($261 million gross of unamortized deferred fees and costs) as part of round two of the PPP program, which expired May 31, ~~2016 to~~2021. As of September 30, ~~2017, from $2.7 billion to $2.8 billion, respectively. Federal funds purchased~~2021, 24% of the dollars originated have been forgiven and ~~other short-term borrowing increased $114.6 million, period to period, primarily~~34% of the ~~result of $150 million in borrowing~~fees received for the ~~short-term investments mentioned above. Bancorp uses short-term lines~~second round of ~~credit~~the program have been recognized life to ~~manage its overall liquidity position. Due~~date. As second round borrowers are not required to ~~normal cyclical activity total deposits decreased $38.6 million or 1.5%, period~~make payments for 16 months, it is probable that a significant portion of the borrowing base will seek forgiveness in early to period. Interest bearing demand deposits accounts decreased, $42.7 million, or 5.6%; time deposits, $17.8 million, or 7.1%; and non-interest bearing demand deposit accounts, $3.3 million, or 0.5%. Money market deposit accounts and savings accounts increased, period to period, $15.7 million, or 2.3%, and $9.6 million, or 6.8%, respectively. Securities sold under agreements to repurchase increased $4.3 million, or 6.3%. Other liabilities increased $16.7 million, or 42.9%.mid-2022 in connection with tax return preparation.

~~Elements~~In accordance with Section 4013 of ~~Loan Portfolio~~

~~The following table sets forth~~ the ~~major classifications~~CARES Act and in response to requests from borrowers who experienced business interruptions related to the pandemic, Bancorp extended payment deferrals for those affected borrowers. Depending on the demonstrated need of the customer, Bancorp deferred either the full loan payment or the principal-only portion of respective loan payments for 90 or 180 days for some borrowers directly impacted by the pandemic. As of September 30, 2021 outstanding full payment loan deferrals totaled $355,000, representing 0.01% of the loan ~~portfolio.~~

(in thousands)

Loans by Type

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 (1)
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

~~(1)~~

~~Undeveloped land consists of land acquired for development by the borrower, but for which no development has yet taken place.~~

~~Table~~portfolio (excluding PPP loans), down from $37 million, or 1.24% of ~~Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~total loans (excluding PPP loans), at December 31, 2020.

~~Loan~~Bancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, ~~growth built further on~~a customer’s ability to honor contracts is somewhat dependent upon the ~~momentum experienced~~economic stability and/or industry in ~~the second quarter of 2017,~~ ~~driven by solid loan production~~which that ~~continued to exceed the average pace recorded over the last three years. While all of the Company's markets participated in this growth,~~customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass Louisville, Kentucky, central and eastern Kentucky, Indianapolis, ~~through excellent leadership~~Indiana 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.Cincinnati, Ohio.

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 and ~~industrial and real estate mortgage~~CRE loan ~~totals above, and~~portfolio segments with a corresponding liability is recorded in other liabilities. At September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the total participated ~~portions~~portion of loans of this nature ~~were $18.3~~totaled $5 million and ~~$15.8~~$10 million, respectively.

~~Allowance for loan losses~~

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. Loans are typically charged off when management deems them uncollectible and after underlying collateral has been liquidated; however, collection efforts continue and future recoveries may occur. Periodically, loans are partially charged off to the net realizable value based upon evaluation of related underlying collateral, including Bancorp’s bias for resolution.

~~The allowance methodology is driven by risk ratings, historical losses, and qualitative factors.~~ The provision for the first nine months of 2017, and the resulting allowance level, reflected a number of factors, including a slight elevation in classified loans and an expansion of the historical look-back period from 24 quarters to 28 quarters. This expansion of the look-back period was applied to all classes and segments of the portfolio. 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. 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. During its review of qualitative factors in 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.

~~Additional information regarding Bancorp’s methodology for evaluating the adequacy of the allowance for loan loss can be read in the Company’s annual 10K.~~

~~As of~~ 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. The allowance as a percent of period end loans, as of each period end, was 1.07% and 1.04%, respectively.

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

Non-performing Loans and Non-performing Assets

Information summarizing non-performing loans and assets ~~including non-accrual loans~~ follows:

(dollars in thousands)

September 30, 2017

December 31, 2016

Non-accrual loans (1)
$ 4,858 $ 5,295
Troubled debt restructuring
949 974
Loans past due 90 days or more and still accruing
261 438

Non-performing loans
6,068 6,707

Foreclosed real estate
2,640 5,033

Non-performing assets
$ 8,708 $ 11,740

Non-performing loans as a percentage of total loans
0.26 % 0.29 %
Non-performing assets as a percentage of total assets
0.28 % 0.39 %

(dollars in thousands)	September 30, 2021			December 31, 2020

Non-accrual loans	$	5,036		$	12,514
Troubled debt restructurings		13			16
Loans past due 90 days or more and still accruing		-			649
Total non-performing loans		5,049			13,179

Other real estate owned		7,229			281
Total non-performing assets	$	12,278		$	13,460

Non-performing loans to total loans		0.12	%		0.37	%
Non-performing loans to total loans (excluding PPP)		0.13	%		0.44	%
Non-performing assets to total assets		0.20	%		0.29	%
ACL for loans to total non-performing loans		1120	%		394	%

~~Non-performing~~See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

In total, non-performing assets as of September 30, ~~2017~~2021 were comprised of ~~33 non-accrual~~67 loans, ranging in ~~amount from~~individual amounts up to $1 ~~to $907 thousand, five~~million, one accruing ~~TDRs,~~TDR loan and foreclosed real estate held for sale. Foreclosed real estate held at September 30, ~~2017~~2021 included two CRE properties and two residential real estate properties.

Table of ~~three former lending relationships, with a combined value~~Contents

The following table presents the recorded investment in non-accrual loans by portfolio:

(in thousands)	September 30, 2021		December 31, 2020

Commercial real estate - non-owner occupied	$	771	$	10,278
Commercial real estate - owner occupied		669		1,403
Total commercial real estate		1,440		11,681

Commercial and industrial - term		1,000		6
Commercial and industrial - lines of credit		79		88
Total commercial and industrial		1,079		94

Residential real estate - owner occupied		1,912		413
Residential real estate - non-owner occupied		300		101
Total residential real estate		2,212		514

Construction and land development		—		—
Home equity lines of credit		181		221
Consumer		124		4
Leases		—		—
Credit cards - commercial		—		—
Total non-accrual loans	$	5,036	$	12,514

As of ~~$2.6 million. At~~ September 30, ~~2017 there were two properties, with~~2021, non-accrual loans totaled $5.0 million. The decrease in total non-accrual loans decreased between December 31, 2020 and September 30, 2021 as a ~~combined recorded investment~~result of ~~$75 thousand,~~the partial charge off of a large non-accrual CRE relationship that was fully reserved for in ~~the process of foreclosure.~~2020 (and thus had no income statement impact for 2021).

~~(1)~~

Delinquent Loans

Delinquent loans (consisting of all loans 30 days or more past due) totaled $13 million at September 30, 2021 compared to $17 million at December 31, 2020. Delinquent loans to total loans were 0.31% and 0.48% at September 30, 2021 and December 31, 2020, respectively. Delinquent loans to total loans (excluding PPP loans) were 0.33% at September 30, 2021 compared to 0.57% at December 31, 2020.

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Allowance for Credit Losses

The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP. When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See the footnote titled “Summary of Significant Accounting Policies”for discussion of Bancorp’s ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp’s judgment, should be charged-off.

