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:

See accompanying notes to unaudited condensed consolidated financial statements.

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 73 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 $2,450,000, 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.

As a result of its acquisition of Commonwealth Bancshares, Inc. on March 7, 2022, Bancorp became the 100% successor owner of the following unconsolidated Delaware trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS.

Also as a result of its acquisition of Commonwealth Bancshares, Inc., Bancorp acquired a 60% interest in Landmark Financial Advisors, LLC (“LFA”), which is based in Bowling Green, Kentucky and provides wealth management services. LFA is consolidated into the Company. The non-controlling interest within the consolidated financial statements represents the interest in LFA not owned by Bancorp.

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, 2021. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of ~~Stock Yards Bancorp, Inc.~~the results that may be expected for the year ending December 31,2022.

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 June 30, 2022 and December 31, 2021, the accounting policies considered the most critical in preparing Bancorp’s consolidated financial statements are the determination of the ACL on loans and goodwill.

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 HTM investment securities, loans and off-balance sheet credit exposures reflect the current accounting policies required by this ASC.

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 provisional period 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.

Acquired loans are determined by Bancorp to have more-than-insignificant deterioration in credit quality since origination if any of 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 ~~loan losses, valuation~~loss, loans placed on non-accrual status by the acquired institution, loans identified as TDRs by the acquired institution, loans that have received a partial charge off by the 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 ~~available-for sale securities, other real estate owned and income tax assets, and estimated liabilities and expense.~~acquisition.

~~A description~~For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are accreted/amortized into interest income over the lives of ~~other significant accounting policies~~the related loans. For non-PCD loans, an initial ACL for loans is ~~presented in~~estimated and recorded as credit loss expense at the ~~notes to Consolidated Financial Statements for the year ended December 31, 2016 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.~~

~~Interim results for the three~~ ~~and nine-month periods ended September 30, 2017 are not necessarily indicative of results for the entire year.~~

The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

ACL – Loans – Under the CECL model, the ACL for loans represents a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to represent the net amount expected to be collected on the loan portfolio.

Bancorp estimates the ACL for ~~loan~~loans based on the underlying assets’ amortized cost basis, which is the amount at which the receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of payment, and partial charge-offs. In the event that collection of principal becomes uncertain, Bancorp has policies in place to reverse accrued interest in a timely manner. Therefore, Bancorp has made a policy election to exclude accrued interest from the measurement of the ACL for loans.

Expected credit losses ~~is management’s estimate of probable losses inherent~~are reflected in the ~~loan portfolio as of the balance sheet date. Loan losses are charged against 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~~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. 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 identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. Bancorp’s methodologies may revert to historical loss information on a straight-line basis over a number of quarters when it can no longer develop reasonable and supportable forecasts.

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 has identified the ~~accounting policy related to~~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 purposes, and is typically secured by commercial offices, industrial buildings, warehouses or retail buildings where the ~~allowance and provision for loan losses as critical to~~owner of the ~~understanding~~building occupies the property. The primary source of ~~Bancorp’s results of~~repayment is the cash flow from the ongoing operations and ~~discussed~~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 ~~conclusion~~loan type is typically rental income associated 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 conditionsproperty. This category also includes apartment or ~~underlying circumstances were to change. The provision for loan losses reflects an allowance methodology driven~~multifamily residential buildings (secured 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~~five 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 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 capture the impact of a full economic cycle 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.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.

~~Stock Yards~~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 in addition to non-real estate loans guaranteed by the SBA. Bancorp ~~inc.~~originates these loans for a variety of purposes across various industries. This portfolio has been segregated between term loans and ~~subsidiary~~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 Residential Real Estate 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:

Based on the 100% SBA guarantee of the PPP loan portfolio, Bancorp does not generally reserve for potential losses for these loans within the ACL.

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 had become more normal.

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.

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 and Other Intangible Assets– 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.

Currently, goodwill recorded on Bancorp’s consolidated balance sheets is attributed mainly to the Commercial Banking segment, while a portion is also attributed to the WM&T 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 CB and KB acquisitions is not deductible for tax purposes, as both were structured as stock sales. Based on its assessment, Bancorp believes its goodwill balances at June 30, 2022 and December 31, 2021 were not impaired and are properly recorded in the consolidated financial statements.

Other intangible assets consist of CDI and CLI assets arising from business acquisitions. The CDI and CLI assets represent customer relationships associated with acquired deposit portfolios and WM&T businesses, respectively. CDI and CLI 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. Bancorp also 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.

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 AOCI 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 June 30, 2022 and December 31, 2021. 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.

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. 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 (Loss) –Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances outside of the Company’s control. 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 June 30, 2022.

The Company’s captive maintains cash reserves to cover insurable claims. Reserves totaled $200,000 as of June 30, 2022.

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–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.

Adoption of New Accounting Guidance–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. The main provisions include:

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022.

In October 2020, the FASB issued ASU No.2020-10,Codification Improvements. The amendments improve codification by having all disclosure-related guidance available in the disclosure sections of the codification. Prior to this ASU, various disclosure requirements or options to present information on the face of the financial statements or as a note to the financial statements were not included in the appropriate disclosure sections of the codification. The codification improvements also contain various other minor amendments to codification that are not expected to have a significant effect on current accounting practice. The amendments became effective for annual periods beginning after December 15, 2020.

In May 2020, the SEC issued a final rule related to acquisitions and dispositions of businesses and related pro forma information. The rule revised the circumstances that require financial statements and related pro forma information for acquisitions and dispositions of businesses. The intent of the rule is to allow for more meaningful conclusions on when an acquired or disposed business is significant as well as to improve the related disclosure requirements. The changes are intended to improve disclosure. The final rule was effective January 1, 2021.

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 June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value. It also requires the following disclosures for equity securities subject to contractual sale restrictions: 1) the fair value of the equity security subject to contractual sale restrictions reflected in the balance sheet; 2) the natures and remaining duration of the restriction(s); and 3) the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The guidance should be applied prospectively. ASU 2022-03 is not expected to have a material impact on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors” for entities that have adopted the CECL model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2022-02 also requires that public business entities disclose current-period gross charge offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost.”The new guidance will not have a material impact on the consolidated financial statements.

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.

In August 2021, the FASB issued ASU 2021-06,Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.33-10786,Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.33-10835,Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The amendments in this update are effective upon addition to the FASB Codification and will not have a material impact on the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08,Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers, to address diversity in practice and inconsistency related to the accounting for revenue contracts with customers acquired in a business combination. The amendments require that the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination and applies to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including any interim period, for public business entities for periods which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance. The new guidance will not have a material impact on the consolidated financial statements.

On March 7, 2022, Bancorp completed its acquisition of Commonwealth Bancshares, Inc. in a combined stock and cash transaction for total consideration of $168 million. Bancorp acquired 15 retail branches, including 9 in Jefferson County, 4 in Shelby County, and 2 in Northern Kentucky.

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 through March 7, 2023.

Goodwill of approximately $67 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, was recorded in the CB acquisition and is the result of expected operational synergies and other factors. This goodwill is attributable to the Company’s Commercial Banking and Wealth Management & Trust segments. Goodwill related to the CB acquisition is not deductible for tax purposes, as the transaction 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 CB acquisition will change.

Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value and gross contractual amounts receivable of $540 million and $549 million at the date of acquisition.

Total revenue, defined as net interest income and non-interest income, attributed to CB totaled approximately $11.7 million and $14.9 million for the three and six months ended June 30, 2022, respectively.

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 CB acquisition taken place at the beginning of the period. Further, the pro forma condensed combined financial information presented below for the three and six month periods ended June 30, 2021 also assumes that the KB acquisition took place at the beginning of the period.

(1) - Excludes $4.4 million in merger related credit loss expense for the six months ended June 30, 2022.Excludes $7.4 million in merger related credit loss expense for the three and six months ended June 30, 2021, respectively.

(2) - Excludes $24.1 million in pre-tax merger expenses for the six months ended June 30, 2022. Excludes $18.1 million and $18.5 million in pre-tax merger expenses for the three and six months ended June 30, 2021, respectively.

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.

Effective March 31, 2022, management finalized the fair values of the acquired assets and assumed liabilities in advance of the 12 month post-acquisition date, as allowed by GAAP.

The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final provisional period adjustments to those previously reported preliminary values, and the final fair values of those assets and liabilities as recorded by Bancorp.

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 the transaction was structured as stock sale.

Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value and gross contractual amounts receivable of $724 million and $723 million at the date of acquisition.

Total revenue, defined as net interest income and non-interest income, attributed to KB totaled approximately $4.5 million and for both the three and six months ended June 30, 2021, respectively.

~~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.

Debt securities purchased in which Bancorp has the intent and ability to hold to their maturity are classified HTM securities. All other investment securities are classified as AFS securities.

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of Bancorp’s AFS debt securities ~~available-for-sale follow:~~portfolio:

~~Corporate equity securities consist of common stock in a publicly-traded business development~~ ~~company.~~HTM Debt Securities

~~There~~The following table summarizes the amortized cost, unrecognized gains and losses, and fair value of Bancorp’s HTM debt securities portfolio:

Bancorp elected to classify a portion of securities purchased and acquired during the first quarter of 2022 as HTM. This election was made in an effort to lessen the impact that the rising interest rate environment has on the valuation of the AFS debt securities portfolio, and ultimately its impact on capital through AOCI. NaN debt securities were noclassified as HTM at December 31, 2021.

All investment securities classified as ~~held to maturity~~HTM by Bancorp as of ~~September~~June 30, ~~2017~~ 2022 are obligations of the U.S. Government and/or ~~December 31, 2016.~~are issued by U.S. Government-sponsored agencies and have an implicit or explicit government guarantee. Therefore, 0 ACL has been recorded for Bancorp’s HTM securities as of June 30, 2022. Further, as of June 30, 2022, NaN of Bancorp’s HTM securities were in non-accrual or past due status.

~~Bancorp sold no securities~~ during the three or nine month periods ending September 30, 2016 or 2017. One security was called prior to maturity in the third quarter of 2017 resulting in the receipt of a pre-payment penalty. The penalty income was classified as a realized gain on the call of available for sale securities.Debt Securities by Contractual Maturity

A summary of ~~the~~ ~~available-for-sale investment~~AFS and HTM debt securities by contractual maturity ~~groupings~~ as of ~~September~~June 30, ~~2017 is shown below.~~2022 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~~At June 30, 2022 and December 31, 2021, there were no holdings of debt securities of any one issuer, other than the U.S. government and its ~~investment~~agencies, in an amount greater than 10% of stockholders’ equity.

Accrued interest on the AFS and HTM securities portfolios totaled $3 million and $2 million at June 30, 2022, respectively, and was included on the consolidated balance sheets. Accrued interest on the AFS securities portfolio ~~to secure public fund deposits, cash balances~~totaled $3 million at December 31, 2021, and was included in the consolidated balance sheets. There were no securities classified as HTM at December 31, 2021.

AFS debt securities totaling $247 million were acquired on March 7, 2022, as a result of ~~certain wealth management and trust accounts, and~~the CB acquisition, a portion of which were classified as HTM at acquisition. Shortly after acquisition, 3 securities with a total fair value of $2 million were sold, ~~under agreements to repurchase.~~ ~~The~~resulting in a loss on the sale of $92,000, which was recorded as a fair value adjustment through goodwill during the first quarter.

Securities with a carrying value of ~~these~~$1.04 billion and $879 million were pledged ~~securities was approximately $329.7 million~~ at ~~September~~June 30, ~~2017~~ 2022 and ~~$380.4 million at~~ December 31, ~~2016.~~2021, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits and uninsured cash balances for WM&T accounts. The increase between December 31, 2021 and June 30, 2022 was the result of relationships added through the CB acquisition.

Based on an evaluation of available information including security type, counterparty credit quality, past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability, Bancorp has concluded that it expects to receive all contractual cash flows from each security held in its AFS and HTM debt securities portfolio. As such, 0 allowance or impairment was recorded with respect to investment securities as of June 30, 2022.

~~Stock Yards Bancorp, inc.~~Debt securities with unrealized and ~~subsidiary~~unrecognized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time securities have been in a continuous unrealized loss position follows:

~~Securities with unrealized losses at~~ ~~September 30, 2017 and December 31, 2016, not recognized in the statements of income are as follows:~~

Applicable dates for determining when securities are in an unrealized and unrecognized loss ~~position~~positions are ~~September~~June 30, ~~2017~~ 2022 and December 31, ~~2016.~~ 2021. 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.

In evaluating debt securities in unrealized and unrecognized loss ofpositions 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 ~~12 months” category above.~~

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 and unrecognized 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 540 and ~~it is not likely that Bancorp will be required to sell the investments before recovery~~227 separate investment positions as of ~~their amortized cost bases, which may be maturity, Bancorp does not consider these~~June 30, 2022 and December 31, 2021, respectively. There were no credit related factors underlying unrealized and unrecognized losses on debt securities ~~to be other-than-temporarily impaired~~ at ~~September~~June 30, ~~2017.~~

~~FHLB stock~~ 2022 and ~~other securities are investments held by Bancorp which are not readily marketable 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, 2021.

~~Stock Yards Bancorp, inc. and subsidiary~~Composition of loans by class follows:

As a result of the CB acquisition on March 7, 2022, $632 million in loans (net of purchase accounting adjustments) were added to the portfolio.

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $12 million and $11 million at June 30, 2022 and December 31,2021, respectively, and was included in the consolidated balance sheets.

C~~omposition~~Loans with carrying amounts of ~~loans, net of deferred fees~~$2.66 billion and ~~costs, by primary loan portfolio class follows:~~$2.20 billion were pledged to secure FHLB borrowing capacity at June 30, 2022 and December 31, 2021, respectively.

Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $59 million and $54 million as of June 30, 2022 and December 31, 2021, respectively.

In connection with the acquisitions of CB on March 7, 2022, and KB on May 31, 2021, Bancorp acquired loans both with and without evidence of 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 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.

Bancorp purchased loans through the acquisitions of CB and 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 classified as PCD was as follows at the respective acquisition dates:

At June 30, 2022, the book balance of PCD loans acquired as a result of the CB and ~~subsidiary~~KB acquisitions totaled $69 million and $12 million, respectively. Interest income recognized on loans classified as PCD totaled $2.0 million and $151,000 for the three month periods ended June 30, 2022 and 2021, respectively. For the six month periods ended June 30, 2022 and 2021, interest income recognized on loans classified as PCD totaled $2.9 million and $151,000, respectively.

The following table presents the amortized cost basis of non-performing loans and the amortized cost basis of loans on non-accrual status for which there was no related ACL losses:

For the three and six month periods ended June 30, 2022 and 2021, 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 six month periods ended June 30, 2022 and 2021, 0 interest income was recognized on loans on non-accrual status.