~~No TDRs previously accruing were moved to non-accrual during the three or~~ ~~nine month periods ending September 30, 2017. No TDRs were non-accrual as of September 30, 2017 or December 31, 2016.~~

The following table sets forth the ~~major classifications~~ACL by category of ~~non-accrual loans:~~loan (excluding PPP):

Non-accrual loans by type

(in thousands)

September 30, 2017

December 31, 2016

Commercial and industrial
$ 1,256 $ 1,767
Construction and development, excluding undeveloped land
737 538
Undeveloped land
474 474

Real estate mortgage

Real estate mortgage - commercial investment
55 107
Real estate mortgage - owner occupied commercial
1,470 1,042
Real estate mortgage - 1-4 family residential
785 984
Home equity
81 383
Subtotal: Real estate mortgage
2,391 2,516
Home equity and consumer loans
- -
Total loans
$ 4,858 $ 5,295

	September 30, 2021								December 31, 2020

(dollars in thousands)	Allocated Allowance		% of Total ACL			ACL to Total Loans (1)			Allocated Allowance		% of Total ACL			ACL to Total Loans *(1)*

Commercial real estate - non-owner occupied	$	16,171		29	%		1.42	%	$	19,396		37	%		2.33	%
Commercial real estate - owner occupied		10,318		18	%		1.58	%		6,983		13	%		1.37	%
Total commercial real estate		26,489		47	%		1.48	%		26,379		50	%		1.97	%

Commercial and industrial - term (1)		9,766		17	%		1.68	%		8,970		17	%		1.71	%
Commercial and industrial - lines of credit		4,912		9	%		1.49	%		3,614		7	%		1.31	%
Total commercial and industrial		14,678		26	%		1.61	%		12,584		24	%		1.57	%

Residential real estate - owner occupied		4,457		8	%		1.12	%		3,389		7	%		1.42	%
Residential real estate - non-owner occupied		3,530		6	%		1.27	%		1,818		3	%		1.29	%
Total residential real estate		7,987		14	%		1.18	%		5,207		10	%		1.37	%

Construction and land development		5,238		9	%		1.73	%		6,119		12	%		2.10	%
Home equity lines of credit		1,057		2	%		0.75	%		895		2	%		0.94	%
Consumer		727		1	%		0.69	%		340		1	%		0.76	%
Leases		194		1	%		1.57	%		261		1	%		1.77	%
Credit cards		163		0	%		1.03	%		135		0	%		1.32	%
Total	$	56,533		100	%		1.43	%	$	51,920		100	%		1.74	%

(1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee. The allowance allocated for the commercial & industrial –term segment includes $813,000 related to PCD PPP loans.

Bancorp’s ACL for loans was $56.5 million as of September 30, 2021 compared to $51.9 million as of December 31, 2020. The change in the ACL for loans was driven by a number of competing factors, which resulted in the $4.6 million, or 9%, increase experienced for the first nine months of 2021. Acquisition-related activity was responsible for a total increase to the ACL for loans of $14.2 million, comprised of a $6.8 million day one adjustment for specific reserves placed on acquired PCD loans (offset to goodwill) and $7.4 million of provision expense related to the remaining acquired non-PCD loan portfolio. Partially offsetting the acquisition-related increases was a net reduction of the ACL for loans of $4.9 million for the first nine months of 2021 stemming from an improved unemployment forecast, general improvement in other underlying CECL model factors compared to recent periods and updates to Bancorp’s CECL model. Further reducing the ACL for loans were net charge offs of $4.6 million for the period, which were driven by the charge off of two CRE relationships totaling $4.4 million. Both relationships were fully reserved and had no income statement impact for the three and nine months ended September 30, 2021. Partially offsetting these charge offs was a $555,000 recovery of a note that was fully charged off in 2020.

The FRB’s Seasonally Adjusted National Civilian Unemployment Rate is the primary loss driver within Bancorp’s CECL model and has steadily improved over the past several months after spiking to 14.8% in April of 2020, standing at 4.8% as of September 30, 2021. The pandemic has had a material impact on Bancorp’s quarterly ACL for loans calculations. While Bancorp has not yet experienced credit quality issues resulting in charge-offs related to the pandemic, the ACL for loans calculation and resulting credit loss expense is significantly impacted by changes in forecasted economic conditions. Should the forecast for economic conditions worsen, Bancorp could experience further increases in its required ACL for loans and record additional credit loss expense. While the execution of payment deferrals under the CARES ACT has assisted credit quality ratios, it is possible that asset quality could worsen at future measurement periods if the effects of the pandemic are prolonged.

While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced a decrease between December 31, 2020 and September 30, 2021. A net benefit was recorded for provision for credit losses for off balance sheet exposures during the first nine months of 2021, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and continued improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.

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~~Stock Yards Bancorp, inc.~~Deposits

(dollars in thousands)	September 30, 2021		December 31, 2020		$ Change		% Change

Non-interest bearing demand deposits	$	1,744,790	$	1,187,057	$	557,733		47	%

Interest bearing deposits:
Interest bearing demand		1,794,816		1,355,985		438,831		32	%
Savings		397,875		208,774		189,101		91	%
Money market		955,200		844,414		110,786		13	%

Time deposits of $250 thousand or more		89,420		73,065		16,355		22	%
Other time deposits		359,923		319,339		40,584		13	%
Total time deposits		449,343		392,404		56,939		15	%

Total interest bearing deposits		3,597,234		2,801,577		795,657		28	%

Total deposits (1)	$	5,342,024	$	3,988,634	$	1,353,390		34	%

(1) Includes $4 million and ~~subsidiary~~$25 million in brokered deposits as of September 30, 2021 and December 31, 2020, respectively.

Composition of deposits, bifurcated between Bancorp’s legacy deposit portfolio and the deposit portfolio acquired through the KB acquisition, follows:

	As of September 30, 2021
(dollars in thousands)	Legacy		KB		Total

Non-interest bearing demand deposits	$	1,543,112	$	201,678	$	1,744,790

Interest bearing deposits:
Interest bearing demand		1,364,729		430,087		1,794,816
Savings		244,451		153,424		397,875
Money market		863,259		91,941		955,200

Time deposits of $250 thousand or more		65,144		24,276		89,420
Other time deposits(1)		265,831		94,092		359,923
Total time deposits		330,975		118,368		449,343

Total interest bearing deposits		2,803,414		793,820		3,597,234

Total deposits	$	4,346,526	$	995,498	$	5,342,024

Total deposits increased $1.4 billion, or 34%, from December 31, 2020 to September 30, 2021. Deposits totaling $1.0 billion were assumed as a result of the KB acquisition. Deposit balances attributed to the acquired portfolio and related market decreased slightly to $995 million as of September 30, 2021. Excluding the deposits acquired through the KB acquisition, deposits grew $358 million, or 9%, during the first nine months of 2021, with non-interest bearing balances representing virtually the entire increase. Average deposit balances have increased $688 million, or 28%, over the past 12 months, as federal programs such as the PPP, stimulus checks and enhanced unemployment benefits drove both ending and average deposit balances to record levels as of September 30, 2021 in addition to deposits added as a result of the acquisition, which contributed $448 million of the average balance increase.

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Securities Sold Under Agreements to Repurchase

SSUARs are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank’s control. The majority of SSUARs are indexed to immediately repricing indices such as the FFTR.

SSUARs totaled $74 million and $48 million at September 30, 2021 and December 31, 2020, respectively, as SSUAR totaling $11 million were assumed as part of the KB acquisition. The remaining increase in SSUAR is consistent with the general trend of customers maintaining elevated deposit balances.

FHLB Advances

FHLB advances decreased $22 million, or 68%, between December 31, 2020 and September 30, 2021 due to maturing advances not being renewed or replaced in addition to elective pay offs. During the first quarter of 2021, Bancorp elected to pay down certain advances prior to maturity without incurring pre-payment penalties. During the second quarter of 2021, Bancorp paid off $14 million of term advances, with a weighted average cost of 2.03%, prior to their maturity incurring an early-termination fee of $474,000. Bancorp based this decision on its excess liquidity position driven by the substantial deposit growth it achieved during 2020 and the first half of 2021, combined with the then near-term outlook for low interest rates. Bancorp believes it will substantially “earn back” the early termination penalty through lower interest expense over the next two years assuming short-term interest rates remain at current low levels.

As a result of the KB acquisition, FHLB advances totaling $91 million were assumed and paid off immediately upon acquisition based on lack of necessity and current levels of excess liquidity. Early termination penalties totaling $2.5 million were incurred as a result of the payoffs, but had no income statement impact for the three and nine-month periods ended September 30, 2021 due to the fair value adjustment recorded through goodwill at acquisition.

Liquidity

~~Liquidity~~

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 funds. Liquidity is provided by short-term ~~liquid~~ assets that can be converted to cash, ~~investment~~AFS debt 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 Asset/Liability Committee is comprised of senior management and has direct oversight responsibility for Bancorp’s liquidity position and profile. A combination of reports provided to management details internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, and exposure to contingent draws on Bancorp’s liquidity.

Bancorp’s most liquid assets are comprised of cash and due from banks, ~~available-for-sale marketable investment securities, federal funds sold~~FFS and ~~interest bearing deposits with banks. Federal funds sold~~AFS debt securities. FFS and interest bearing deposits totaled ~~$81.4~~$500 million and $275 million at September 30, ~~2017. These~~2021 and December 31, 2020, respectively. The large increase in FFS and interest bearing deposits experienced over the first nine months of 2021 is attributed largely to PPP forgiveness activity, as cash received for the forgiveness of these notes has outpaced efforts to invest cash through the typical investments, such as loan production and AFS debt security purchases. FFS normally have overnight maturities ~~and~~while interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity purposes.

The fair value of the ~~available-for-sale investment~~AFS debt security portfolio was ~~$571.5~~$1.1 billion and $587 million at September 30, ~~2017.~~2021 and December 31, 2020, respectively. The $483 million, or 82%, increase experienced over the first nine months of 2021 is attributed to the KB acquisition and the strategic, aggressive growth of portfolio through security purchases in an effort to deploy excess liquidity. The portfolio includes maturities of $30 million and cash flows on amortizing AFS debt securities of approximately ~~$216.7~~$220 million (based on assumed prepayment speeds as of September 30, 2021) expected over the next twelve ~~months, including $150 million of short-term securities which matured in October 2017.~~months. Combined with ~~federal funds sold~~FFS and interest bearing deposits ~~these~~from banks, AFS debt securities offer substantial resources to meet either ~~new~~ loan ~~demand~~growth or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of its investment securities portfolio to secure public ~~fund deposits,~~funds, cash balances of certain ~~wealth management and trust~~WM&T accounts and ~~securities sold under agreements to repurchase.~~SSUAR. At September 30, ~~2017,~~2021, total investment securities pledged for these purposes comprised ~~58%~~64% of the ~~available-for-sale investment~~AFS debt securities portfolio, leaving ~~$241.8~~approximately $383 million of unpledged ~~securities, including $150 million which matured the first week of October..~~AFS debt securities.

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~~Bancorp defines~~

Bancorp’s deposit base consists mainly of core deposits, defined as time deposits less than or equal to $250,000, demand, savings, ~~and~~ money market deposit accounts and ~~certificates of deposit less than or equal to $250,000.~~ excludes public funds and brokered deposits. At September 30, ~~2017,~~2021, such deposits totaled ~~$2.4~~$4.8 billion and represented ~~99%~~89% of Bancorp’s total deposits, as compared ~~to $2.5~~with $3.5 billion, or ~~98%~~89% of total deposits at December 31, ~~2016.~~2020. Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they do not ~~put heavy~~place undue pressure on liquidity. However, many of Bancorp’s ~~customers’ deposit~~individual depositors are currently maintaining historically high balances. These excess balances ~~are historically high.~~may be more sensitive to market rates, with potential decreases possibly straining Bancorp’s liquidity position.

As of September 30, ~~2017~~2021 and December 31, 2020, Bancorp ~~had no brokered deposits. This compares to $498 thousand, or 0.02% of total deposits, in~~held brokered deposits ~~at December 31, 2016.~~totaling $4 million and $25 million, respectively, all of which is attributed to deposits added through the KB acquisition.

Included in ~~the~~ total deposit balances at September 30, ~~2017 is $122.4~~2021 are $499 million ofin public funds ~~deposits~~ generally comprised of accounts ~~from~~with local government agencies and public school districts in ~~Bancorp’s markets.~~the markets in which Bancorp operates, including public funds deposits totaling $187 million added as a result of the KB acquisition. At December 31, 2020, public funds deposits totaled $355 million.

~~Other sources~~Bancorp is a member of ~~funds available to meet daily needs include~~the FHLB ~~advances.~~of Cincinnati. As a member of the FHLB, ~~of Cincinnati,~~ Bancorp has access to credit products ~~offered by~~of the FHLB. Bancorp views these borrowings as a potential low cost alternative to ~~other time~~brokered deposits. At September 30, ~~2017,~~2021 and December 31, 2020, available credit from the FHLB totaled ~~$367.3 million.~~$892 million and $804 million, respectively. The increase in available credit over the first nine months of 2021 is due to an increase in eligible loans (those pledged for collateral-based borrowing capacity) and the payoff of advances prior to maturity during the first three quarters of 2021. See the footnote titled “FHLB Advances” for additional detail. Additionally, Bancorp had unsecured available ~~federal funds purchased~~FFP lines with correspondent banks totaling ~~$105~~$80 million at both September 30, ~~2017.~~2021 and December 31, 2020.

~~At September 30, 2017~~ During the normal course of business, Bancorp ~~had a $150 million cash~~enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through Bancorp’s various risk management ~~advance from the FHLB. This advance matured~~processes. Management considers both on-balance sheet and off-balance sheet transactions in ~~the first week~~its evaluation 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.~~

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

~~Bancorp’s~~Bancorp’s principal source of cash is dividends paid to it as the sole shareholder of the Bank. ~~At September 30, 2017,~~As discussed in the footnote titled “Commitments and Contingent Liabilities,” as of January 1st of any year, the Bank may pay updividends in an amount equal to ~~$70.3~~the Bank’s net income of the prior two years less any dividends paid for the same two years. At September 30, 2021, the Bank could pay an amount equal to $36 million in dividends to Bancorp without regulatory approval subject to ~~the~~ ongoing capital requirements of the Bank.

Sources and Uses of Cash

Cash flow is provided primarily through financing activities of Bancorp, which include raising deposits and borrowing funds from institutional sources such as advances from FHLB and FFP, as well as scheduled loan repayments and cash flows from AFS debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which include making loans and purchasing securities for the investment portfolio. Another important source of cash is net income of the Bank from operating activities. For further detail regarding the sources and uses of cash, see the “Consolidated Statements of Cash Flows” in Bancorp’s consolidated financial statements.

Commitments

In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in Bancorp’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt.

Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of credit. Unused loan commitments increased $282 million as of September 30, 2021 compared to December 31, 2020, the increase being driven by both the KB acquisition and new lines of credit. Total average line of credit utilization improved to 40.6% at September 30, 2021 as compared to 38.0% at December 31, 2020 and 37.0% at September 30, 2020. While improving over the prior quarter, depressed C&I line of credit usage has driven the dramatic decline in utilization experienced over the past year as customers took advantage of the more favorable financing provided by the PPP. For reference, C&I line of credit utilization was 28.9% at September 30, 2021 compared to 26.1% at December 31, 2020 and the pre-pandemic average of 42.9% experienced in 2019.

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Commitments to extend credit are agreements to lend to customers as long as collateral is available as agreed upon and there is no violation of any condition established in the contracts. Commitments generally have fixed expiration dates or other termination clauses. 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 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.

The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, stood at $4.3 million and $5.4 million as of September 30, 2021 and December 31, 2020, respectively. A net benefit of was recorded as provision for credit losses for off balance sheet exposures during the first nine months of 2021, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors as well as increased utilization, driving down available credit used to calculate exposure.

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

In addition to owned banking facilities, Bancorp has entered into long-term leasing arrangements for certain branch facilities. Bancorp also has required future payments for a non-qualified defined benefit retirement plan, FHLB advances and the maturity of time deposits.