The following table presents the ~~balance~~ ~~of the recorded investment in~~amortized cost basis and ACL allocated for collateral dependent loans, ~~and allowance for loan losses by portfolio segment and based on impairment evaluation method as of September 30, 2017 and December 31, 2016.~~which are individually evaluated to determine expected credit losses:

~~Stock Yards Bancorp, inc. and subsidiary~~The following tables present the aging of contractually past due loans by portfolio class:

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

Bancorp has loans 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:~~

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

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

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

~~The following table presents the recorded investment in non-accrual loans as of~~ ~~September 30, 2017 and December 31, 2016.~~

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.

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 aging of the recorded investment in loans as of~~ ~~September 30, 2017 and December 31, 2016.~~

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:

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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. Bancorp 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 is currently immaterial to Bancorp’s loan portfolio and is expected to be in the future. As of June 30, 2022, the risk rating of loans based on year of origination was as follows:

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

													Revolving
													loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized
June 30, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	232,985	$	390,203	$	283,758	$	143,894	$	82,816	$	179,300	$	21,526	$	1,334,482
OAEM		168		5,740		2,340		19,201		0		5,542		6,095		39,086
Substandard		4,174		298		3,041		8,124		0		7,378		100		23,115
Substandard non-performing		0		0		39		0		0		608		0		647
Doubtful		0		0		0		0		0		0		0		0
Total Commercial real estate non-owner occupied	$	237,327	$	396,241	$	289,178	$	171,219	$	82,816	$	192,828	$	27,721	$	1,397,330

Commercial real estate - owner occupied:
Risk rating
Pass	$	81,564	$	206,021	$	198,696	$	105,386	$	73,275	$	92,744	$	8,592	$	766,278
OAEM		0		1,681		1,401		1,942		413		140		1,630		7,207
Substandard		2,279		1,170		0		6,965		1,993		74		0		12,481
Substandard non-performing		0		1,234		0		0		0		359		0		1,593
Doubtful		0		0		0		0		0		0		0		0
Total Commercial real estate owner occupied	$	83,843	$	210,106	$	200,097	$	114,293	$	75,681	$	93,317	$	10,222	$	787,559

Commercial and industrial - term:
Risk rating
Pass	$	119,240	$	279,221	$	121,168	$	51,121	$	43,235	$	42,936	$	0	$	656,921
OAEM		4,043		290		0		387		2,187		4		0		6,911
Substandard		201		1		0		1,742		151		388		0		2,483
Substandard non-performing		448		0		537		0		38		0		0		1,023
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - term	$	123,932	$	279,512	$	121,705	$	53,250	$	45,611	$	43,328	$	0	$	667,338

Commercial and industrial - PPP
Risk rating
Pass	$	0	$	31,798	$	4,969	$	0	$	0	$	0	$	0	$	36,767
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 Commercial and industrial - PPP	$	0	$	31,798	$	4,969	$	0	$	0	$	0	$	0	$	36,767

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

(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

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(continued)

													Revolving
													loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												amortized
June 30, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	24,723	$	20,389	$	6,400	$	11,627	$	1,348	$	1,425	$	348,812	$	414,724
OAEM		0		0		0		0		0		415		4,319		4,734
Substandard		0		0		952		1,950		0		0		542		3,444
Substandard non-performing		0		38		0		0		0		0		126		164
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - lines of credit	$	24,723	$	20,427	$	7,352	$	13,577	$	1,348	$	1,840	$	353,799	$	423,066

Residential real estate - owner occupied
Risk rating
Pass	$	100,970	$	196,501	$	101,346	$	32,169	$	17,044	$	81,166	$	0	$	529,196
OAEM		0		98		0		80		0		0		0		178
Substandard		0		0		10		0		144		701		0		855
Substandard non-performing		48		202		73		500		299		2,226		0		3,348
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - owner occupied	$	101,018	$	196,801	$	101,429	$	32,749	$	17,487	$	84,093	$	0	$	533,577

Residential real estate - non-owner occupied
Risk rating
Pass	$	55,304	$	88,711	$	61,711	$	37,971	$	20,982	$	27,693	$	0	$	292,372
OAEM		0		0		121		271		128		375		0		895
Substandard		0		0		0		0		0		352		0		352
Substandard non-performing		94		23		0		0		0		116		0		233
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - non-owner occupied	$	55,398	$	88,734	$	61,832	$	38,242	$	21,110	$	28,536	$	0	$	293,852

Construction and land development
Risk rating
Pass	$	107,261	$	120,471	$	93,015	$	15,495	$	6,116	$	1,740	$	24,295	$	368,393
OAEM		0		0		0		0		0		87		0		87
Substandard		0		340		0		3,090		0		287		0		3,717
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	$	107,261	$	120,811	$	93,015	$	18,585	$	6,116	$	2,114	$	24,295	$	372,197

Home equity lines of credit
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	191,685	$	191,685
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		39		39
Substandard non-performing		0		0		0		0		0		0		378		378
Doubtful		0		0		0		0		0		0		0		0
Total Home equity lines of credit	$	0	$	0	$	0	$	0	$	0	$	0	$	192,102	$	192,102

~~Stock Yards Bancorp, inc. and subsidiary~~(continued)

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(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
June 30, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Consumer
Risk rating
Pass	$	12,199	$	21,563	$	7,733	$	7,333	$	3,662	$	2,829	$	81,518	$	136,837
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		0		49		159		107		21		85		20		441
Doubtful		0		0		0		0		0		0		0		0
Total Consumer	$	12,199	$	21,612	$	7,892	$	7,440	$	3,683	$	2,914	$	81,538	$	137,278

Leases
Risk rating
Pass	$	3,503	$	4,837	$	3,041	$	1,095	$	962	$	1,173	$	0	$	14,611
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 Leases	$	3,503	$	4,837	$	3,041	$	1,095	$	962	$	1,173	$	0	$	14,611

Credit cards
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	21,647	$	21,647
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	$	21,647	$	21,647

Total loans
Risk rating
Pass	$	737,751	$	1,359,715	$	881,837	$	406,091	$	249,440	$	431,005	$	698,074	$	4,763,913
OAEM		4,211		7,809		3,862		21,880		2,728		6,563		12,044		59,097
Substandard		6,654		1,808		4,003		21,871		2,288		9,181		682		46,487
Substandard non-performing		589		1,545		807		606		358		3,397		525		7,827
Doubtful		0		0		0		0		0		0		0		0
Total Loans	$	749,205	$	1,370,877	$	890,509	$	450,448	$	254,814	$	450,146	$	711,325	$	4,877,324

Table of Contents

As of December 31, 2021, the risk rating of loans based on year of origination was as follows:

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	381,014	$	298,177	$	134,286	$	86,638	$	85,110	$	81,635	$	19,465	$	1,086,325
OAEM		3,186		2,666		19,784		0		353		1,619		248		27,856
Substandard		4,174		1,440		0		0		0		7,629		100		13,343
Substandard non-performing		0		39		78		0		592		11		0		720
Doubtful		0		0		0		0		0		-		0		0
Total Commercial real estate non-owner occupied	$	388,374	$	302,322	$	154,148	$	86,638	$	86,055	$	90,894	$	19,813	$	1,128,244

Commercial real estate - owner occupied:
Risk rating
Pass	$	203,545	$	192,322	$	91,078	$	75,062	$	33,713	$	44,364	$	9,236	$	649,320
OAEM		1,681		1,480		3,568		469		1,506		124		570		9,398
Substandard		5,051		3,605		5,985		1,275		627		0		1,396		17,939
Substandard non-performing		1,259		0		0		0		32		457		0		1,748
Doubtful		0		0		0		0		0		0		0		0
Total Commercial real estate owner occupied	$	211,536	$	197,407	$	100,631	$	76,806	$	35,878	$	44,945	$	11,202	$	678,405

Commercial and industrial - term:
Risk rating
Pass	$	283,150	$	143,211	$	58,988	$	52,388	$	26,081	$	24,421	$	0	$	588,239
OAEM		738		86		254		3,382		8		0		0		4,468
Substandard		170		42		2,667		176		111		167		0		3,333
Substandard non-performing		0		543		72		55		0		0		0		670
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - term	$	284,058	$	143,882	$	61,981	$	56,001	$	26,200	$	24,588	$	0	$	596,710

Commercial and industrial - PPP
Risk rating
Pass	$	128,409	$	12,325	$	0	$	0	$	0	$	0	$	0	$	140,734
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 Commercial and industrial - PPP	$	128,409	$	12,325	$	0	$	0	$	0	$	0	$	0	$	140,734

(continued)

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(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	33,875	$	8,352	$	11,103	$	1,039	$	207	$	193	$	303,682	$	358,451
OAEM		0		0		0		0		0		0		6,355		6,355
Substandard		0		0		1,916		0		1,549		0		1,813		5,278
Substandard non-performing		0		0		0		0		0		0		228		228
Doubtful		0		0		0		0		0		0		0		0
Total Commercial and industrial - lines of credit	$	33,875	$	8,352	$	13,019	$	1,039	$	1,756	$	193	$	312,078	$	370,312

Residential real estate - owner occupied
Risk rating
Pass	$	176,487	$	99,936	$	31,327	$	17,259	$	16,599	$	56,639	$	0	$	398,247
OAEM		101		0		174		0		0		0		0		275
Substandard		0		0		0		0		108		68		0		176
Substandard non-performing		164		103		136		230		714		650		0		1,997
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - owner occupied	$	176,752	$	100,039	$	31,637	$	17,489	$	17,421	$	57,357	$	0	$	400,695

Residential real estate - non-owner occupied
Risk rating
Pass	$	94,482	$	78,785	$	46,177	$	27,494	$	16,171	$	15,909	$	0	$	279,018
OAEM		352		126		281		132		0		462		0		1,353
Substandard		0		0		0		0		0		354		0		354
Substandard non-performing		103		0		45		28		0		117		0		293
Doubtful		0		0		0		0		0		0		0		0
Total Residential real estate - non-owner occupied	$	94,937	$	78,911	$	46,503	$	27,654	$	16,171	$	16,842	$	0	$	281,018

Construction and land development
Risk rating
Pass	$	160,696	$	99,699	$	16,665	$	6,262	$	1,890	$	1,156	$	12,736	$	299,104
OAEM		0		0		0		0		102		0		0		102
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	$	160,696	$	99,699	$	16,665	$	6,262	$	1,992	$	1,156	$	12,736	$	299,206

Home equity lines of credit
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	138,239	$	138,239
OAEM		0		0		0		0		0		0		91		91
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		0		0		0		0		0		0		646		646
Doubtful		0		0		0		0		0		0		0		0
Total Home equity lines of credit	$	0	$	0	$	0	$	0	$	0	$	0	$	138,976	$	138,976

(continued)

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(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		Total

Consumer
Risk rating
Pass	$	23,866	$	9,316	$	5,014	$	1,260	$	555	$	646	$	63,227	$	103,884
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Substandard non-performing		55		304		30		11		0		4		6		410
Doubtful		0		0		0		0		0		0		0		0
Total Consumer	$	23,921	$	9,620	$	5,044	$	1,271	$	555	$	650	$	63,233	$	104,294

Leases
Risk rating
Pass	$	5,375	$	3,596	$	1,375	$	1,331	$	406	$	1,539	$	0	$	13,622
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 Leases	$	5,375	$	3,596	$	1,375	$	1,331	$	406	$	1,539	$	0	$	13,622

Credit cards
Risk rating
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	17,087	$	17,087
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	$	17,087	$	17,087

Total loans
Risk rating
Pass	$	1,490,899	$	945,719	$	396,013	$	268,733	$	180,732	$	226,502	$	563,672	$	4,072,270
OAEM		6,058		4,358		24,061		3,983		1,969		2,205		7,264		49,898
Substandard		9,395		5,087		10,568		1,451		2,395		8,218		3,309		40,423
Substandard non-performing		1,581		989		361		324		1,338		1,239		880		6,712
Doubtful		0		0		0		0		0		0		0		0
Total Loans	$	1,507,933	$	956,153	$	431,003	$	274,491	$	186,434	$	238,164	$	575,125	$	4,169,303

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:

	June 30,		December 31,
(in thousands)	2022		2021

Credit cards
Performing	$	21,647	$	17,087
Non-performing		0		0
Total credit cards	$	21,647	$	17,087

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Troubled Debt Restructurings

Detail of outstanding TDRs classified as non-performing loans follows:

	June 30, 2022						December 31, 2021
			Specific		Additional				Specific		Additional
			reserve		commitment				reserve		commitment
(in thousands)	Balance		allocation		to lend		Balance		allocation		to lend

Commercial real estate - owner occupied	$	917	$	202	$	0	$	950	$	202	$	0
Commercial & industrial - term		0		0		0		12		12		0
Total TDRs	$	917	$	202	$	0	$	962	$	214	$	0

During the three and six month periods ended June 30, 2022 and 2021, 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 $1.2 million and $917,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at June 30, 2022 and December 31, 2021.

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~~(4)~~(5)

Goodwill ~~and Intangible Assets~~

US As of June 30, 2022, goodwill totaled $203 million, $67 million of which was added through the CB acquisition. 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 CB acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.

The composition of goodwill is presented by respective acquisition below:

	June 30,		December 31,
(in thousands)	2022		2021
Commonwealth Bancshares (2022)	$	66,694	$	0
Kentucky Bancshares (2021)		123,317		123,317
King Southern Bancorp (2019)		11,831		11,831
Austin State Bank (1996)		682		682
Total	$	202,524	$	135,830

*The acquisition of The Bank Oldham County in 2013 generated a bargain purchase gain.

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~~goodwill follows:

	Three months ended				Six months ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Balance at beginning of period	$	202,524	$	12,513	$	135,830	$	12,513
Goodwill recorded due to acquisition		0		124,016		66,694		124,016
Provisional period adjustments		0		0		0		0
Impairment		0		0		0		0
Balance at end of period	$	202,524	$	136,529	$	202,524	$	136,529

As of ~~an Indiana bank. This~~ June 30, 2022, goodwill totaling $203 million was recorded on Bancorp’s consolidated balance sheets, of which $175 million is ~~assigned~~attributed to the commercial banking segment and $28 million is attributed to WM&T. The portion of ~~Bancorp.~~total goodwill attributed to WM&T relates entirely to the CB acquisition, which generated $67 million in total goodwill during the six months ended June 30, 2022.