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

Capital

~~Capital Resources~~

At September 30, ~~2017,~~2021, stockholders’ equity totaled ~~$334.3~~$664 million, representing an increase of ~~$20.4~~$223 million, ~~since~~or 51%, compared to December 31, ~~2016. See~~2020. The large increase over the ~~Consolidated Statement~~first nine months of ~~Changes~~2021 was attributed mainly to stock issued in ~~Stockholders’ Equity for further detail~~relation to the KB acquisition, which totaled $205 million. Further, net income of $50 million was partially offset by a larger negative change in AOCI and dividends declared during the ~~changes in equity since the end~~first nine months of ~~2015. One component of equity is accumulated other comprehensive income which, for Bancorp,~~2021. AOCI consists of net unrealized gains or losses on AFS debt securities ~~available-for-sale~~ and hedging instruments, as well as a minimum pension liability, each net of income taxes. ~~Accumulated other comprehensive loss was $531 thousand at~~AOCI declined $11 million from December 31, 2020 to September 30, ~~2017 compared~~2021, with ~~a loss of $1.5 million on December 31, 2016. The $968 thousand positive difference is primarily a reflection of~~ the ~~effect of~~fluctuation stemming from the changing interest rate environment ~~during~~and corresponding valuation of the AFS debt securities portfolio. See the “Consolidated Statement of Changes in Stockholders’ Equity”for further detail of changes in equity.

In May 2021, Bancorp’s Board of Directors extended its share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4% of Bancorp’s total common shares outstanding at the time. The plan, which will expire in May 2023 unless otherwise extended or completed at an earlier date, does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan’s expiration. Based on economic developments over the past year and the increased importance of capital preservation, no shares were repurchased in 2020 nor the first nine months of ~~2017 as short term rates increased slightly, while long term rates decreased, which decreased Bancorp’s unrealized loss on securities available~~2021. Approximately 741,000 shares remain eligible for ~~sale.~~repurchase under the current repurchase plan.

AsBank holding companies and their subsidiary banks are required by regulators to meet risk-based capital standards. These standards, or ratios, measure the relationship of ~~September 30, 2017,~~capital to a combination of balance sheet and off-balance sheet risks. The value of both balance sheet and off-balance sheet items are adjusted to reflect credit risks. See the footnote titled “Regulatory Matters” for additional detail regarding regulatory capital requirements, as well as capital ratios of Bancorp ~~meets all~~and the Bank. The Bank exceeds regulatory capital ratios required to be well-capitalized. Regulatory framework does not define well capitalized for holding companies. Management considers the effects of growth on capital ratios as it contemplates plans for expansion.

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The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital ratios:

	September 30, 2021			December 31, 2020

Total risk-based capital(1)
Consolidated		12.61	%		13.36	%
Bank		12.26			12.99

Common equity tier 1 risk-based capital(1)
Consolidated		11.69			12.23
Bank		11.34			11.85

Tier 1 risk-based capital(1)
Consolidated		11.69			12.23
Bank		11.34			11.85

Leverage(2)
Consolidated		8.98			9.57
Bank		8.69			9.26

(1) Under regulatory risk-based capital guidelines, assets and credit-equivalent amounts of derivatives and off-balance sheet credit 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 in Bancorp's total risk-weighted assets. These ratios are computed in relation to average assets.

(2) Ratio is computed in relation to average assets.

Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized for prompt corrective action requirements, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 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 the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered ~~well capitalized under~~adequately-capitalized. At September 30, 2021, the adequately-capitalized minimums, including the capital conservation buffer, were a 6.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio.

Bancorp continues to exceed the regulatory ~~risk-based~~requirements for all calculations. Bancorp and the Bank intend to maintain a capital ~~rules,~~position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and ~~is not subject to limitations due~~the FDIC, in addition to the capital conservation buffer. ~~See Footnote 19~~

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, Bancorp elected the option to delay the estimated impact on regulatory capital related to the ~~consolidated financials~~adoption of ASC 326 “Financial Instruments – Credit Losses,”or CECL, which was effective January 1, 2020. The initial impact of adoption of ASC 326, as well as 25% of the quarterly increases in the ACL subsequent to adoption of ASC 326 (collectively the “transition adjustments”) were declared to be delayed for ~~more information regarding Bancorp’s~~two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed. Had Bancorp not elected to defer the regulatory capital impact of CECL, the post ASC 326 adoption capital ratios of Bancorp and the ~~Bank’s risk-based capital amounts and ratios as of September 30, 2017 and December 31, 2016.~~Bank would have exceeded the well-capitalized level.

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e)	Non-GAAP Financial Measures

InThe following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity, a non-GAAP disclosure. Bancorp provides the tangible book value per share, a non-GAAP measure, in addition to ~~capital ratios~~those 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~~its widespread use by investors as a 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.adequacy.

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

(dollars in thousands, except per share data)	September 30, 2021			December 31, 2020

Total stockholders' equity - GAAP (a)	$	663,547		$	440,701
Less: Goodwill		(135,830	)		(12,513	)
Less: Core deposit intangible		(5,871	)		(1,962	)
Tangible common equity - Non-GAAP (b)	$	521,846		$	426,226

Total assets - GAAP (c)	$	6,181,188		$	4,608,629
Less: Goodwill		(135,830	)		(12,513	)
Less: Core deposit intangible		(5,871	)		(1,962	)
Tangible assets - Non-GAAP (d)	$	6,039,487		$	4,594,154

Total stockholders' equity to total assets - GAAP (a/c)		10.73	%		9.56	%
Tangible common equity to tangible assets - Non-GAAP (b/d)		8.64	%		9.28	%

Total shares outstanding (e)		26,585			22,692

Book value per share - GAAP (a/e)	$	24.96		$	19.42
Tangible common equity per share - Non-GAAP (b/e)		19.63			18.78

The ~~following table reconciles~~ACL for loans to total non-PPP loans represents the ACL for loans, divided by total loans less PPP loans. Non-performing loans to total non-PPP loans represents non-performing loans, divided by total loans less PPP loans. Delinquent loans to total non-PPP loans represents delinquent loans (consisting of all loans 30 days or more past due), divided by total loans less PPP loans. Bancorp~~’s calculation of tangible common equity to amounts reported under US GAAP.~~ believes these non-GAAP ratios are important because they provide comparable ratios after eliminating PPP loans, which are fully guaranteed by the SBA and have not been allocated for within the ACL.

(in thousands, except per share data)

September 30, 2017

December 31, 2016

Total equity
$ 334,255 $ 313,872
Less core deposit intangible
(1,269 ) (1,405 )
Less goodwill
(682 ) (682 )
Tangible common equity
$ 332,304 $ 311,785

Total assets
$ 3,155,913 $ 3,039,481
Less core deposit intangible
(1,269 ) (1,405 )
Less goodwill
(682 ) (682 )
Total tangible assets
$ 3,153,962 $ 3,037,394

Total shareholders' equity to total assets
10.59
%
10.33
%
Tangible common equity ratio
10.54 10.26

Number of outstanding shares
22,669 22,617

Book value per share
$ 14.75 $ 13.88
Tangible common equity per share
14.66 13.79

(dollars in thousands)	September 30, 2021			December 31, 2020

Total loans - GAAP (a)	$	4,189,117		$	3,531,596
Less: PPP loans		(231,335	)		(550,186	)
Total non-PPP loans - Non-GAAP (b)	$	3,957,782		$	2,981,410

ACL on loans (c)	$	56,533		$	51,920
Non-performing loans (d)		5,049			13,179
Delinquent loans (e)		12,886			16,939

ACL on loans to total loans - GAAP (c/a)		1.35	%		1.47	%
ACL on loans to total loans - Non-GAAP (c/b)		1.43	%		1.74	%

Non-performing loans to total loans - GAAP (d/a)		0.12	%		0.37	%
Non-performing loans to total loans - Non-GAAP (d/b)		0.13	%		0.44	%

Delinquent loans to total loans - GAAP (e/a)		0.31	%		0.48	%
Delinquent loans to total loans - Non-GAAP (e/b)		0.33	%		0.57	%

InThe efficiency ratio, a non-GAAP measure, equals total non-interest expenses divided by the sum of net interest income FTE and non-interest income. The ratio excludes net gains (losses) on sales, calls, and impairment of investment securities, if applicable. In addition to the efficiency ratio, ~~normally presented,~~ Bancorp considers an adjusted efficiency ratio. Bancorp believes ~~excluding~~it is important because it provides a comparable ratio after eliminating the fluctuation in non-interest expenses related to 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.~~non-recurring merger expenses.

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~~Stock Yards Bancorp, inc.~~Net interest income on a FTE basis includes the additional amount of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal, state and ~~subsidiary~~local taxes yielding the same after-tax income.

	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2021			2020			2021			2020

Total non-interest expenses - GAAP (a)	$	34,558		$	25,646		$	107,708		$	72,630
Less: Non-recurring merger expenses		(525	)		-			(19,025	)		-
Less: Amortization of investments in tax credit partnerships		(53	)		(52	)		(315	)		(141	)
Total non-interest expenses - Non-GAAP (b)	$	33,980		$	25,594		$	88,368		$	72,489

Total net interest income, FTE	$	45,643		$	33,768		$	125,178		$	99,834
Total non-interest income		17,614			13,043			47,246			38,201
Less: Gain/loss on sale of securities		—			—			—			—
Total revenue - GAAP (c )	$	63,257		$	46,811		$	172,424		$	138,035

Efficiency ratio - GAAP (a/c)		54.63	%		54.79	%		62.47	%		52.62	%
Efficiency ratio - Non-GAAP (b/c)		53.72	%		54.68	%		51.25	%		52.51	%

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

Three months ended

Nine months ended

September 30,

September 30,

(amounts in thousands)

2017

2016

2017

2016

Non-interest expense
$ 21,317 $ 20,518 $ 63,811 $ 60,251

Net interest income (tax-equivalent)
26,363 24,963 77,179 72,816
Non-interest income
11,103 11,358 33,575 32,218
Total revenue
$ 37,466 $ 36,321 $ 110,754 $ 105,034

Efficiency ratio
56.9 % 56.5 % 57.6 % 57.4 %

(amounts in thousands)

2017

2016

2017

2016

Non-interest expense
$ 21,317 $ 20,518 $ 63,811 $ 60,251
Less: amortization of investments in tax credit partnerships
(616 ) (1,015 ) (1,847 ) (3,046 )
Adjusted non-interest expense
20,701 19,503 61,964 57,205

Net interest income (tax-equivalent)
26,363 24,963 77,179 72,816
Non-interest income
11,103 11,358 33,575 32,218
Total revenue
$ 37,466 $ 36,321 $ 110,754 $ 105,034

Adjusted efficiency ratio
55.3 % 53.7 % 55.9 % 54.5 %

f)	~~Recently Issued Accounting Pronouncements~~

~~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~~

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

• ~~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.

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

~~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.

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

~~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.

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

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.”

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Item 4.Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out by Stock Yards Bancorp, ~~inc. and subsidiary~~

~~Item 4.Controls and Procedures~~

~~Disclosure Controls and Procedures~~

~~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.~~

~~Changes in Internal Control over Financial Reporting~~

~~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.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings.

The Bank is a defendant in various legal proceedings that arise in the ordinary course of business. There is no such 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.

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

The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended September 30, ~~2017.~~2021.

	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plan		Maximum number of shares that may yet be purchased under the plan		Total number of shares purchased(1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Average price paid per share		Maximum number of shares that may yet be purchased under the plans or programs

July 1 - July 31		-	$	-		-		-		1,090	$	39.18		—	$	—
August 1 - August 31		2,280	$	35.62		-		-		79		51.19		—		—
Sep 1 - Sep 30		2,306	$	37.52		-		-
September 1 - September 30										1,749		41.06		—		—
Total		4,586	$	36.58		-		-		2,918	$	40.63		—	$	40.63		741,196

(1)

Shares repurchased during the three-month period ended September 30, 2021 represent shares withheld to pay taxes due.

~~(1)~~ ~~Activity represents~~Effective May 22, 2019, Bancorp’s Board of Directors approved a share repurchase program authorizing the repurchase of 1 million shares, or approximately 4% of ~~stock withheld~~Bancorp’s total common shares outstanding at the time. 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 laws. The plan, which was extended in May 2021 and will expire in May 2023 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.~~

~~Table~~shares prior to the plan’s expiration. No shares were repurchased in 2020, nor through the first nine months of ~~Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~2021. Management does not intend to resume repurchasing in the near-term. Approximately 741,000 shares remain eligible for repurchase.

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

Item 6.~~Exhibits~~Exhibits.

The following exhibits are filed or furnished as a part of this report:

Exhibit Number		Description of exhibit
31.1		~~Certifications~~Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act ~~by David P. Heintzman~~

31.2		~~Certifications~~Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act ~~by Nancy B. Davis~~

32		~~Certifications~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 902 of the Sarbanes-Oxley Act

101		The following ~~financial statements~~materials from ~~the~~ Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended September 30, ~~2017 Quarterly Report on Form 10-Q, filed on November 3, 2017,~~2021 formatted in ~~eXtensible Business Reporting Language (XBRL):~~

~~(1)~~

inline XBRL: (i) the Condensed Consolidated Balance Sheets,

~~(2)~~

(ii) the Condensed Consolidated Statements of Income,

~~(3)~~

(iii) the Condensed Consolidated Statements of Comprehensive Income,

~~(4)~~

(iv) the Condensed Consolidated ~~Statement~~sStatements of Changes in ~~Stockholders’~~Shareholders’ Equity,

~~(5)~~

(v) the Condensed Consolidated Statements of Cash Flows

and (vi) the Notes to Condensed Consolidated Financial Statements.

	~~(6)~~	~~Notes to Consolidated Financial Statements~~
104		The cover page from Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended September 30, 2021 formatted in inline XBRL and contained in Exhibit 101.

101

Table of Contents

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

~~Signatures~~SIGNATURES

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.

	STOCK YARDS BANCORP,, INC. (Registrant)


~~Date:~~ ~~November 3, 2017~~	~~By:~~ ~~/s/ David P. Heintzman~~ ~~David P. Heintzman, Chairman~~ ~~and~~ ~~Chief Executive Officer~~

Date: November ~~3, 2017~~8, 2021	By:	/s/ ~~Nancy B. Davis~~James A. Hillebrand ~~Nancy B.~~ ~~Davis,~~
		James A. Hillebrand
		Chairman and CEO (Principal Executive ~~Vice President,~~Officer)



Date: November 8, 2021		/s/ T. Clay Stinnett
		T. Clay Stinnett
		EVP, Treasurer and ~~Chief~~CFO (Principal Financial ~~Officer~~ Officer)

102

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

~~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:~~

	Condensed Consolidated Balance Sheets ~~September 30, 2017 (Unaudited) and December 31, 2016~~	3 4

	Condensed Consolidated Statements of Income ~~(Unaudited) for the three and nine months ended September 30, 2017 and 2016~~	4 5

	Condensed Consolidated Statements of Comprehensive Income ~~(Unaudited) for the three and nine months ended September 30, 2017 and 2016~~	5 6

	Condensed Consolidated Statements of Changes in ~~Stockholders~~’Stockholders’ Equity ~~(Unaudited)~~ ~~for the nine months ended September 30, 2017 and 2016~~	6 7

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

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

Condensed Consolidated Statements of Cash Flows	9

Notes to Condensed Consolidated Financial Statements	11

Item 2.	~~Management~~’s Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.	4363

Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk~~Risk.	6899

Item 4.	Controls and ~~Procedures~~Procedures.	6999


PART II – OTHER INFORMATION	100

Item 1. Legal Proceedings.	100

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.	69101

Item 6. Exhibits.	101

~~Item 6.~~
~~Exhibits~~Signatures	70102

Acronym or Term		Definition		Acronym or Term		Definition		Acronym or Term	Definition
ACH		Automatic Clearing House		EPS		Earnings Per Share		NPV	Net Present Value
AFS		Available for Sale		ETR		Effective Tax Rate		Net Interest Spread	Net Interest Spread (FTE)
APIC		Additional paid-in capital		EVP		Executive Vice President		NM	Not Meaningful
ACL		Allowance for Credit Losses		FASB		Financial Accounting Standards Board		OAEM	Other Assets Especially Mentioned
AOCI		Accumulated Other Comprehensive Income		FDIC		Federal Deposit Insurance Corporation		OCI	Other Comprehensive Income
ASC		Accounting Standards Codification		FFP		Federal Funds Purchased		OREO	Other Real Estate Owned
ASU		Accounting Standards Update		FFS		Federal Funds Sold		PPP	SBA Paycheck Protection Program
ATM		Automated Teller Machine		FFTR		Federal Funds Target Rate		PV	Present Value
AUM		Assets Under Management		FHA		Federal Housing Authority		PCD	Purchased Credit Deteriorated
Bancorp / the Company		Stock Yards Bancorp, Inc.		FHC		Financial Holding Company		PCI	Purchased Credit Impaired
Bank / SYB		Stock Yards Bank & Trust Company		FHLB		Federal Home Loan Bank of Cincinnati		Prime	The Wall Street Journal Prime Interest Rate
BOLI		Bank Owned Life Insurance		FHLMC		Federal Home Loan Mortgage Corporation		Provision	Provision for Credit Losses
BP		Basis Point =- 1/~~100~~^th100th of one percent		FICA		Federal Insurance Contributions Act		PSU	Performance Stock Unit
~~COSO~~C&D		~~Committee~~Construction and Development		FNMA		Federal National Mortgage Association		ROA	Return on Average Assets
Captive		SYB Insurance Company, Inc.		FRB		Federal Reserve Bank		ROE	Return on Average Equity
CARES Act		Coronavirus Aid, Relief and Economic Security Act		FTE		Fully Tax Equivalent		RSA	Restricted Stock Award
C&I		Commercial and Industrial		GAAP		United States Generally Accepted Accounting Principles		RSU	Restricted Stock Unit
CD		Certificate of ~~Sponsoring Organizations~~Deposit		GLB Act		Gramm-Leach-Bliley Act		SAB	Staff Accounting Bulletin
CDI		Core Deposit Intangible		GNMA		Government National Mortgage Association		SAR	Stock Appreciation Right
CECL		Current Expected Credit Loss (ASC-326)		HELOC		Home Equity Line of Credit		SBA	Small Business Administration
CEO		Chief Executive Officer		ITM		Interactive Teller Machine		SEC	Securities and Exchange Commission
CFO		Chief Financial Officer		KB		Kentucky Bancshares, Inc. and Kentucky Bank		SSUAR	Securities Sold Under Agreements to Repurchase
Commonwealth		Commonwealth Bancshares, Inc. and Commonwealth Bank & Trust Company		KSB		King Bancorp, Inc. and King Southern Bank		SVP	Senior Vice President
COVID-19		Coronavirus Disease - 2019		LIBOR		London Interbank Offered Rate		TBOC	The Bank Oldham County
CRA		Community Reinvestment Act ~~of 1977~~		Loans		Loans and Leases		TCE	Tangible Common Equity
CRE		Commercial Real Estate		MBS		Mortgage Backed Securities		TDR	Troubled Debt Restructuring
Dodd-Frank Act		The Dodd-Frank Wall Street Reform and Consumer Protection Act
	~~EPS~~MSA		~~Earnings Per Share~~Metropolitan Statistical Area		TPS		Trust Preferred Securities
~~FASB~~DTA	~~Financial Accounting Standards Board~~
~~FDIC~~Deferred Tax Asset	~~Federal Deposit Insurance Corporation~~
~~FHA~~MSRs	~~Federal Housing Administration~~
~~FHLB~~	~~Federal Home Loan Bank~~
~~FHLMC~~	~~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~~Rights	~~Other Assets Especially Mentioned~~
~~OREO~~	~~Other Real Estate Owned~~
~~PSU~~	~~Performance Stock Unit~~
~~RSU~~	~~Restricted Stock Unit~~
~~SAR~~	~~Stock Appreciation Right~~
~~SEC~~	~~Securities and Exchange Commission~~
~~TDRs~~	~~Troubled Debt Restructurings~~
~~US GAAP~~	~~United States Generally Accepted Accounting Principles~~
VA		U.S. Department of Veterans Affairs
DTL		Deferred Tax Liability		NASDAQ		The NASDAQ Stock Market, LLC		WM&T	Wealth Management and Trust
DCF		Discounted Cash Flow		NIM		Net Interest Margin (FTE)

~~Item 1.Financial Statements~~

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~
~~Consolidated Balance Sheets~~
~~September 30, 2017 (unaudited) and December 31, 2016~~
~~(In thousands, except share data)~~

													Accumulated
	Common stock						Additional						other			Total
	*Shares*						*paid-in*			*Retained*			*comprehensive*			*stockholders'*
	*outstanding*			*Amount*			*capital*			*earnings*			*income (loss)*			*Total*

Balance, January 1, 2021		22,692		$	36,500		$	41,886		$	353,574		$	8,741		$	440,701

Activity for three months ended March 31, 2021:
Net income		—			0			0			22,710			0			22,710
Other comprehensive loss		—			0			0			0			(11,791	)		(11,791	)
Stock compensation expense		—			0			849			0			0			849
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations		89			296			4,144			(7,533	)		0			(3,093	)
Cash dividends declared, $0.27 per share		—			0			0			(6,144	)		0			(6,144	)
Balance, March 31, 2021		22,781		$	36,796		$	46,879		$	362,607		$	(3,050	)	$	443,232


Activity for three months ended June 30, 2021:
Net income		—			0			0			4,184			0			4,184
Other comprehensive income		—			0			0			0			4,840			4,840
Stock compensation expense		—			0			1,414			0			0			1,414
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations		—			(2	)		(26	)		(45	)		0			(73	)
Stock issued for KB acquisition		3,808			12,682			191,988			0			0			204,670
Cash dividends declared, $0.27 per share		—			0			0			(7,178	)		0			(7,178	)
Shares cancelled		(1	)		(5	)		(55	)		60			0			0
Balance, June 30, 2021		26,588		$	49,471		$	240,200		$	359,628		$	1,790		$	651,089


Activity for three months ended September 30, 2021:
Net income		—			0			0			23,162			0			23,162
Other comprehensive loss		—			0			0			0			(4,421	)		(4,421	)
Stock compensation expense		—			0			1,165			0			0			1,165
Stock issued for share-based awards, net of witholdings to satisfy employee tax obligations		—			(1	)		(10	)		0			0			(11	)
Cash dividends declared, $0.28 per share		—			0			0			(7,437	)		0			(7,437	)
Shares cancelled		(3	)		(8	)		(101	)		109			0			0
Balance, September 30, 2021		26,585		$	49,462		$	241,254		$	375,462		$	(2,631	)	$	663,547

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~(continued)
~~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

		2021			2020
Cash flows from operating activities:
Net income		$	50,056		$	41,133
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			1,147			17,918
Depreciation, amortization and accretion, net			7,925			4,687
Deferred income tax expense (benefit)			3,837			(3,932	)
Gain on sale of mortgage loans held for sale			(2,708	)		(4,817	)
Origination of mortgage loans held for sale			(169,542	)		(201,099	)
Proceeds from sale of mortgage loans held for sale			187,667			191,053
Bank owned life insurance income			(642	)		(527	)
(Gain)/loss on the disposal of premises and equipment			41			(176	)
Gain on the sale of other real estate owned			(180	)		0
Stock compensation expense			3,428			2,636
Excess tax benefit from share-based compensation arrangements			(1,152	)		(444	)
Net change in accrued interest receivable and other assets			1,656			(20,224	)
Net change in accrued interest payable and other liabilities			(18,401	)		11,573
Net cash provided by operating activities			63,132			37,781
Cash flows from investing activities:
Purchases of available for sale debt securities			(325,073	)		(237,646	)
Proceeds from sales of acquired available for sale debt securities			91,094			0
Proceeds from maturities and paydowns of available for sale debt securities			131,936			289,587
Proceeds from redemption of Federal Home Loan Bank stock			8,980			0
Proceeds from the sale of held for investment loans			0			2,794
Net change in non-PPP loans			(232,636	)		11,590
Net change in PPP loans			318,851			(642,056	)
Purchases of premises and equipment			(3,243	)		(4,068	)
Proceeds from sale or disposal of premises and equipment			0			1,240
Other investment activities			(3,975	)		(860	)
Proceeds from sales of other real estate owned	��		919			0
Cash from acquisition, net of cash paid			24,981			0
Net cash provided by (used in) investing activities			11,834			(579,419	)
Cash flows from financing activities:
Net change in deposits			314,218			620,521
Net change in securities sold under agreements to repurchase and federal funds purchased			14,511			6,827
Proceeds from Federal Home Loan Bank advances			30,000			90,000
Repayments of Federal Home Loan Bank advances			(142,745	)		(113,564	)
Share repurchases related to compensation plans			(3,177	)		(2,487	)
Cash dividends paid			(20,777	)		(18,380	)
Net cash provided by financing activities			192,030			582,917
Net change in cash and cash equivalents			266,996			41,279
Beginning cash and cash equivalents			317,945			249,724
Ending cash and cash equivalents		$	584,941		$	291,003