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(6)

Core Deposit and Customer List Intangible Assets

Bancorp recorded a ~~gross core deposit intangible totaling $2.5~~CDI assets of $13 million, as a result of its 2013 acquisition of THE BANCorp, Inc. This intangible is being amortized over the expected life of the underlying deposits to which the intangible is attributable. At September 30, 2017, the unamortized core deposit intangible was $1.3$4 million, ~~as compared to $1.4 million at December 31, 2016.~~

Mortgage servicing rights (MSRs) are initially recognized at fair value when mortgage loans are sold with servicing retained. The MSRs are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing carrying value to fair value. Estimated fair values of MSRs at ~~both September 30, 2017 and December 31, 2016 were $2.7 million. Total outstanding principal balances of loans serviced for others were $350.1~~$2 million and ~~$372.2~~$3 million ~~at September 30, 2017,~~in association with the acquisitions of CB in 2022, KB in 2021, KSB in 2019 and ~~December 31, 2016,~~TBOC in 2013, respectively.

Changes in the net carrying amount of ~~MSRs for the~~ ~~nine months ended September 30, 2017 and 2016 are shown in the following table:~~CDIs follows:

	For the nine months						Three months ended						Six months ended
	ended September 30,						June 30,						June 30,
(in thousands)	2017			2016			2022			2021			2022			2021
Balance at beginning of period	$	921		$	1,018		$	17,826		$	1,885		$	5,596		$	1,962
Additions for mortgage loans sold		143			105
Core deposit intangible acquired								0			3,404			12,724			3,404
Provisional period adjustments								0			0			0			0
Amortization		(222	)		(192	)		(956	)		(127	)		(1,450	)		(204	)
Balance at end of period	$	842		$	931		$	16,870		$	5,162		$	16,870		$	5,162

As a result of the CB acquisition, Bancorp also recorded intangible assets totaling $14 million associated with the customer lists of the acquired WM&T and LFA businesses. Of this total, $12 million was recorded for WM&T and $2 million was recorded for Landmark. Similar to CDI assets, these intangibles also amortize over their estimated useful lives.

The carrying amount of the CLI assets follows:

	Three months ended					Six months ended
	June 30,					June 30,
(in thousands)	2022			2021		2022			2021
Balance at beginning of period	$	14,142		$	0	$	0		$	0
Customer list intangibles acquired		0			0		14,360			0
Provisional period adjustments		0			0		0			0
Amortization		(655	)		0		(873	)		0
Balance at end of period	$	13,487		$	0	$	13,487		$	0

Future CDI and CLI amortization expense is estimated as follows:

(in thousands)	CDI		CLI
2022	$	1,912	$	1,308
2023		3,015		2,002
2024		2,686		1,823
2025		2,375		1,643
2026		2,063		1,464
2027		1,752		1,284
2028		1,339		1,105
2029		888		925
2030		576		745
2031		264		566
2032		0		387
2033		0		207
2034		0		28
Total future expense	$	16,870	$	13,487

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(7)

Other Assets

~~Stock Yards Bancorp, inc. and subsidiary~~A summary of the major components of other assets follows:

	June 30,		December 31,
*(in thousands)*	2022		2021

Cash surrender value of life insurance other than BOLI	$	15,297	$	17,875
Net deferred tax asset		41,138		24,340
Investments in tax credit related ventures		14,626		11,084
Swap assets		6,475		3,148
Prepaid assets		4,016		4,469
Trust fees receivable		3,298		2,868
Mortgage servicing rights		16,504		4,528
Other real estate owned		7,601		7,212
Other		16,967		10,478
Total other assets	$	125,922	$	86,002

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

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 “Interest Rate Swaps.”

For additional information related to MSRs, see the footnote titled “Mortgage Banking Activities.”

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~~(5)~~(8)

Income Taxes

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

	Three months ended						Nine months ended						Three months ended					Six months ended
	September 30,						September 30,						June 30,					June 30,
(in thousands)	2017			2016			2017			2016			2022		2021			2022		2021
Current income tax expense
Current income tax expense (benefit):																��
Federal	$	5,211		$	4,363		$	12,936		$	10,958		$	3,393	$	(21	)	$	3,607	$	3,472
State		179			287			472			597			614		24			614		546
Total current income tax expense		5,390			4,650			13,408			11,555			4,007		3			4,221		4,018

Deferred income tax (benefit) expense
Deferred income tax expense:
Federal		(1,583	)		(692	)		(2,240	)		(302	)		2,622		679			3,464		1,516
State		(44	)		(75	)		(30	)		(18	)		918		182			1,307		791
Total deferred income tax expense (benefit)		(1,627	)		(767	)		(2,270	)		(320	)
Total deferred income tax expense														3,540		861			4,771		2,307
Change in valuation allowance		333			-			459			-			0		0			0		0
Total income tax expense	$	4,096		$	3,883		$	11,597		$	11,235		$	7,547	$	864		$	8,992	$	6,325

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						Six months ended
	Nine months ended September 30,						June 30,						June 30,
	2017			2016			2022			2021			2022			2021
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								3.5			3.2			3.5			3.1
Excess tax benefit from stock-based compensation arrangements								(1.6	)		(2.9	)		(2.4	)		(3.2	)
Change in cash surrender value of life insurance								0.9			(4.4	)		1.1			(1.1	)
Tax credits		(4.6	)		(9.4	)		(0.5	)		(1.2	)		(0.7	)		(0.6	)
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	)		(0.6	)		(1.3	)		(0.8	)		(0.3	)
State income taxes, net of federal benefit		0.7			0.9
Non-deductible merger expenses								0.1			4.2			0.3			0.9
Insurance captive								(0.2	)		(0.4	)		(0.4	)		(0.1	)
Other, net		0.3			2.7			(0.7	)		(1.1	)		(1.1	)		(0.7	)
Effective income tax rate		25.9	%		27.0	%
Effective tax rate								21.9	%		17.1	%		20.5	%		19.0	%

~~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 based on capital levels and are recorded as other non-interest expense.

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

~~Table of Contents~~

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

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~~June 30, ~~2017~~ 2022 and December 31, ~~2016,~~ 2021, 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.~~2017.

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~~(6)~~(9)

Deposits

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

(in thousands)					June 30, 2022		December 31, 2021
	September 30,		December 31,
	2017		2016
(in thousands)
Non-interest bearing demand	$	676,824	$	680,156

Non-interest bearing demand deposits					$	2,121,304	$	1,755,754
Interest bearing deposits:
Interest bearing demand		725,368		768,139		2,184,579		2,131,928
Savings		149,596		140,030		571,856		415,258
Money market		698,198		682,421		1,167,538		1,050,352

Time deposits of more than $250,000		33,270		40,427
Other time deposits		198,710		209,375
Time deposits of $250 thousand or more						95,958		89,745
Other time deposits(1)						407,895		344,477
Total time deposits		231,980		249,802		503,853		434,222

Total interest bearing deposits		1,805,142		1,840,392		4,427,826		4,031,760

Total deposits	$	2,481,966	$	2,520,548	$	6,549,130	$	5,787,514

(1)

Includes $10 million and $5 million in brokered deposits as of June 30, 2022 and December 31, 2021, respectively.

~~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~~Deposits totaling $1.12 billion were assumed on March 7, 2022 in relation to the CB acquisition.

~~(7)~~(10)

Securities Sold Under Agreements to Repurchase

~~Securities sold under agreements to repurchase, which~~SSUAR represent ~~excess funds from~~a funding source of Bancorp and are primarily used by commercial customers ~~as part of a~~in conjunction with collateralized corporate cash management ~~service, totaled $71.9 million~~accounts. Such repurchase agreements are considered financing agreements and ~~$67.6 million at September~~mature within one business day from the transaction date. At June 30, ~~2017~~ 2022 and December 31, ~~2016, respectively. Bancorp enters into sales of securities under agreement to repurchase at a specified future date. At September 30, 2017,~~ 2021, 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.

~~(8)~~

~~Federal Home Loan Bank Advances~~

~~Bancorp had outstanding borrowings~~ totaling $50.1 million and $51.1 million at September 30, 2017 and 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 payments are due monthly, with principal due at maturity. For the remaining advances totaling $20.1 million, principal and interest payments are due monthly based on an amortization schedule.

~~The following is a summary of contractual maturities and average effective rates of outstanding advances:~~Information concerning SSUAR follows:

(In thousands)

September 30, 2017

December 31, 2016

Year

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
2024
2,505 2.36 2,661 2.36
2025
5,615 2.43 6,025 2.43
2026
8,658 1.99 8,936 1.99
2028
1,273 1.48 1,304 1.48

Total
$ 50,110 1.61
%
$ 51,075 1.30
%

(dollars in thousands)	June 30, 2022			December 31, 2021
Outstanding balance at end of period	$	161,512		$	75,466
Weighted average interest rate at end of period		0.44	%		0.04	%

	Three months ended						Six months ended
	June 30,						June 30,
(dollars in thousands)	2022			2021			2022			2021

Average outstanding balance during the period	$	140,169		$	55,673		$	115,761		$	51,330
Average interest rate during the period		0.16	%		0.04	%		0.13	%		0.04	%
Maximum outstanding at any month end during the period	$	161,512		$	63,942		$	161,512		$	63,942

~~In addition~~SSUAR totaling $66 million were assumed on March 7, 2022 in relation to ~~fixed-rate advances listed above,~~ the CB acquisition.

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(11)

Subordinated Debentures and Other Borrowings

As a result of its acquisition of Commonwealth Bancshares, Inc. on March 7, 2022, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier I Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at ~~September~~Bancorp’s option on a quarterly basis. Bancorp chose not to redeem the subordinated notes on July 1, 2022 and carried the note at the costs noted below at June 30, ~~2017~~ 2022.

	Commonwealth Statutory Trust		Commonwealth Statutory Trust		Commonwealth Statutory Trust		Total
(in thousands)	III		IV		V

Trust preferred securities	$	3,093	$	12,372	$	11,341	$	26,806
Subordinated debentures		3,000		12,000		11,000		26,000

Origination date	12/19/2003		12/15/2005		6/28/2007
Index	LIBOR + 2.85%		LIBOR + 1.35%		LIBOR + 1.40%

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

~~Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral agreement and FHLB stock.~~ Bancorp ~~at times utilizes~~views these borrowings as a potential low cost alternative to ~~match fund long-term fixed rate loans.~~brokered deposits. At ~~September~~June 30, ~~2017, the amount of~~ 2022 and December 31, 2021, available credit from the FHLB totaled ~~$367.3 million.~~$1.22 billion and $1.00 billion, respectively. Bancorp also had unsecured available FFP lines with correspondent banks totaling $100 million and $80 million at June 30, 2022 and December 31, 2021, respectively. In addition, Bancorp had borrowing capacity of $20 million available through an unsecured borrowing line at the holding company as of June 30, 2022, which was added during the first quarter to allow capital flexibility at the Bank level.

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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.

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~~Stock Yards Bancorp, inc.~~(12) Commitments and ~~subsidiary~~Contingent Liabilities

~~(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.~~

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~~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.

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~~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.~~

~~Table of Contents~~

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

~~(15)~~

~~Commitments and Contingent Liabilities~~

As of ~~September~~June 30, ~~2017,~~ 2022 and December 31, 2021, 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)	June 30, 2022		December 31, 2021
Commercial and industrial	$	773,639	$	625,858
Construction and land development		456,863		292,351
Home equity		356,309		247,885
Credit cards		58,391		40,471
Overdrafts		61,377		51,104
Letters of credit		34,877		30,779
Other		93,596		76,721
Future loan commitments		328,977		325,983
Total off balance sheet commitments to extend credit	$	2,164,029	$	1,691,152

Commitments to extend credit are an agreement to lend to a customer either unsecured or secured, as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. ~~Commitments to extend credit are mainly comprised of commercial lines of credit, construction and home equity credit lines and credit cards issued to commercial customers.~~ Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not ~~necessarily~~ represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a ~~case by case~~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~~June 30, ~~2017,~~ 2022 and December 31, 2021, Bancorp had accrued ~~$350 thousand~~$4.1 million and $3.5 million, respectively, in other liabilities for ~~inherent risks related~~its estimate of credit losses for off balance sheet credit exposures. The CB acquisition resulted in a $500,000 increase to ~~unfunded~~the ACL for off balance sheet credit ~~commitments.~~exposures, with the corresponding offset recorded to goodwill (as opposed to provision expense). Further, provision expense of $500,000 and $100,000 was recorded for off balance sheet credit exposures for the three and six month periods ended June 30, 2022. The expense recorded for the three month period ended June 30, 2022 was driven largely by the addition of new lines of credit, and thus increased availability, within the C&D portfolio, offsetting the $400,000 negative provision that was recorded during the first quarter. Negative provision expense for off balance sheet credit exposures of $550,000 and $825,000 was recorded for the three and six month periods ended June 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 during the prior year.

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 June 30, 2022, Bancorp would have been required to make payments of approximately $3 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~~June 30, ~~2017,~~ 2022, 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.

Table of Contents

~~(16)~~(13)

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~~ used the following methods and significant assumptions to estimate fair value of each type of financial instrument:

AFS debt securities ~~available-for-sale and~~- Except for Bancorp’s U.S Treasury securities, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Bancorp’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs).

Mortgage loans held for sale - The fair value of mortgage loans held for sale is determined using quoted secondary market prices (Level 2 inputs).

Mortgage banking derivatives – Mortgage banking derivatives used in the ordinary course of business consist primarily of interest rate ~~swaps are recorded at~~lock loan commitments and mandatory forward sales contracts. The fair value ~~on a recurring basis. Other accounts including mortgage servicing rights, impaired loans~~of the Bancorp’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from observable market inputs that can generally be verified 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.~~do not typically involve significant judgement by Bancorp (Level 2 inputs).

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 swap agreements – Interest rate swaps are valued using ~~primarily Level 2 inputs. Fair value measurements generally based on benchmark forward~~valuations received from the relevant dealer counterparty. These valuations consider multiple observable market inputs, including interest rate yield curves, time value 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~~volatility factors (Level 2 inputs).

~~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
June 30, 2022 (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	$	115,532	$	0	$	0	$	115,532
Government sponsored enterprise obligations		0		117,703		0		117,703
Mortgage backed securities - government agencies		0		765,522		0		765,522
Obligations of states and political subdivisions		0		135,268		0		135,268
Other		0		6,014		0		6,014

Total available for sale debt securities		115,532		1,024,507		0		1,140,039

Mortgage loans held for sale		0		10,045		0		10,045
Rate lock loan commitments		0		472		0		472
Mandatory forward contracts		0		44		0		44
Interest rate swaps		0		6,475		0		6,475
Total assets	$	115,532	$	1,041,543	$	0	$	1,157,075

Liabilities:
Interest rate swaps	$	0	$	6,487	$	0	$	6,487

Table of Contents

	Fair Value Measurements Using:						Total
December 31, 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	$	122,501	$	0	$	0	$	122,501
Government sponsored enterprise obligations		0		135,021		0		135,021
Mortgage backed securities - government agencies		0		846,624		0		846,624
Obligations of states and political subdivisions		0		75,075		0		75,075
Other		0		1,077		0		1,077

Total available for sale debt securities		122,501		1,057,797		0		1,180,298

Interest rate swaps		0		3,148		0		3,148

Total assets	$	122,501	$	1,060,945	$	0	$	1,183,446

Liabilities:
Interest rate swaps	$	0	$	3,162	$	0	$	3,162

(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 $ -

There were no transfers into or out of Level 3 of the fair value hierarchy during 2022 or 2021.

~~Bancorp had no financial instruments classified within Level 3~~Discussion of ~~the valuation hierarchy for~~ 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~~June 30, ~~2017~~ 2022 and December 31, ~~2016~~ 2021, there was no0 valuation allowance for MSRs, as the ~~mortgage servicing rights, as~~ fair value exceeded the cost. Accordingly, the MSRs are not included in ~~either table below~~the following tabular disclosure for ~~September~~June 30, ~~2017 or~~ 2022 and December 31, ~~2016. See Note 4 for more information regarding MSRs.~~2021.

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 )

									Losses recorded
									Three months		Six months
	Fair Value Measurements Using:						Total		ended		ended
June 30, 2022 (in thousands)	Level 1		Level 2		Level 3		Fair Value		June 30, 2022		June 30, 2022

Collateral dependent loans	$	0	$	0	$	12,554	$	12,554	$	0	$	0
Other real estate owned		0		0		7,601		7,601		0		0

(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		Six months
	Fair Value Measurements Using:						Total		ended		ended
December 31, 2021 (in thousands)	Level 1		Level 2		Level 3		Fair Value		June 30, 2021		June 30, 2021

Collateral dependent loans	$	0	$	0	$	4,487	$	4,487	$	0	$	0
Other real estate owned		0		0		7,212		7,212		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 0 liabilities measured at fair value ~~is such that transfers in~~ on a non-recurring basis at June 30, 2022 and ~~out of any level are expected to be rare. For the~~ ~~nine months ended September 30, 2017, there were no transfers between Levels 1, 2, or 3.~~ December 31,2021.

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.

	June 30, 2022
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average

Collateral dependent loans	$	12,554	Appraisal	Appraisal discounts		23.2	%
Other real estate owned		7,601	Appraisal	Appraisal discounts		30.7

Significant

Weighted

Fair

Valuation

unobservable

average of

December 31, 2021

(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

4,487

Appraisal

Appraisal discounts

41.1

Other real estate owned

2,640

Appraisal

Appraisal discounts

23.4

7,212

Appraisal

Appraisal discounts

31.6

Table of Contents

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

~~(17)~~(14)

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				Fair Value Measurements Using:
June 30, 2022	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	573,869	$	573,869	$	573,869	$	0	$	0
HTM debt securities		485,449		460,846		0		460,846		0
Federal Home Loan Bank stock		13,811		13,811		0		13,811		0
Loans, net		4,810,962		4,699,580		0		0		4,699,580
Accrued interest receivable		17,056		17,056		17,056		0		0

Liabilities
Non-interest bearing deposits	$	2,121,304	$	2,121,304	$	2,121,304	$	0	$	0
Transaction deposits		3,923,973		3,923,973		0		3,923,973		0
Time deposits		503,853		494,585		0		494,585		0
Securities sold under agreement to repurchase		161,512		161,512		0		161,512		0
Federal funds purchased		8,771		8,771		0		8,771		0
Subordinated debentures		26,144		26,262		0		26,262		0
Accrued interest payable		277		277		277		0		0

(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~~

~~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.~~

(in thousands)	Carrying				Fair Value Measurements Using:
December 31, 2021	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	961,192	$	961,192	$	961,192	$	0	$	0
Mortgage loans held for sale		8,614		8,818		0		8,818		0
Federal Home Loan Bank stock		9,376		9,376		0		9,376		0
Loans, net		4,115,405		4,129,091		0		0		4,129,091
Accrued interest receivable		13,745		13,745		13,745		0		0

Liabilities
Non-interest bearing deposits	$	1,755,754	$	1,755,754	$	1,755,754	$	0	$	0
Transaction deposits		3,597,538		3,597,538		0		3,597,538		0
Time deposits		434,222		433,813		0		433,813		0
Securities sold under agreement to repurchase		75,466		75,466		0		75,466		0
Federal funds purchased		10,374		10,374		0		10,374		0
Accrued interest payable		300		300		300		0		0

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

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

~~Mortgage loans held for sale~~

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

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

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

~~Loans, net~~

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

~~Deposits~~

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

~~Federal Home Loan Bank advances~~

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

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

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

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

~~Limitations~~

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

Table of Contents

(15)

Mortgage Banking Activities

Mortgage banking activities primarily include residential mortgage originations and servicing.

Effective March 31, 2022, mortgages originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale as of December 31, 2021 and prior were carried at the lower of cost or market value.

Activity for mortgage loans held for sale, at fair value, was as follows:

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2022			2021			2022			2021
Balance, beginning of period:	$	9,323		$	6,579		$	8,614		$	22,547
Origination of mortgage loans held for sale		43,814			50,692			79,643			119,431
Loans held for sale acquired		0			3,071			3,559			3,071
Proceeds from the sale of mortgage loans held for sale		(43,504	)		(55,844	)		(82,275	)		(141,747	)
Net gain on sale of mortgage loans held for sale		412			922			504			2,118
Balance, end of period	$	10,045		$	5,420		$	10,045		$	5,420

The following table represents the components of Mortgage banking income:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2022			2021			2022			2021

Net gain realized on sale of mortgage loans held for sale	$	412		$	922		$	504		$	2,118
Net change in fair value recognized on loans held for sale		70			0			43			0
Net change in fair value recognized on rate lock loan commitments		797			0			1,189			0
Net change in fair value recognized on forward contracts		(814	)		0			(635	)		0
Net gain recognized		465			922			1,101			2,118

Net loan servicing income		1,215			333			1,917			588
Amortization of mortgage servicing rights		(856	)		(174	)		(1,337	)		(426	)
Change in mortgage servicing rights valuation allowance		0			0			0			0
Net servicing income recognized		359			159			580			162

Other mortgage banking income		471			222			617			467
Total mortgage banking income	$	1,295		$	1,303		$	2,298		$	2,747

Activity for capitalized mortgage servicing rights was as follows:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2022			2021			2022			2021
Balance at beginning of period	$	16,877		$	2,865		$	4,528		$	2,710
MSRs acquired		0			1,662			12,676			1,662
Additions for mortgage loans sold		483			304			637			711
Amortization		(856	)		(174	)		(1,337	)		(426	)
Impairment		—			—			—			—

Balance at end of period	$	16,504		$	4,657		$	16,504		$	4,657

Table of Contents

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. 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 value of MSRs at June 30, 2022 and December 31, 2021 were $26 million and $6 million, respectively. MSRs with an estimated fair value of $13 million were acquired in the CB acquisition. There was 0 valuation allowance recorded for MSRs as of June 30, 2022 and December 31, 2021, as fair value exceeded carrying value.

Total outstanding principal balances of loans serviced for others were $2.16 billion and $698 million at June 30, 2022 and December 31, 2021, respectively. Loans serviced for others acquired as part of the CB acquisition totaled $1.5 billion at the date of acquisition.

Mortgage banking derivatives used in the ordinary course of business consist primarily of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future loan commitments to deliver loans at a specified price and date are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amount required to be received or paid.

Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default.

The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate lock loan commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before expiration; and the time period required to close and sell loans.

The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives:

	June 30, 2022
(in thousands)	Notional Amount		Fair Value
Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	9,989	$	10,045

Included in other assets:
Rate lock loan commitments	$	17,951	$	472
Mandatory forward contracts		18,459		44

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(16)

Accumulated Other Comprehensive Income (Loss)

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 June 30, 2022
Balance, beginning of period	$	(57,316	)	$	0		$	(283	)	$	(57,599	)
Net current period other comprehensive loss		(29,738	)		0			0			(29,738	)
Balance, end of period	$	(87,054	)	$	0		$	(283	)	$	(87,337	)

Three months ended June 30, 2021
Balance, beginning of period	$	(2,513	)	$	(90	)	$	(447	)	$	(3,050	)
Net current period other comprehensive income		4,808			32			0			4,840
Balance, end of period	$	2,295		$	(58	)	$	(447	)	$	1,790

	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
Six months ended June 30, 2022
Balance, beginning of period	$	(7,657	)	$	0		$	(283	)	$	(7,940	)
Net current period other comprehensive loss		(79,397	)		0			0			(79,397	)
Balance, end of period	$	(87,054	)	$	0		$	(283	)	$	(87,337	)

Six months ended June 30, 2021
Balance, beginning of period	$	9,310		$	(122	)	$	(447	)	$	8,741
Net current period other comprehensive income (loss)		(7,015	)		64			0			(6,951	)
Balance, end of period	$	2,295		$	(58	)	$	(447	)	$	1,790

(17)

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.

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(18)

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				Six months ended
	June 30,				June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net income available to stockholders	$	26,794	$	4,184	$	34,700	$	26,894

Weighted average shares outstanding - basic		29,131		24,140		28,186		23,489
Dilutive securities		215		239		235		242
Weighted average shares outstanding- diluted		29,346		24,379		28,421		23,731

Net income per share - basic	$	0.92	$	0.17	$	1.23	$	1.14
Net income per share - diluted		0.91		0.17		1.22		1.13

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

Three months ended

Six months ended

(shares in thousands)

June 30,

2022

2021

2022

2021

Antidilutive SARs

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(19)

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 June 30, 2022, there were 379,000 shares available for future awards. The 2005Stock ~~Yards~~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	2022			2021
Dividend yield		2.38	%		2.52	%
Expected volatility		25.42	%		25.21	%
Risk free interest rate		1.98	%		1.23	%
Expected life (in years)		7.1			7.1

Dividend yield and expected volatility are based on historical information for Bancorp ~~inc.~~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 ~~subsidiary~~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 5.8% and 6.1% for 2022 and 2021.

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 2022 and 2021, Bancorp awarded 5,410 and 7,758 RSUs to non-employee directors of Bancorp with a grant date fair value of $350,000 and $315,000, respectively.

Bancorp utilized cash of $233,000 and $164,000 during the firstsix months of 2022 and 2021, 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 June 30, 2022
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	94		$	350		$	87		$	526		$	1,057
Deferred tax benefit		(19	)		(74	)		(18	)		(111	)		(222	)
Total net expense	$	75		$	276		$	69		$	415		$	835

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

Expense	$	86		$	337		$	78		$	913		$	1,414
Deferred tax benefit		(18	)		(71	)		(16	)		(192	)		(297	)
Total net expense	$	68		$	266		$	62		$	721		$	1,117

	Six months ended June 30, 2022
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	187		$	682		$	172		$	1,007		$	2,048
Deferred tax benefit		(39	)		(144	)		(36	)		(212	)		(431	)
Total net expense	$	148		$	538		$	136		$	795		$	1,617

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

Expense	$	175		$	666		$	154		$	1,268		$	2,263
Deferred tax benefit		(37	)		(140	)		(32	)		(267	)		(476	)
Total net expense	$	138		$	526		$	122		$	1,001		$	1,787

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 2022	$	189	$	715	$	159	$	1,054	$	2,117
2023		311		1,232		2		1,303		2,848
2024		205		1,002		0		603		1,810
2025		146		763		0		0		909
2026		88		436		0		0		524
2027		10		50		0		0		60
Total estimated expense	$	949	$	4,198	$	161	$	2,960	$	8,268

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, 2021		593		$15.24	-	$40.00	$	27.47	$	7,706	$	4.44		5.1
Granted		30		47.17	-	50.71		50.48		0		9.69
Exercised		(108	)	15.24	-	19.37		16.40		4,239		2.85
Forfeited		—			—			—		—		—
Outstanding, December 31, 2021		515		$15.24	-	$50.71	$	31.16	$	16,854	$	5.08		5.1

Outstanding, January 1, 2022		515		$15.24	-	$50.71	$	31.16	$	16,854	$	5.08		5.1
Granted		33		53.29	-	54.91		54.86		0		11.82
Exercised		(61	)	15.24	-	36.65		16.69		2,544		2.78
Forfeited		0			—			—		—		—
Outstanding, June 30, 2022		487		$15.24	-	$54.91	$	34.58	$	12,294	$	5.83		5.4

Vested and exercisable		349		$15.24	-	$50.71	$	30.84	$	10,121	$	4.97		4.4
Unvested		138		35.90	-	54.91		44.06		2,173		8.08		3.3
Outstanding, June 30, 2022		487		$15.24	-	$54.91	$	34.58	$	12,294	$	5.83		5.4

Vested in the current year		43		$35.90	-	$50.71	$	39.29	$	881	$	6.71

(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, 2021		99		$	36.85
Shares awarded		39			46.90
Restrictions lapsed and shares released		(34	)		35.48
Shares forfeited		(5	)		40.81
Unvested at December 31, 2021		99		$	41.07

Unvested at January 1, 2022		99		$	41.07
Shares awarded		36			58.47
Restrictions lapsed and shares released		(31	)		40.38
Shares forfeited		(3	)		45.15
Unvested at June 30, 2022		101		$	47.25

Table of Contents

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*
2020		3	$	32.27		65,111
2021		3		44.44		47,280
2022		3		48.48		36,350

~~(18)~~(20)

~~Derivative Financial Instruments~~Interest Rate Swaps

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

In 2016, Bancorp entered into an interest rate swap to hedge cash flows of a $10 million rolling fixed-rate three-month FHLB borrowing. The swap began December 6, 2016 and ends December 6, 2021. In 2015, Bancorp entered into an interest rate swap to hedge cash flows of a $20 million rolling fixed-rate three-month FHLB borrowing. The swap began December 9, 2015 and matures December 6, 2020. For purposes of hedging, rolling fixed rate advances are considered to be floating rate liabilities. Interest rate swaps involve exchange of Bancorp’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, and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged forecasted transaction affects earnings.

	Receiving				Paying
	June 30,		December 31,		June 30,		December 31,
(dollars in thousands)	2022		2021		2022		2021

Notional amount	$	141,432	$	123,983	$	141,432	$	123,983
Weighted average maturity (years)		7.6		7.2		7.6		7.2
Fair value	$	6,475	$	3,148	$	6,487	$	3,162

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

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

(dollars in thousands)

Fair value

Notional

Maturity

Receive (variable)

Pay fixed

assets (liabilities)

amount

date

index

swap rate

September 30, 2017

December 31, 2016

$ 10,000
12/6/2021

US 3 Month LIBOR
1.89 % $ 26 $ 16
20,000
12/6/2020

US 3 Month LIBOR
1.79 % 8 9
$ 30,000 1.82 % $ 34 $ 25

~~(19)~~(21)

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~~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 adequately-capitalized. At June 30, 2022, 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. The capital conservation buffer was phased in ~~the buffer will result~~starting in ~~the following minimum ratios:~~

~~a common equity tier~~2016 at 0.625% and was fully implemented at 2.5% effective January 1, ~~risk-based capital ratio of 7.0%,~~

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

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

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

~~Table of Contents~~

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

2019.