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~(continued)
~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)~~
~~For the nine months ended September 30, 2017 and 2016~~
~~(In thousands, except per share data)~~

	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

For the nine months ended September 30,
Supplemental cash flow information:	2021		2020
Interest paid	$	4,669	$	10,178
Income taxes paid, net of refunds		13,359		9,608
Cash paid for operating lease liabilities		1,898		1,186
Supplemental non-cash activity:
Unfunded commitments in tax credit investments	$	6,307	$	9,667
Due to broker		3,590		0
Dividends payable		194		189
Loans transferred to OREO		7,106		119

Liabilities assumed in conjunction with acquisition:
Fair value of assets acquired	$	1,389,327		0
Consideration paid in acquisition		28,276		0
Common stock issued in acquisition		204,670		0
Total consideration paid		232,946		0
Liabilities assumed	$	1,156,381		0

	January 1, 2020
(in thousands)	As reported under ASC 326		Pre-ASC 326 Adoption		Impact of Adoption (1)

Allowance for credit losses on loans:

Commercial real estate - non-owner occupied	$	8,333	$	5,235	$	3,098
Commercial real estate - owner occupied		6,219		3,327		2,892
Total commercial real estate		14,552		8,562		5,990

Commercial and industrial - term		7,147		6,782		365
Commercial and industrial - line of credit		4,129		5,657		(1,528	)
Total commercial and industrial		11,276		12,439		(1,163	)

Residential real estate - owner occupied		2,713		1,527		1,186
Residential real estate - non-owner occupied		1,376		947		429
Total residential real estate		4,089		2,474		1,615

Construction and land development		5,161		2,105		3,056
Home equity lines of credit		842		728		114
Consumer		398		100		298
Leases		233		237		(4	)
Credit cards		96		146		(50	)
Total allowance for credit losses on loans	$	36,647	$	26,791	$	9,856

Total allowance for credit losses on off-balance sheet exposures	$	3,850	$	350	$	3,500

Loan Portfolio Segment		ACL Methodology

Commercial real estate - non-owner occupied		Discounted cash flow
Commercial real estate - owner occupied		Discounted cash flow
Commercial and industrial - term		Static pool
Commercial and industrial - line of credit		Static pool
Residential real estate - owner occupied		Discounted cash flow
Residential real estate - non-owner occupied		Discounted cash flow
Construction and land development		Static pool
Home equity lines of credit		Static pool
Consumer		Static pool
Leases		Static pool
Credit cards		Static pool

	As Recorded			Fair Value				Recast				As Recorded
(in thousands)	By KB			Adjustments (1)				Adjustments (1)				by Bancorp
Assets aquired:
Cash and due from banks	$	53,257		$	0			$	—			$	53,257
Mortgage loans held for sale		3,071			0				—				3,071
Available for sale debt securities		396,157			(295	)	a		—				395,862
Federal Home Loan Bank stock, at cost		7,072			0				—				7,072
Loans		755,932			(757	)	b		—				755,175
Allowance for credits losses on loans		(9,491	)		2,734		c		—				(6,757	)
Net loans		746,441			1,977				—				748,418
Premises and equipment, net		27,401			(6,361	)	d		—				21,040
Bank owned life insurance		18,909			0				—				18,909
Accrued interest receivable		4,939			0				—				4,939
Goodwill		14,001			(14,001	)	e		—				0
Core deposit intangible		0			3,404		f		999		f		4,403
Other real estate owned		674			(123	)	g		—				551
Mortgage servicing rights		1,628			34		h		—				1,662
Deferred income taxes, net		1,856			715		i		(230	)	i		2,341
Other assets		6,421			(1,866	)	j		(70	)	j		4,485
Total assets acquired	$	1,281,827		$	(16,516	)		$	699			$	1,266,010

Liabilities assumed:
Deposits:
Non-interest bearing	$	359,544		$	0			$	—			$	359,544
Interest bearing		678,528			1,146		k		—				679,674
Total deposits		1,038,072			1,146				—				1,039,218

Securities sold under agreements to repurchase		11,360			0				—				11,360
Federal Home Loan Bank advances		88,581			2,490		l		—				91,071
Accrued interest payable		505			0				—				505
Other liabilities		16,231			(2,004	)	m		—				14,227
Total liabilities assumed		1,154,749			1,632				—				1,156,381
Net assets acquired	$	127,078		$	(18,148	)		$	699			$	109,629

Consideration for common stock												$	204,670
Cash consideration paid													28,276
Total consideration												$	232,946

Goodwill												$	123,317

(in thousands)

Fair value adjustment - acquired non PCD loans	$	228
Fair value adjustment - acquired PCD loans		(735	)
Eliminate unrecognized loan fees on acquired loans and fair value hedge		(250	)
Net loan fair value adjustments	$	(757	)

(in thousands)

Reversal of historical KB allowance for credit losses on loans	$	9,491
Estimate of lifetime credit losses for PCD loans		(6,757	)
Net change in allowance for credit losses	$	2,734

~~(2)~~(1) - Excludes $7.4 million in merger related credit loss expense for the nine* months ended September 30, 2021, respectively.*
(2) - Excludes $19.0 million in pre-tax merger expenses for the nine* months ended September 30, 2021, respectively.*

(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 one year	$	30,408	$	30,442
Due after one year but within five years		100,808		100,774
Due after five years but within 10 years		28,165		28,220
Due after 10 years		135,976		138,990
Mortgage backed securities - government agencies		777,636		771,722
Total available for sale debt securities	$	1,072,993	$	1,070,148

													Less than 12 months					12 months or more					Total
(in thousands)	Less than 12 months				12 months or more				Total				*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
September 30, 2021													*value*		*losses*			*value*		*losses*			*value*		*losses*
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2017	value		losses		value		losses		value		losses

U.S. Treasury and other U.S.Government obligations													$	83,712	$	(204	)	$	0	$	0		$	83,712	$	(204	)
Government sponsored enterprise obligations	$	190,462	$	135	$	70,176	$	643	$	260,638	$	778		16,587		(68	)		0		0			16,587		(68	)
Mortgage-backed securities - government agencies		13,227		117		65,781		1,464		79,008		1,581		585,126		(9,698	)		0		0			585,126		(9,698	)
Obligations of states and political subdivisions		9,307		13		6,287		76		15,594		89		37,348		(493	)		0		0			37,348		(493	)
Corporate equity securities		516		137		-		-		516		137
Other securities														1,003		(3	)		0		0			1,003		(3	)
Total													$	723,776	$	(10,466	)	$	0	$	0		$	723,776	$	(10,466	)

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

December 31, 2016
December 31, 2020
Government sponsored enterprise obligations	$	154,951	$	1,344	$	3,485	$	150	$	158,436	$	1,494	$	10,404	$	(112	)	$	24,398	$	(249	)	$	34,802	$	(361	)
Mortgage-backed securities - government agencies		115,374		1,873		9,914		363		125,288		2,236		68,033		(167	)		921		(1	)		68,954		(168	)
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
Total													$	78,437	$	(279	)	$	25,319	$	(250	)	$	103,756	$	(529	)

(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)	May 31, 2021

Purchase price of PCD loans at acquisition	$	32,765
Allowance for credit losses at acquisition		(6,757	)
Non-credit discount (premium) at acquisition		(735	)
Fair value of PCD loans at acquisition	$	25,273