As a result of ~~September~~the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of June 30, ~~2017,~~ 2022, subordinated notes added through the CB acquisition totaled $26 million.

Bancorp continues to 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 ~~to be considered well capitalized under~~as defined by the ~~rules,~~FRB and ~~is not subject to limitations due~~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

September 30, 2017

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total risk-based capital (1)

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

NA

NA

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

Common equity tier 1 risk-based capital

Consolidated
333,312 12.67 118,382 4.50
NA

NA

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

Tier 1 risk-based capital (1)

Consolidated
333,312 12.67 157,843 6.00
NA

NA

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

Leverage (2)

Consolidated
333,312 11.02 120,984 4.00
NA

NA

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

(dollars in thousands)

Actual

Minimum for adequately
capitalized

Minimum for well
capitalized

December 31, 2016

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total risk-based capital (1)

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

NA

NA

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

Common equity tier 1 risk-based capital

Consolidated
314,147 12.10 116,832 4.50
NA

NA

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

Tier 1 risk-based capital (1)

Consolidated
314,147 12.10 155,775 6.00
NA

NA

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

Leverage (2)

Consolidated
314,147 10.54 119,221 4.00
NA

NA

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

	~~(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.~~

(dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
June 30, 2022	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	701,168		12.27	%	$	457,306		8.00	%	NA		NA
Bank		662,354		11.63			455,798		8.00		$	569,747		10.00	%

Common equity tier 1 risk-based capital (1)
Consolidated		617,901		10.81			257,235		4.50		NA		NA
Bank		605,087		10.62			256,386		4.50			370,336		6.50

Tier 1 risk-based capital (1)
Consolidated		643,901		11.26			342,980		6.00		NA		NA
Bank		605,087		10.62			341,848		6.00			455,798		8.00

Leverage (2)
Consolidated		643,901		8.58			300,343		4.00		NA		NA
Bank		605,087		8.06			300,127		4.00			375,159		5.00

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(dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
December 31, 2021	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	596,411		12.79	%	$	372,929		8.00	%	NA		NA
Bank		577,078		12.42			371,809		8.00		$	464,761		10.00	%

Common equity tier 1 risk-based capital (1)
Consolidated		556,590		11.94			209,772		4.50		NA		NA
Bank		537,257		11.56			209,142		4.50			302,095		6.50

Tier 1 risk-based capital (1)
Consolidated		556,590		11.94			279,696		6.00		NA		NA
Bank		537,257		11.56			278,857		6.00			371,809		8.00

Leverage (2)
Consolidated		556,590		8.86			251,348		4.00		NA		NA
Bank		537,257		8.57			250,871		4.00			313,588		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 – Regulatory framework does not define “well-capitalized” for holding companies

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~~(20)~~(22)

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~~The majority of the net assets of ~~Stock Yards~~ Bancorp ~~Inc.~~ are involved in the commercial banking segment. ~~Bancorp has~~ As of June 30, 2022, goodwill totaling $203 million was recorded on Bancorp’s consolidated balance sheets, of ~~$682,000 related to a bank acquisition in 1996~~ which ~~has been assigned~~$175 million is attributed to the commercial banking ~~segment. Assets~~segment and $28 million is attributed to WM&T. The portion of total goodwill attributed to WM&T relates entirely to the CB acquisition, which generated $67 million in total goodwill. With the exception of goodwill attributed to WM&T through the CB acquisition, assets assigned to WM&T consist primarily 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
	Commercial		management				Three months ended June 30, 2022								Three months ended June 30, 2021
(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	$	56,888		$	96	$	56,984		$	41,516	$	68	$	41,584
Provision for loan losses		150		-		150
Provision for credit losses								(200	)		0		(200	)		4,147		0		4,147
Wealth management and trust services		-		5,025		5,025		0			9,495		9,495			0		6,858		6,858
All other non-interest income		6,078		-		6,078		12,445			0		12,445			8,930		0		8,930
Non-interest expense		18,491		2,826		21,317
Income before income taxes		13,526		2,274		15,800
Non-interest expenses								38,876			5,799		44,675			44,481		3,696		48,177
Income before income tax expense								30,657			3,792		34,449			1,818		3,230		5,048
Income tax expense		3,284		812		4,096		6,724			823		7,547			190		674		864
Net income	$	10,242	$	1,462	$	11,704		23,933			2,969		26,902			1,628		2,556		4,184
Less net income attributable to NCI								108			0		108			0		0		0
Net income attributable to stockholders							$	23,825		$	2,969	$	26,794		$	1,628	$	2,556	$	4,184

Segment assets	$	3,153,886	$	2,027	$	3,155,913	$	7,550,846		$	32,259	$	7,583,105		$	6,084,185	$	3,887	$	6,088,072

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

	Six months ended June 30, 2022						Six months ended June 30, 2021
(in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total

Net interest income	$	105,541	$	203	$	105,744	$	79,258	$	151	$	79,409
Provision for credit losses		2,079		0		2,079		2,672		0		2,672
Wealth management and trust services		0		17,738		17,738		0		13,106		13,106
All other non-interest income		23,405		0		23,405		16,526		0		16,526
Non-interest expenses		90,566		10,406		100,972		66,177		6,973		73,150
Income before income tax expense		36,301		7,535		43,836		26,935		6,284		33,219
Income tax expense		7,357		1,635		8,992		4,988		1,337		6,325
Net income		28,944		5,900		34,844		21,947		4,947		26,894
Less net income attributable to NCI		144		0		144		0		0		0
Net income attributable to stockholders	$	28,800	$	5,900	$	34,700	$	21,947	$	4,947	$	26,894

Segment assets	$	7,550,846	$	32,259	$	7,583,105	$	6,084,185	$	3,887	$	6,088,072

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(23) Revenue from Contracts with Customers

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:

	Three months ended June 30, 2022						Three months ended June 30, 2021
(in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total
Wealth management and trust services	$	0	$	9,495	$	9,495	$	0	$	6,858	$	6,858
Deposit service charges		2,061		0		2,061		1,233		0		1,233
Debit and credit card income		4,748		0		4,748		3,284		0		3,284
Treasury management fees		2,187		0		2,187		1,730		0		1,730
Mortgage banking income(1)		1,295		0		1,295		1,303		0		1,303
Net investment product sales commissions and fees		731		0		731		545		0		545
Bank owned life insurance(1)		270		0		270		206		0		206
Other(2)		1,153		0		1,153		629		0		629
Total non-interest income	$	12,445	$	9,495	$	21,940	$	8,930	$	6,858	$	15,788

	Six months ended June 30, 2022						Six months ended June 30, 2021
(Dollars in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total
Wealth management and trust services	$	0	$	17,738	$	17,738	$	0	$	13,106	$	13,106
Deposit service charges		3,924		0		3,924		2,177		0		2,177
Debit and credit card income		8,867		0		8,867		5,557		0		5,557
Treasury management fees		4,091		0		4,091		3,270		0		3,270
Mortgage banking income(1)		2,298		0		2,298		2,747		0		2,747
Gain on sale of securities		0		0		0		0		0		0
Net investment product sales commissions and fees		1,338		0		1,338		1,009		0		1,009
Bank owned life insurance(1)		536		0		536		367		0		367
Other(2)		2,351		0		2,351		1,399		0		1,399
Total non-interest income	$	23,405	$	17,738	$	41,143	$	16,526	$	13,106	$	29,632

(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.

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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 $3.3 million and $2.9 million at June 30, 2022 and December 31, 2021, 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 $395,000 and $289,000 for the six month periods ended June 30, 2022 and 2021.

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 three and six months ended June 30, 2022.

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(24)

Leases

Bancorp has operating leases for various branch locations with terms ranging from one year to 18 years, some of which include options to extend the leases in five-year increments. A total of 4 operating leases were added as a result of the CB 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)	June 30, 2022			December 31, 2021

Balance Sheet
Operating lease right-of-use asset	$	16,711		$	14,958
Operating lease liability		18,113			16,408

Weighted average remaining lease term (years)		8.5			9.4
Weighted average discount rate		2.90	%		3.02	%

Maturities of lease liabilities:
One year or less	$	1,675		$	2,634
Year two		3,358			2,673
Year three		3,057			2,408
Year four		2,318			1,924
Year five		1,842			1,608
Greater than five years		8,330			7,699
Total lease payments	$	20,580		$	18,946
Less imputed interest		2,467			2,538
Total	$	18,113		$	16,408

	Three months ended		Three months ended
(in thousands)	June 30, 2022		June 30, 2021
Income Statement
Components of lease expense:
Operating lease cost	$	792	$	520
Variable lease cost		58		62
Less sublease income		24		13
Total lease cost	$	826	$	569

	Six months ended		Six months ended
(in thousands)	June 30, 2022		June 30, 2021
Income Statement
Components of lease expense:
Operating lease cost	$	1,448	$	1,007
Variable lease cost		115		113
Less sublease income		48		27
Total lease cost	$	1,515	$	1,093

	Six months ended		Six months ended
(in thousands)	June 30, 2022		June 30, 2021
Cash flow Statement
Supplemental cash flow information:
Operating cash flows from operating leases	$	1,800	$	1,190

As of June 30, 2022, 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

Stock Yards Bancorp, ~~inc.~~Inc. (“Bancorp” or “the Company”), is a FHC headquartered in Louisville, Kentucky and ~~subsidiary~~

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

is engaged in the business of banking through its wholly owned subsidiaries, Stock Yards Bank & Trust Company (“SYB” or “the Bank”) and SYB Insurance Company, Inc. (“the Captive”). Bancorp, which was incorporated in 1988 in Kentucky, is registered with, and subject to supervision, regulation and examination by, the Board of Governors of the Federal Reserve System. As Bancorp has no significant operations of its own, its business is essentially that of SYB and the Captive. The operations of SYB and the Captive are fully reflected in the consolidated financial statements of Bancorp. Accordingly, references to “Bancorp” in this document may encompass both the holding company and its subsidiaries, however, it should be noted that the business of the Captive is immaterial to the overall results of operations and financial condition of Bancorp. All significant inter-company transactions and accounts have been eliminated in consolidation.

SYB, established in 1904, 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 MSAs through 73 full service banking center locations. The Bank is registered with, and subject to supervision, regulation and examination by the FDIC and the Kentucky Department of Financial Institutions.

~~Item 2.~~

The Captive, a wholly owned subsidiary of the Bancorp, 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 $2,450,000, 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.

As a result of its acquisition of Commonwealth Bancshares, Inc. on March 7, 2022, Bancorp became the 100% successor owner of three unconsolidated Delaware trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS.

Also as a result of its acquisition of Commonwealth Bancshares, Inc., Bancorp acquired a 60% interest in Landmark Financial Advisors, LLC (LFA), which is based in Bowling Green, Kentucky and provides wealth management services. LFA is consolidated into the Company. The 40% non-controlling interest is presented within the consolidated financial statements and represents the interest in LFA not owned by Bancorp.

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, 2021. 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,” “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.

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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 regulation.

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, ~~but are not limited to the following: economic conditions both generally and more specifically in markets in which Bancorp and the Bank operate; competition for Bancorp’s customers from~~among other providers of financial services; government legislation and regulation which change from time to time and over which Bancorp has no control; changes in interest rates; material unforeseen changes in liquidity, results of operations, or financial condition of Bancorp’s customers; and other risks detailed in Bancorp’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of Bancorp.things:

●

Residual impact, if any, of the COVID-19 pandemic 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, various relief efforts), and the resulting effect of all 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, inflation and efforts to control it;

●

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 interest rates, 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;

●

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, businesses or future acquisitions;

●

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 behavior;

●

changes in consumer/business spending or savings behavior;

●

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

●

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, 2021.

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

~~Stock Yards~~On March 7, 2022, Bancorp ~~inc.~~completed its acquisition of Commonwealth Bancshares, Inc. and its wholly owned subsidiary, Commonwealth Bank & Trust Company, collectively defined as “CB,” a Louisville, Kentucky-based commercial bank and trust company, which operated 15 retail branches, including nine in Jefferson County, four in Shelby County, and two in Northern Kentucky. At the time of acquisition and net of purchase accounting adjustments, CB had $1.34 billion in assets, $632 million in loans, $247 million in investment securities and $1.12 billion in deposits in addition to maintaining a WM&T Department with total assets under management of approximately $2.65 billion. CB was also the holding company for three unconsolidated Delaware trust subsidiaries and a 60% interest in Landmark Financial Advisors, LLC (LFA). Bancorp became the 100% successor owner of all three trust subsidiaries and also retained the 60% interest in LFA upon acquisition. Bancorp acquired all outstanding common stock of CB, Inc. in a combined stock and cash transaction that resulted in total consideration paid to CB shareholders of $168 million.

Bancorp recorded goodwill of $67 million and incurred pre-tax merger related expenses totaling $19.5 million during the first quarter of 2022 as a result of the CB acquisition.

The acquisition of CB has had a significant impact on the ACL and credit loss provisioning in 2022. In total, the CB acquisition served to increase the ACL on loans by $14 million at acquisition date. This increase consisted of $10 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense), and $4.4 million of provision for credit loss expense recorded in relation to the acquired loan portfolio.

Acquisition of Kentucky Bancshares, Inc. and its Subsidiary Kentucky Bank

On May 31, 2021, Bancorp completed its acquisition of Kentucky Bancshares, Inc. and its wholly owned subsidiary, Kentucky Bank, collectively defined as “KB,” a Paris, Kentucky-based commercial bank and trust company, which operated 19 retail branches throughout central and eastern Kentucky. At the time of acquisition and net of purchase accounting adjustments, KB had $1.27 billion in assets, $755 million in loans, $396 million in investment securities and $1.04 billion in deposits. KB was also the holding company for an insurance captive, which Bancorp retained and renamed SYB Insurance Company, Inc. Bancorp acquired all outstanding common stock of KB in a combined stock and cash transaction that resulted in total consideration paid to KB shareholders of $233 million.

Bancorp recorded goodwill of $123 million and incurred pre-tax merger related expenses totaling $18.1 million for the year ended December 31, 2021 as a result of the KB acquisition.

The acquisition of KB had a significant impact on the ACL and credit loss provisioning for the year ended December 31, 2021. In total, the KB acquisition served to increase the ACL by $14 million at acquisition date. This increase consisted of $7 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense), and $7.4 million attributed to the acquired non-PCD portfolio, which represented the acquisition-related credit loss expense at the time of acquisition.

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 – Operating Results (FTE)

~~Overview~~The following table presents an overview of ~~2017 through September 30, 2017~~

~~Bancorp~~ completed the first nine months of 2017 with net income of $33.1 million, an 8.8% increase over the comparable period in 2016. The increase is primarily due to higher net interest income, higher non-interest income, and a reduction in provision for loan losses. These increases were partially offset by higher non-interest expense. Diluted earnings per share for the first nine months of 2017 were $1.44, compared with $1.34 for the first nine months of 2016. Bancorp'sBancorp’s financial performance for the ~~first nine~~three months ended June 30, 2022 and 2021:

(dollars in thousands, except per share data)							Variance
Three months ended June 30,	2022			2021			$/bp		%

Net income attributed to stockholders	$	26,794		$	4,184		$	22,610		540	%
Diluted earnings per share	$	0.91		$	0.17		$	0.74		435	%
ROA		1.40	%		0.32	%	108 bps			338	%
ROE		14.34	%		3.25	%	1,109 bps			341	%

Additional discussion follows under the section titled “Results of ~~2017 reflected several positive factors, including:~~Operations.”

General highlights for the three months ended June 30, 2022 compared to June 30, 2021:

●

Bancorp completed its acquisition of CB on March 7, 2022. At the time of acquisition and net of purchase accounting adjustments, CB had approximately $1.34 billion in total assets, $632 million in loans, $247 million in investment securities and $1.12 billion in deposits. Given the timing of the acquisition, the three months ended June 30, 2022 represented the first full quarter of activity associated with the CB acquisition. There were no one-time merger related expenses recorded for the three months ended June 30, 2022.

●

Bancorp also completed its acquisition of KB on May 31, 2021. At the time of acquisition and net of purchase accounting adjustments, KB had approximately $1.27 billion in assets, $755 million in loans, $396 million in investment securities and $1.04 billion in deposits, further contributing to the substantial balance sheet growth experienced over the past twelve months. Given the timing of the acquisition, the three months ended June 30, 2021 included only one month of activity associated with the KB acquisition and included $18.1 million of one-time merger related expenses in addition to $7.4 million in credit loss expense associated with the acquired loan portfolio.

●

Net income totaled $26.8 million, resulting in diluted EPS of $0.91 for the three months ended June 30, 2022, a significant increase over $0.17 for the same period of 2021, which included the acquisition related charges mentioned above. Significant factors affecting the results for the three months ended June 30, 2022 and 2021 include:

The three months ended June 30, 2022 represented the first full quarter of activity related to the CB acquisition. No one-time merger related expenses were recorded during the period.

The three months ended June 30, 2021 represented only one month of activity related to the KB acquisition and included $18.1 million of one-time merger related expenses and $7.4 million in credit loss expense related to the acquired loan portfolio.

Net interest income increased $15.4 million, or 37%, for the three months ended June 30, 2022 compared to the same period of 2021, as both acquisition-related growth and organic growth in loans and investment securities overcame a substantial decline in PPP-related fee recognition.

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Negative provision for credit losses of $200,000 was recorded for the three months ended June 30, 2022 compared to expense of $4.1 million for the same period of last year. The negative provision recorded for the three months ended June 30, 2022 was driven mainly by the release of $3.0 million in specific reserves associated with recently acquired loans. The expense recorded for the prior year was driven by the KB acquisition, which was completed in the second quarter of 2021.

●

NIM decreased 16 bps to 3.20% for the three months ended June 30, 2022 compared to 3.36% for the same period in 2021. Recent interest rate actions from the FRB have had a positive impact on net interest income and NIM, but the full effects of rising rates were not realized during the three months ended June 30, 2022 due to the timing of the rate increases. Bancorp expects to realize further benefits to net interest income and NIM from both the recent hikes and anticipated future hikes in the quarters ahead.

●

Total loans (excluding PPP loans) increased $1.01 billion, or 26%, compared to June 30, 2021, driven by the addition of $630 million in loans during the first quarter of 2022 in relation to the CB acquisition and strong organic growth. Average loans (excluding PPP loans) increased $1.46 billion, or 44%, for the three months ended June 30, 2022 compared to the same period in 2021. Average balance growth was driven by the CB acquisition noted above and strong organic growth in addition to $755 million in loans added through the KB acquisition on May 31, 2021, the effect of which was only partially captured in the prior year average balances due to the timing of the acquisition.

●

The c~~ontinued positive effect~~PPP loan portfolio decreased $340 million, or 90%, compared to June 30, 2021 as the result of ~~solid loan growth over the past 12 months, which has increased Bancorp’s net~~anticipated forgiveness activity, driving a $5.8 million, or 83%, decline in PPP-related interest and fee income ~~nearly 6% compared with that~~ for the ~~third quarter~~three months ended June 30, 2022 compared to the same period of ~~2016;~~2021.

●

~~A six basis point increase in net interest margin sequentially from~~Negative provision for credit losses of $200,000 was recorded for the ~~second quarter~~three months ended June 30, 2022 compared to total expense of ~~2017;~~$4.1 million for the same period of last year. The release of approximately $3.0 million of specific reserves related to recently acquired loans was the main driver of the negative provision recorded for the three months ended June 30, 2022, which more than offset expense associated with a deteriorating unemployment forecast and qualitative factor adjustments within the CECL model. Expense recorded for the prior year period was attributed to the loan portfolio acquired through the KB acquisition.

●

~~A reduction in~~Bancorp’s ACL on loans to total loans was 1.36% at June 30, 2022 compared to 1.29% at December 31, 2021, the ~~provision~~ ~~for loan losses as credit quality remained excellent;~~increase stemming from acquisition-related activity within the ACL on loans.

●

~~Steady growth~~Deposit balances increased $1.29 billion, or 25%, compared to June 30, 2021, as a result of assuming approximately $1.12 billion in ~~fee income~~deposits during the first quarter in relation to the CB acquisition. The growth stemming from the ~~Wealth Management~~first quarter CB acquisition was partially offset during the second quarter as a result of anticipated seasonal deposit runoff related mainly to public fund deposits, customer tax payment activity and ~~Trust Group;~~time deposit maturities.

●

~~A tax benefit~~Total non-interest income increased $6.2 million, or 39%, for the three month period ended June 30, 2022 compared to the same period of 2021. The second quarter of 2022 benefitted from both significant contributions stemming from acquisition-related activity and organic growth over the ~~wind-down~~past twelve months. All non-interest income revenue streams experienced significant increases over the same quarter of ~~a tax-credit partnership; and~~the prior year, with the exception of mortgage banking, which was flat compared to the prior year period.

●

~~Solid retur~~nsNon-interest expenses decreased $3.5 million, or 7%, for the three months ended June 30, 2022 compared to the same period of 2021, remaining controlled and generally in line with expectations.

●

Bancorp’s efficiency ratio (FTE) for the three month period ended June 30, 2022 was 56.42%, while the ratio for the same period of the prior year was 83.86%, the latter reflecting one-time merger-related expenses attributed to the KB acquisition. Excluding these non-recurring expenses and amortization of investments in tax credit partnerships, the adjusted efficiency ratio, a non-GAAP measure, would have been 56.31% and 51.95% for the three months ended June 30, 2022 and 2021, respectively. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

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The following table presents an overview of Bancorp’s financial performance for the six months ended June 30, 2022 and 2021:

(dollars in thousands, except per share data)							Variance
Six months ended June 30,	2022			2021			$/bp		%

Net income attributed to stockholders	$	34,700		$	26,894		$	7,806		29	%
Diluted earnings per share	$	1.22		$	1.13		$	0.09		8	%
ROA		0.96	%		1.09	%	(13) bps			-12	%
ROE		9.62	%		11.28	%	(166) bps			-15	%

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

General highlights for the six months ended June 30, 2022 compared to June 30, 2021:

●

Bancorp completed its acquisition of CB on March 7, 2022. At the time of acquisition and net of purchase accounting adjustments, CB had approximately $1.34 billion in assets, $632 million in loans, $247 million in investment securities and $1.12 billion in deposits. Given the timing of the acquisition, the six months ended June 30, 2022 did not include a full six months of activity associated with the CB acquisition. Further, $19.5 million in one-time merger related expenses were recorded in the first quarter of 2022 in addition to $4.4 million of credit loss expense associated with the acquired loan portfolio.

●

Bancorp also completed its acquisition of KB on May 31, 2021. At the time of acquisition and net of purchase accounting adjustments, KB had approximately $1.27 billion in assets, $755 million in loans, $396 million in investment securities and $1.04 billion in deposits at the time of acquisition last year. Given the timing of the acquisition, the six months ended June 30, 2021 only represented one month of activity associated with the KB acquisition and included $18.5 million of one-time merger related expenses in addition to $7.4 million in credit loss expense associated with the acquired loan portfolio.

●

Net income totaled $34.7 million, resulting in diluted EPS of $1.22 for the six months ended June 30, 2022, an 8% increase over $1.13 for the same period of 2021. Significant factors affecting the results for the six months ended June 30, 2022 and 2021 include:

The six months ended June 30, 2022 represented approximately four months of activity related to the CB acquisition, including $19.5 million in one-time merger related expenses and $4.4 million of credit loss expense related to the acquired loan portfolio.

The six months ended June 30, 2021 represented only one month of activity related to the KB acquisition and included $18.5 million of one-time merger related expenses and $7.4 million in credit loss expense related to the acquired loan portfolio.

Net interest income increased $26.3 million, or 33%, for the six months ended June 30, 2022 compared to the same period of 2021, as both acquisition-related growth and organic growth in loans and investment securities overcame a substantial decline in PPP-related fee recognition.

Total provision for credit loss expense was $2.1 million for the six months ended June 30, 2022 compared to $2.7 million for the same period of last year. The expense recorded for both periods was driven by the respective acquisitions.

●

NIM decreased 24 bps to 3.14% for the six months ended June 30, 2022 compared to 3.38% for the same period in 2021. Recent interest rate actions from the FRB have had a positive impact on net interest income and NIM, but the full effects of rising rates were not realized during the six months ended June 30, 2022 due to the timing of the rate increases. Bancorp expects to realize further benefits to net interest income and NIM from both the recent hikes and anticipated future hikes.

●

Total loans (excluding PPP loans) increased $1.01 billion, or 26%, compared to June 30, 2021, driven by the addition of $630 million in loans during the first quarter of 2022 in relation to the CB acquisition and strong organic growth. Average loans (excluding PPP loans) increased $1.38 billion, or 44%, for the six months ended June 30, 2022 compared to the same period in 2021. Average balance growth was driven by the CB acquisition noted above and strong organic growth in addition to $755 million in loans added through the KB acquisition on May 31, 2021, the effect of which was only partially captured in the prior year average ~~assets~~balances due to the timing of the acquisition.

●

The PPP loan portfolio decreased $340 million, or 90%, compared to June 30, 2021 as the result of forgiveness activity, driving a $10.0 million, or 71%, decline in PPP-related interest and ~~equity.~~fee income for the six months ended June 30, 2022 compared to the same period of 2021.

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●

Total provision for credit loss expense was $2.1 million for the six months ended June 30, 2022 compared to expense of $2.7 million for the same period of last year. Provision expense for the six months ended June 30, 2022 was driven largely by $4.4 million of expense related to the loan portfolio acquired through the CB acquisition. In addition, the FRB’s forecast of the Seasonally Adjusted National Civilian Unemployment Rate, which is the primary loss driver with Bancorp’s CECL model, deteriorated during the second quarter, presumptively the result of inflation and recession-based fears, resulting in increased credit loss expense along with qualitative factor adjustments within the CECL model. Partially offsetting this activity was the reduction of approximately $3.0 million of specific reserves on individual loans related to recently acquired individual loans that paid off during the second quarter. Provision expense recorded for the six months ended June 30, 2021 was driven by $7.4 million of expense related to the loan portfolio acquired through the KB acquisition, which was offset by the benefits associated with an improving unemployment forecast, the primary loss driver within the CECL model.

●

Bancorp’s ACL on loans to total loans was 1.36% at June 30, 2022 compared to 1.29% at December 31, 2021, the increase stemming mainly from acquisition-related activity within the ACL on loans.

●

Deposit balances increased $1.29 billion, or 25%, compared to June 30, 2021, as a result of assuming approximately $1.12 billion in deposits during the first quarter in relation to the CB acquisition. The growth stemming from the first quarter CB acquisition was partially offset during the second quarter as a result of anticipated seasonal deposit runoff related mainly to public fund deposits, customer tax payment activity and time deposit maturities.

●

Total non-interest income increased $11.5 million, or 39%, for the six month period ended June 30, 2022 compared to the same period of 2021. The first half of 2022 benefitted from both significant contributions stemming from acquisition-related activity and organic growth over the past twelve months. 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 decline as a result of slowing volumes compared to the re-finance rush that benefitted 2021.

●

Non-interest expenses increased $27.8 million, or 38%, for the six months ended June 30, 2022 compared to the same period of 2021. While both periods experienced elevated non-interest expense as a result of one-time merger related expenses, all non-interest expense categories, with the exception of the FHLB early pre-payment penalty, experienced significant increases over the prior year as a result of anticipated acquisition-related growth. The prior year FHLB early pre-payment penalty, which totaled $474,000, was the result of paying off $14 million of FHLB advances prior to maturity due to excess liquidity held on the balance sheet and the near-term outlook for interest rates at the time of payoff.

●

Bancorp’s efficiency ratio (FTE) for the six months ended June 30, 2022 was 68.53% compared to 67.01% for the same period of 2021, the large fluctuation being the result of one-time merger-related expenses incurred as a result of the respective acquisitions in both periods. Excluding one-time merger costs and expenses related to the amortization of tax credit partnerships, Bancorp’s non-GAAP efficiency ratio for the six months ended June 30, 2022 was 55.18% compared to 49.82% for the same period of 2021. See the section titled “Non-GAAP Financial Measures”for a reconcilement of non-GAAP to GAAP measures.

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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. The discussion that follows is based on FTE interest data.

Comparative information regarding net interest income follows:

(dollars in thousands)							Variance
As of and for the three months ended June 30,	2022			2021			$/bp		%

Net interest income	$	56,984		$	41,584		$	15,400		37	%
Net interest income (FTE)*		57,244			41,661			15,583		37	%
Net interest spread		3.14	%		3.29	%	(15) bps			-5	%
Net interest margin		3.20	%		3.36	%	(16) bps			-5	%
Average interest earning assets	$	7,174,072		$	4,972,914		$	2,201,158		44	%

(dollars in thousands)							Variance
As of and for the six months ended June 30,	2022			2021			$/bp		%

Net interest income	$	105,744		$	79,409		$	26,335		33	%
Net interest income (FTE)*		106,189			79,535			26,654		34	%
Net interest spread		3.09	%		3.30	%	(21) bps			-6	%
Net interest margin		3.14	%		3.38	%	(24) bps			-7	%
Average interest earning assets	$	6,812,158		$	4,751,469		$	2,060,689		43	%

*See table titled, "Average Balance Sheets and Interest Rates (FTE)," for detail of net interest income (FTE).