(in thousands) Three Months Ended September 30, 2021	Beginning Balance		Initial Allowance on PCD Loans		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	19,747	$	0	$	(3,582	)	$	0		$	6	$	16,171
Commercial real estate - owner occupied		9,548		0		2,131			(1,361	)		0		10,318
Total commercial real estate		29,295		0		(1,451	)		(1,361	)		6		26,489

Commercial and industrial - term (1)		9,748		0		253			(240	)		5		9,766
Commercial and industrial - lines of credit		5,240		0		(328	)		0			0		4,912
Total commercial and industrial		14,988		0		(75	)		(240	)		5		14,678

Residential real estate - owner occupied		4,350		0		420			(340	)		27		4,457
Residential real estate - non-owner occupied		3,422		0		106			0			2		3,530
Total residential real estate		7,772		0		526			(340	)		29		7,987

Construction and land development		5,193		0		45			0			0		5,238
Home equity lines of credit		1,230		0		(173	)		0			0		1,057
Consumer		572		0		145			(274	)		284		727
Leases		232		0		(38	)		0			0		194
Credit cards		142		0		21			0			0		163
Total	$	59,424	$	0	$	(1,000	)	$	(2,215	)	$	324	$	56,533

(in thousands) Nine Months Ended September 30, 2021	Beginning Balance		Initial Allowance on PCD Loans		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	19,396	$	1,491	$	(1,692	)	$	(3,065	)	$	41	$	16,171
Commercial real estate - owner occupied		6,983		2,112		2,029			(1,361	)		555		10,318
Total commercial real estate		26,379		3,603		337			(4,426	)		596		26,489

Commercial and industrial - term (1)		8,970		1,022		156			(409	)		27		9,766
Commercial and industrial - lines of credit		3,614		1,755		(457	)		0			0		4,912
Total commercial and industrial		12,584		2,777		(301	)		(409	)		27		14,678

Residential real estate - owner occupied		3,389		142		1,279			(383	)		30		4,457
Residential real estate - non-owner occupied		1,818		88		1,620			0			4		3,530
Total residential real estate		5,207		230		2,899			(383	)		34		7,987

Construction and land development		6,119		0		(884	)		0			3		5,238
Home equity lines of credit		895		147		14			0			1		1,057
Consumer		340		0		471			(561	)		477		727
Leases		261		0		(67	)		0			0		194
Credit cards		135		0		28			0			0		163
Total	$	51,920	$	6,757	$	2,497		$	(5,779	)	$	1,138	$	56,533

(in thousands) Three Months Ended September 30, 2020	Beginning Balance		Impact of Adopting ASC 326		Initial ACL on Loans Purchased with Credit Deterioration		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	18,839	$	0	$	0	$	(558	)	$	(143	)	$	2	$	18,140
Commercial real estate - owner occupied		6,706		0		0		1,674			(1,351	)		0		7,029
Total commercial real estate		25,545		0		0		1,116			(1,494	)		2		25,169

Commercial and industrial - term		7,339		0		0		1,605			(1	)		1		8,944
Commercial and industrial - lines of credit		3,242		0		0		179			0			0		3,421
Total commercial and industrial		10,581		0		0		1,784			(1	)		1		12,365

Residential real estate - owner occupied		2,848		0		0		464			(61	)		13		3,264
Residential real estate - non-owner occupied		1,594		0		0		418			(2	)		0		2,010
Total residential real estate		4,442		0		0		882			(63	)		13		5,274

Construction and land development		5,608		0		0		420			0			0		6,028
Home equity lines of credit		832		0		0		106			0			0		938
Consumer		362		0		0		57			(140	)		57		336
Leases		223		0		0		34			0			0		257
Credit cards		115		0		0		19			0			0		134
Total	$	47,708	$	0	$	0	$	4,418		$	(1,698	)	$	73	$	50,501

(in thousands) Nine Months Ended September 30, 2020	Beginning Balance		Impact of Adopting ASC 326			Initial ACL on Loans Purchased with Credit Deterioration		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	5,235	$	2,946		$	152	$	9,945		$	(143	)	$	5	$	18,140
Commercial real estate - owner occupied		3,327		1,542			1,350		2,161			(1,351	)		0		7,029
Total commercial real estate		8,562		4,488			1,502		12,106			(1,494	)		5		25,169

Commercial and industrial - term		6,782		365			0		1,790			(1	)		8		8,944
Commercial and industrial - lines of credit		5,657		(1,528	)		0		(708	)		0			0		3,421
Total commercial and industrial		12,439		(1,163	)		0		1,082			(1	)		8		12,365

Residential real estate - owner occupied		1,527		1,087			99		615			(79	)		15		3,264
Residential real estate - non-owner occupied		947		429			0		636			(2	)		0		2,010
Total residential real estate		2,474		1,516			99		1,251			(81	)		15		5,274

Construction and land development		2,105		3,056			0		867			0			0		6,028
Home equity lines of credit		728		114			0		96			0			0		938
Consumer		100		264			34		54			(394	)		278		336
Leases		237		(4	)		0		24			0			0		257
Credit cards		146		(50	)		0		38			0			0		134
Total	$	26,791	$	8,221		$	1,635	$	15,518		$	(1,970	)	$	306	$	50,501

(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

	Non-accrual Loans						Past Due 90-Days-
(in thousands)	*With No*		*Total*		*Troubled Debt*		*or-More and Still*
September 30, 2021	*Recorded ACL*		*Non-accrual Loans*		*Restructurings*		*Accruing Interest*

Commercial real estate - non-owner occupied	$	29	$	771	$	0	$	0
Commercial real estate - owner occupied		155		669		0		0
Total commercial real estate		184		1,440		0		0

Commercial and industrial - term		94		1,000		13		0
Commercial and industrial - lines of credit		0		79		0		0
Total commercial and industrial		94		1,079		13		0

Residential real estate - owner occupied		805		1,912		0		0
Residential real estate - non-owner occupied		0		300		0		0
Total residential real estate		805		2,212		0		0

Construction and land development		0		0		0		0
Home equity lines of credit		0		181		0		0
Consumer		0		124		0		0
Leases		0		0		0		0
Credit cards		0		0		0		0
Total	$	1,083	$	5,036	$	13	$	0

(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

(in thousands)							Substandard				Total
September 30, 2017	Pass		OAEM		Substandard		non-performing		Doubtful		loans

Commercial and industrial	$	726,194	$	7,464	$	14,197	$	2,873	$	-	$	750,728
Construction and development, excluding undeveloped land		174,310		-		-		-		-		174,310
Undeveloped land		20,485		-		30		474		-		20,989

Real estate mortgage
Commercial investment		575,339		761		420		290		-		576,810
Owner occupied commercial		383,387		10,313		2,869		1,235		-		397,804
1-4 family residential		256,458		3,018		1,172		1,059		-		261,707
Home equity - first lien		51,923		2		-		-		-		51,925
Home equity - junior lien		63,029		73		233		81		-		63,416
Subtotal: Real estate mortgage		1,330,136		14,167		4,694		2,665		-		1,351,662

Consumer		37,269		102		4		56		-		37,431
Total	$	2,288,394	$	21,733	$	18,925	$	6,068	$	-	$	2,335,120


December 31, 2016

Commercial and industrial	$	714,025	$	14,266	$	5,850	$	2,700	$	-	$	736,841
Construction and development, excluding undeveloped land		191,455		-		355		538		-		192,348
Undeveloped land		21,022		-		-		474		-		21,496

Real estate mortgage
Commercial investment		538,688		-		5		193		-		538,886
Owner occupied commercial		396,997		7,960		2,111		1,224		-		408,292
1-4 family residential		247,888		-		592		1,018		-		249,498
Home equity - first lien		55,279		-		-		46		-		55,325
Home equity - junior lien		66,710		-		426		383		-		67,519
Subtotal: Real estate mortgage		1,305,562		7,960		3,134		2,864		-		1,319,520

Consumer		35,039		-		-		131		-		35,170
Total	$	2,267,103	$	22,226	$	9,339	$	6,707	$	-	$	2,305,375