NIM and net interest spread calculations above exclude the sold portion of certain participation loans, which totaled $5 million at both June 30, 2022 and December 31, 2021. These sold loans are on Bancorp’s balance sheet as required by GAAP because Bancorp retains some form of effective control; however, Bancorp receives no interest income on the sold portion. These participation loans sold are excluded from NIM and spread analysis, as Bancorp believes it provides a more accurate depiction of loan portfolio performance.

The following table details the volatility experienced within the interest rate environment over the past twelve months by comparing period end and quarterly average rates:

	June 30,			March 31,			December 31,			September 30,			June 30,
	2022			2022			2021			2021			2021

Five year Treasury note - quarter end		3.01	%		2.42	%		1.26	%		0.98	%		0.87	%
Five year Treasury note - quarterly average		2.95	%		1.83	%		1.18	%		0.80	%		0.84	%
Prime rate - quarter end		4.75	%		3.50	%		3.25	%		3.25	%		3.25	%
Prime rate - quarterly average		3.93	%		3.29	%		3.25	%		3.25	%		3.25	%
One-month LIBOR - quarter end		1.67	%		0.46	%		0.10	%		0.08	%		0.10	%
One-month LIBOR - quarterly average		1.02	%		0.23	%		0.09	%		0.09	%		0.10	%
Overnight SOFR - quarter end		1.50	%		0.29	%		0.05	%		0.05	%		0.03	%
Overnight SOFR - quarterly average		0.71	%		0.09	%		0.05	%		0.05	%		0.01	%

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Prime rate, the five year Treasury note rate and the one month LIBOR are included in the table above to provide a general indication of the interest rate environment in which Bancorp has operated during the past several quarters. Approximately $1.47 billion, or 30%, of Bancorp’s loans are variable rate and are indexed to either Prime, LIBOR or SOFR, generally repricing as those rates change. At inception, most of Bancorp’s fixed rate loans are priced in relation to the five year Treasury rate.

At June 30, 2022, Bancorp’s loan portfolio consisted of approximately 70% fixed and 30% variable rate loans, with the fixed rate portion pricing 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 70%) or LIBOR/SOFR (approximately 30%).

On March 16, 2022, the FRB increased the FFTR to a range of 0.25%-0.50%, an increase of 25 bps, which resulted in Prime increasing to 3.50%. The hike represented the FRB’s first interest rate action since it cut the FFTR 150 bps in March of 2020 in response to the pandemic, which took Prime from 4.75% to 3.25%. Given the timing of the FRB’s increase, the average interest rate environment experienced for the first quarter of 2022 did not capture the full benefit of the FRB’s March rate increase.

Effective May 4, 2022, the FFTR was increased 50 bps to a range of 0.75%-1.00%, taking Prime to 4.00%. This increase was followed by a 75 bps increase, taking the FFTR to a range of 1.50%-1.75% and Prime to 4.75% effective June 16, 2022, marking Prime’s return to pre-pandemic levels. With 70% of the variable rate loan portfolio tied to Prime and the majority of these loans having floor rates of 4.00%, the FRB’s most recent hike was of particular significance, as it moved these loans off their floors and provided an immediate boost to the yields earned on the variable rate loan portfolio. Given the timing of the most recent FRB hike, the average interest rate environment experienced for the second quarter of 2022 did not capture the full benefit of the FRB’s most recent rate action.

The current economic outlook suggests continued interest rate action from the FRB and prospects of a rising rate environment. While Bancorp expects rising rates to have a positive effect on NIM, pricing pressure/competition for both loans and deposits, elevated levels of liquidity within the banking system in general and the possibility of a flattening yield curve could continue to place pressure on NIM.

Net Interest Income (FTE) – Three months ended June 30, 2022 compared to June 30, 2021

Net interest ~~income increased $4.4 million, or 6.1%~~spread (FTE) and NIM were 3.14% and 3.20%, for the ~~first nine~~three 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.~~

~~For the~~ ~~nine-month period~~ ended ~~September~~June 30, ~~2017, Bancorp recorded a $1.7 million provision for loan losses,~~2022 compared to ~~$2.5 million~~3.29% and 3.36% 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~~2021, respectively. NIM during the three months ended June 30, 2022 was significantly impacted by the following:

●

An interest rate environment that is evolving from the sustained, pandemic-driven lows experienced over the last two years. The FFTR was lowered to a range of 0% - 0.25% in March of 2020, which resulted in Prime dropping to 3.25%, where it remained until the FRB’s hike in mid-March 2022. The FFTR stood at a range of 1.50%-1.75%, and Prime at 4.75%, as of June 30, 2022 as a result of aggressive interest rate action from the FRB during the second quarter of 2022.

●

Substantial balance sheet growth stemming from both acquisition-related activity and organic growth, which resulted in total average earning asset growth of $2.20 billion, or 44%, and average interest-bearing liability growth of $1.55 billion, or 49%, for the three months ended June 30, 2022 compared to the same period of 2021.

●

Overall excess balance sheet liquidity, which contributed to NIM compression in both periods. Excess liquidity within the banking system in general has also led to a highly competitive loan rate environment.

●

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 impact NIM. The average balance of the PPP loan portfolio decreased $463 million, and related income decreased $5.8 million, for the three months ended June 30, 2022 compared to the same period of 2021. The PPP portfolio contributed a 4 bps benefit to NIM for the three months ended June 30, 2022 compared to a 20 bps benefit for the three months ended June 30, 2021.

Net interest income (FTE) increased $15.6 million, or 37%, for the ~~inherent losses on outstanding loans.~~three months ended June 30, 2022 compared to the same period of 2021, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth, substantial investment in the investment securities portfolio and the benefits of a rising interest rate environment.

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Total ~~non-interest income in the~~ ~~first nine months of 2017~~average interest earning assets increased ~~$1.4 million,~~$2.20 billion, or ~~4.2%~~44%, ~~compared with the same period in 2016, and comprised 30.0% of total revenues, as compared~~ to ~~31.6%~~$7.17 billion 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~~three 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 2017ended June 30, 2022, as compared to the same period ~~in 2016. Bancorp's efficiency ratio in~~of 2021, with the ~~first nine months of 2017 was 57.6% compared~~average rate earned on total interest earning assets contracting 16 bps 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.

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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”3.32%. 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~~Average total loan balances increased $1.00 billion, or 26%, for the three months ended June 30, 2022 compared to the same period of 2021. Average non-PPP loan growth of $1.46 billion, or 44%, was driven by acquisition-related expansion and strong organic growth, which was partially offset by a $463 million, or 91%, decline in average PPP loan balances, as forgiveness activity increased.

●

Average investment securities grew $948 million for the three months ended June 30, 2022 compared to the same period of 2021, which was attributed to a combination of strategically deploying excess liquidity through further investment and acquisition-related activity.

●

Average FFS and interest bearing due from bank balances increased $247 million, or 79%, for the three months ended June 30, 2022 due to excess balance sheet liquidity.

NetTotal interest income ~~of $11.7~~(FTE) increased $16.2 million, or 37%, to $59.4 million for the three months ended ~~September~~June 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 2017,2022, as compared to ~~$0.46 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 1.53% 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.~~

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

~~Net Interest Income~~

~~The following table present~~s average balance sheets for the three and nine month periods ended September 30, 2017 and 2016 along with the related calculation of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. See the notes following the tables for further explanation.2021.

~~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
%

~~Table of Contents~~

~~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
%

~~Table of Contents~~

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

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

●

~~Net interest~~Interest and fee income (FTE) on loans increased $10.6 million, or 26%, to $50.8 million for the ~~most significant component~~three months ended June 30, 2022 compared to the same period of 2021, driven by both organic and acquisition-related growth in the non-PPP portfolio, which more than offset a $5.8 million, or 83%, decline in PPP-related income. While the yield on the overall loan portfolio increased a marginal 1 bp to 4.20% for the three months ended June 30, 2022 compared to 4.19% for the same period of the ~~Bank's earnings is total interest income less total interest expense. The level of net interest income is determined~~prior year, the yield on the non-PPP portfolio increased 15 bps compared to the prior year period, driven by ~~mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates.~~the rising rate environment.

●

~~Net~~Significant growth in average investment securities led to a $4.5 million increase in interest ~~spread is~~income (FTE) on the ~~difference between taxable equivalent~~ ~~rates~~portfolio for the three months ended June 30, 2022 compared to the same period of 2021, driving a 27 bps, or 19%, increase in the corresponding yield on the portfolio. Substantial deployment of excess liquidity benefitted the investment portfolio, as the yields earned on ~~interest earning assets less the rate expensed on interest bearing liabilities.~~recent purchases have improved dramatically in tandem with rising rates.

●

Net interest margin represents net interest income on a taxable equivalent basis as a percentage 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.~~

●

Interest income on FFS and interest bearing due from bank balances increased $1.0 million for the three months ended June 30, 2022, as a ~~fully tax equivalent~~result of average balance growth stemming from excess balance sheet liquidity and rising short-term interest rates. While the yield on these assets increased 69 bps to 0.80% for the three months ended June 30, 2022 compared to the same period of 2021, having a larger portion of the balance sheet concentrated in lower-yielding assets created a larger drag on overall NIM for the second quarter of 2022 compared to the prior period.

Total average interest bearing liabilities increased $1.55 billion, or 49%, to $4.69 billion for the three-month period ended June 30, 2022 compared with the same period in 2021, with the total average cost declining 1 bp to 0.18%.

●

Average interest bearing deposits increased $1.46 billion, or 48%, for the three months ended June 30, 2022 compared to the same period in 2021, with interest-bearing demand deposits accounting for $774 million, or 53%, of the increase. The significant growth was attributed to both acquisition-related activity and organic growth stemming from the general trend of customers maintaining higher levels of liquidity over the past several quarters.

●

Consistent with the average interest bearing deposit growth noted above, average SSUAR balances increased $85 million, for the three months ended June 30, 2022 compared to the same period of 2021.

●

Average FHLB advances decreased $19 million for the three months ended June 30, 2022 compared to the same period of the prior year, as all outstanding FHLB advances either matured or were paid off in 2021.

●

Subordinated debentures totaling $26 million were added as a result of the CB acquisition during the first quarter of 2022.

Table of Contents

Total interest expense increased $606,000, or 40%, for the three months ended June 30, 2022 compared to the same period of 2021, a direct result of acquisition-related average deposit balance growth and assumed debt. Despite this growth, the percentage cost of interest bearing liabilities has remained relatively low, driven by the maturity/renewal of higher-costing time deposits at lower rates and the benefit of all FHLB advances either maturing or paying off in 2021.

●

While total interest bearing deposit expense increased $335,000, or 23%, as a result of acquisition-related activity, Bancorp experienced a 3 bps decrease in the cost of interest bearing deposits. Bancorp has experienced significant benefit from longstanding low levels of deposit rates. While low-level deposit rates have benefited interest bearing deposit costs for several quarters, Bancorp expects pricing pressure/competition stemming from the rising rate environment to drive deposit rate/cost increases during the second half of 2022.

●

Interest expense totaling $278,000 was recorded for the three months ended June 30, 2022, as a result of the subordinated debentures added through the CB acquisition, approximately $100,000 of which stems from purchase accounting-related mark-to-market amortization.

●

No interest expense on FHLB advances was recorded for the three months ended June 30, 2022, as all FHLB advances either matured or paid off in 2021, resulting in a decline of $74,000 compared to the same period of the prior year.

Net Interest Income (FTE) – Six months ended June 30, 2022 compared to June 30, 2021

Net interest spread (FTE) and NIM were 3.09% and 3.14%, for the six months ended June 30, 2022 compared to 3.30% and 3.38% for the same period in 2021, respectively. NIM during the six months ended June 30, 2022 was significantly impacted by the following:

●

Substantial balance sheet growth stemming from both acquisition-related activity and organic growth, which resulted in total average earning asset growth of $2.06 billion, or 43%, and average interest-bearing liability growth of $1.45 billion, or 48%, for the six months ended June 30, 2022 compared to the same period of 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 impact NIM. The average balance of the PPP loan portfolio decreased $489 million, and related income decreased $10.0 million, for the six months ended June 30, 2022 compared to the same period of 2021. The PPP portfolio contributed a 8 bps benefit to NIM for the three months ended June 30, 2022 compared to a 22 bps benefit for the six months ended June 30, 2021.

Net interest income (FTE) increased $26.7 million, or 34%, for the six months ended June 30, 2022 compared to the same period of 2021, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth, substantial investment in the investment securities portfolio and the benefits of a rising interest rate environment.

Table of Contents

Total average interest earning assets increased $2.06 billion, or 43%, to $6.81 billion for the six months ended June 30, 2022, as compared to the same period of 2021, with the average rate earned on total interest earning assets contracting 27 bps to 3.24%.

●

Average total loan balances increased $ 887 million, or 24%, for the six months ended June 30, 2022 compared to the same period of 2021. Average non-PPP loan growth of $1.38 billion, or 44%, was driven by acquisition-related expansion and strong organic growth, which was partially offset by a $489 million, or 86%, decline in average PPP loan balances, as forgiveness activity increased. While the yield on the overall loan portfolio was unchanged at 4.18% for the six months ended June 30, 2022 and 2021, respectively, the yield on the non-PPP portfolio increased 4 bps compared to the prior year period, driven by the rising rate environment.

●

Average investment securities grew $833 million for the six months ended June 30, 2022 compared to the same period of 2021, attributed to a combination of strategically deploying excess liquidity through further investment and acquisition-related activity.

●

Average FFS and interest bearing due from bank balances increased $341 million for the six months ended June 30, 2022 due to on-going excess balance sheet liquidity.

Total interest income (FTE) increased $26.8 million, or 32%, to $109.5 million for the six months ended June 30, 2022, as compared to the same period of 2021.

●

Interest and fee income (FTE) on loans increased $18.4 million, or 24%, to $95.6 million for the six months ended June 30, 2022 compared to the same period of 2021, driven by both organic and acquisition-related growth in the non-PPP portfolio, which more than offset a $10.0 million, or 71%, decline in PPP-related income. The yield on the overall loan portfolio was flat at 4.18% for the six months ended both June 30, 2022 and 2021.

●

Significant growth in average investment securities led to a $7.1 million increase interest income (FTE) on the portfolio for the six months ended June 30, 2022 compared to the same period of 2021, driving a 16 bps, or 11%, increase in the corresponding yield on the portfolio. Substantial deployment of excess liquidity benefitted the investment portfolio as the yields earned on recent purchases have improved dramatically in tandem with rising rates.

●

Interest income on FFS and interest bearing due from bank balances increased $1.2 million for the six months ended June 30, 2022, as a result of average balance growth stemming from excess balance sheet liquidity and rising short term interest rates. While the yield on these assets increased 35 bps to 0.46% for the six months ended June 30, 2022 compared to the same period of 2021, having a larger portion of the balance sheet concentrated in lower-yielding assets created a larger drag on overall NIM for the six months ended June 30, 2022 compared to the prior period.

Total average interest bearing liabilities increased $1.45 billion, or 48%, to $4.48 billion for the six month period ended June 30, 2022 compared with the same period in 2021, with the total average cost declining 6 bps to 0.15%.

●

Average interest bearing deposits increased $1.40 billion, or 48%, for the six months ended June 30, 2022 compared to the same period in 2021, with interest-bearing demand deposits accounting for $771 million, or 54%, of the increase. The significant growth was attributed to both acquisition-related activity and organic growth stemming from the general trend of customers maintaining higher levels of liquidity over the past several quarters.

●

Consistent with the average interest bearing deposit growth noted above, average SSUAR balances increased $64 million, for the six months ended June 30, 2022 compared to the same period of 2021.

●

Average FHLB advances decreased $24 million for the six months ended June 30, 2022 compared to the same period of the prior year, as all outstanding FHLB advances either matured or were paid off in 2021.

●

Subordinated debentures totaling $26 million were added as a result of the CB acquisition during the first quarter of 2022, the corresponding average balance for the six months ended June 30, 2022 totaling $17 million.

Table of Contents

Total interest expense increased $137,000, or 4%, for the six months ended June 30, 2022 compared to the same period of 2021, a direct result of acquisition-related average deposit balance growth and assumed debt. Despite this growth, the percentage cost of interest bearing liabilities has remained relatively low, driven by the maturity/renewal of higher-costing time deposits at lower rates and the benefit of all FHLB advances either maturing or paying off in 2021.

●

Despite significant average interest bearing deposit growth, interest expense on deposits was flat for the six months ended June 30, 2022 compared to the same period of 2021. The reduction of time deposit expense stemming from the maturity/renewal of higher-costing time deposits at lower rates offset the expense associated with adding $1.40 billion of average interest bearing deposits. Bancorp has experienced significant benefit from longstanding low levels of deposit rates. While low-level deposit rates have benefited interest bearing deposit costs for several quarters, Bancorp expects pricing pressure/competition stemming from the rising rate environment to drive deposit rate/cost increases during the second half of 2022.

●

Interest expense totaling $311,000 was recorded for the six months ended June 30, 2022 as a result of the subordinated debentures assumed through the CB acquisition, approximately $132,000 of which stems from purchase accounting-related mark-to-market amortization.

●

No interest expense on FHLB advances was recorded for the six months ended June 30, 2022, as all FHLB advances either matured or paid off in 2021, resulting in a decline of $250,000 compared to the same period of the prior year.

Table of Contents

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

	Three months ended June 30,
	2022							2021
	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	$	561,101	$	1,113		0.80	%	$	313,954	$	84		0.11	%
Mortgage loans held for sale		11,303		50		1.77			8,678		58		2.68
Investment securities:
Taxable		1,648,014		6,805		1.66			771,289		2,744		1.43
Tax-exempt		93,830		533		2.28			22,407		70		1.25
Total securities		1,741,844		7,338		1.69			793,696		2,814		1.42

Federal Home Loan Bank stock		13,811		102		2.96			11,924		64		2.15

SBA Paycheck Protection Program (PPP) loans		48,364		1,156		9.59			510,963		6,911		5.43
Non-PPP loans		4,797,649		49,609		4.15			3,333,699		33,248		4.00
Total loans		4,846,013		50,765		4.20			3,844,662		40,159		4.19

Total interest earning assets		7,174,072		59,368		3.32			4,972,914		43,179		3.48

Less allowance for credit losses on loans		67,939							57,599

Non-interest earning assets:
Cash and due from banks		99,033							53,522
Premises and equipment, net		114,287							64,726
Bank owned life insurance		53,438							39,723
Goodwill		202,524							52,780
Accrued interest receivable and other		75,917							100,588

Total assets	$	7,651,332						$	5,226,654


Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,248,410	$	984		0.18	%	$	1,474,576	$	415		0.11	%
Savings		575,610		51		0.04			289,042		16		0.02
Money market		1,163,546		460		0.16			890,593		140		0.06
Time		527,997		275		0.21			401,149		864		0.86
Total interest bearing deposits		4,515,563		1,770		0.16			3,055,360		1,435		0.19

Securities sold under agreements to repurchase		140,169		57		0.16			55,673		5		0.04
Federal funds purchased		9,578		19		0.80			10,918		4		0.15
Federal Home Loan Bank advances		-		-		0.00			19,135		74		1.55
Subordinated debentures		26,111		278		4.27			-		-		0.00


Total interest bearing liabilities		4,691,421		2,124		0.18			3,141,086		1,518		0.19

Non-interest bearing liabilities:
Non-interest bearing demand deposits		2,123,895							1,497,223
Accrued interest payable and other		86,571							71,918
Total liabilities		6,901,887							4,710,227

Stockholders’ equity		749,445							516,427
Total liabilities and stockholder's equity	$	7,651,332						$	5,226,654

Net interest income			$	57,244						$	41,661

Net interest spread						3.14	%						3.29	%

Net interest margin						3.20	%						3.36	%

Table of Contents

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

	Six months ended June 30,
	2022							2021
	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	$	615,878	$	1,395		0.46	%	$	274,880	$	150		0.11	%
Mortgage loans held for sale		9,974		74		1.50			11,632		122		2.12
Investment securities:
Taxable		1,492,123		11,485		1.55			713,332		5,039		1.42
Tax-exempt		68,750		786		2.31			14,469		115		1.60
Total securities		1,560,873		12,271		1.59			727,801		5,154		1.43

Federal Home Loan Bank stock		12,169		156		2.59			11,285		121		2.16

SBA Paycheck Protection Program (PPP) loans		80,070		3,978		10.02			569,068		13,936		4.94
Non-PPP loans		4,533,194		91,663		4.08			3,156,803		63,263		4.04
Total loans		4,613,264		95,641		4.18			3,725,871		77,199		4.18

Total interest earning assets		6,812,158		109,537		3.24			4,751,469		82,746		3.51

Less allowance for credit losses on loans		62,020							55,738

Non-interest earning assets:
Cash and due from banks		95,155							50,637
Premises and equipment, net		100,250							61,208
Bank owned life insurance		53,308							36,539
Goodwill		178,573							32,758
Accrued interest receivable and other		86,999							93,299

Total assets	$	7,264,423						$	4,970,172

Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,192,609	$	1,633		0.15	%	$	1,422,008	$	772		0.11	%
Savings		521,754		106		0.04			253,776		21		0.02
Money market		1,123,973		650		0.12			869,775		255		0.06
Time		494,817		552		0.22			390,775		1,897		0.98
Total interest bearing deposits		4,333,153		2,941		0.14			2,936,334		2,945		0.20

Securities sold under agreements to repurchase		115,761		74		0.13			51,330		10		0.04
Federal funds purchased		9,784		22		0.45			10,262		6		0.12
Federal Home Loan Bank advances		-		-		0.00			24,174		250		2.09
Subordinated debentures		17,132		311		3.66			-		-		0.00


Total interest bearing liabilities		4,475,830		3,348		0.15			3,022,100		3,211		0.21

Non-interest bearing liabilities:
Non-interest bearing demand deposits		1,971,525							1,388,313
Accrued interest payable and other		89,824							78,937
Total liabilities		6,537,179							4,489,350

Stockholders’ equity		727,244							480,822
Total liabilities and stockholder's equity	$	7,264,423						$	4,970,172

Net interest income			$	106,189						$	79,535

Net interest spread						3.09	%						3.30	%

Net interest margin						3.14	%						3.38	%

Table of Contents

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 for both the three-month periods ended June 30, 2022 and 2021 and the six-month periods ended June 30, 2022 and 2021, respectively.

●

Interest income on a 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~~$260,000 and ~~$203 thousand, respectively,~~$77,000 for the ~~three month~~three-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021, respectively, and ~~$599 thousand~~$445,000 and ~~$637 thousand, respectively,~~$126,000 for the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021, respectively.

●

~~Average balances for loans include~~Interest income includes loan fees of $2.9 million ($1.2 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~~$6.2 million ~~and $16.3~~($5.6 million ~~respectively,~~associated with the PPP) for the ~~three month~~three-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021, respectively, and ~~$18.9~~$6.7 million ($4.0 million associated with the PPP) and ~~$11.2~~$12.2 million ~~respectively,~~($11.1 million associated with the PPP) for the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. 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~~results of the interest rate sensitivity ~~indicates~~analysis performed as of June 30, 2022 are driven by the long-term, conservative assumptions Bancorp uses in the model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates and are based on historical data. The results presented below reflect an interest rate sensitivity analysis that incorporates a deposit beta of approximately 60%. However, given the historic levels of liquidity currently held by Bancorp isand in the banking system generally, the Company anticipates actual deposit betas will remain well below long-term averages through 2022. The anticipated lower deposit beta would result in the Company’s interest rate sensitivity position turning slightly asset ~~sensitive as~~sensitive.

Bancorp’s interest rate simulation sensitivity analysis details that increases in interest rates of 100, to 200 ~~basis points~~and 300 bps would have a ~~positive~~negative effect on net interest income, respectively, while a 100 bps decrease in interest rates would also have negative effect on net interest income. IfThese results depict a relatively neutral interest rate risk profile. However, the simulation performed as of June 30, 2022 suggests improvement in rising rate scenarios as compared to the prior quarter simulation performed as of March 31, 2022, which stems from the recent interest rate actions taken by the FRB. These rate hikes resulted in Prime rising to 4.75% as of June 30, 2022, which in turn elevated a significant portion of the variable rate loan portfolio off their floor rates ~~raise 200 basis points,~~of 4.00%. Bancorp expects to realize further benefits to net interest income ~~would increase 2.12%.~~ and NIM from both the recent hikes and anticipated future hikes in the quarters ahead.

The ~~excess liquidity held~~decrease in net interest ~~bearing deposit accounts and other short-term investments along with~~income in 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

+300

Basis Points

% Change from base net interest income at June 30, 2022

N/A

-5.13

-0.48

-0.96

-1.42

~~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 70% fixed and ~~after the .25% increase in Prime in June of 2017, the majority of Bancorp’s~~30% variable rate loans, ~~now have interest rates~~with the fixed rate portion pricing 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 70%) or ~~above their floors.~~ one month LIBOR/SOFR (approximately 30%).

In July 2017, the Financial Conduct Authority (the “FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. Subsequent to this, Bank regulators instructed banks to discontinue new originations referencing LIBOR as soon as possible, but no later than December 2021. Effective December 31, 2021, Libor is no longer used to issue new loans in the U.S. It is expected to be replaced primarily by the Secured Overnight Financing Rate (SOFR), which many experts consider a more accurate and more secure pricing benchmark. To facilitate the transition process, management has instituted an enterprise-wide program to identify, assess, and monitor risks associated with the expected discontinuance or unavailability of LIBOR.

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~~Stock Yards Bancorp, inc.~~On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act was signed into law as part of the Consolidated Appropriations Act of 2022. This legislation established a uniform benchmark replacement process for financial contracts that mature after the cessation of LIBOR (scheduled for June 2023) that do not contain clearly defined or practicable fallback provisions. The legislation also established a safe harbor for lenders, providing protection from litigation associated with choosing a replacement rate recommended by the FRB, such as SOFR, and ~~subsidiary~~also allows for the continued use of any appropriate benchmark rate for new contracts.

As of June 30, 2022, the Company had approximately $443 million in loans and $141 million (notional amount) in interest rate derivative contracts that reference LIBOR. Each of the LIBOR-referenced amounts discussed above will vary in future periods as current contracts expire with potential replacement contracts using either LIBOR or an alternative reference rate. The Company, and other industry participants, continue to review alternative reference rates that could be utilized as a replacement for LIBOR. The Company had $49 million in loans that were indexed to SOFR at June 30, 2022.

~~Undesignated~~

Periodically, 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 ~~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 AOCI, 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~~the hedged forecasted transaction impacts earnings. As 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 SeptemberJune 30, ~~2017.~~2022, Bancorp had no outstanding interest rate swaps designated as cash flow hedges.

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~~Stock Yards Bancorp, inc.~~Provision for Credit Losses

Provision for credit losses on loans at June 30, 2022 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 ~~subsidiary~~

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, 2021.

An analysis of the changes in the ~~allowance~~ACL for ~~loan losses~~loans, including provision, and selected ratios follow:

	Three months ended						Six months ended
	June 30,						June 30,
(dollars in thousands)	2022			2021			2022			2021

Beginning balance	$	67,067		$	50,714		$	53,898		$	51,920
Acquisition - PCD loans (goodwill adjustment)		-			6,757			9,950			6,757
Adjusted beginning balance		67,067			57,471			63,848			58,677

Provision for credit losses - loans		(700	)		(2,700	)		(2,450	)		(3,900	)
Provision for credit losses - acquired loans		-			7,397			4,429			7,397
Total provision for credit losses on loans		(700	)		4,697			1,979			3,497

Total charge-offs		(370	)		(3,442	)		(779	)		(3,564	)
Total recoveries		365			698			1,314			814
Net loan (charge-offs) recoveries		(5	)		(2,744	)		535			(2,750	)
Ending balance	$	66,362		$	59,424		$	66,362		$	59,424

Average total loans	$	4,846,013		$	3,844,662		$	4,613,264		$	3,725,871

Provision for credit losses on loans to average total loans (1)		-0.01	%		0.12	%		0.04	%		0.09	%
Net loan (charge-offs) recoveries to average total loans (1)		0.00	%		-0.07	%		0.01	%		-0.07	%
ACL for loans to total loans		1.36	%		1.41	%		1.36	%		1.41	%
ACL for loans to total loans (excluding PPP) (2)		1.37	%		1.55	%		1.37	%		1.55	%
ACL for loans to average total loans		1.37	%		1.55	%		1.44	%		1.59	%

(1) Ratios are not annualized

(2) See the section titled “Non-GAAP Financial Measures” for reconcilement of Non-GAAP to GAAP measures

The ACL for loans totaled $66 million as of June 30, 2022 compared to $54 million at December 31, 2021, representing an ACL to total loans ratio of 1.36% and 1.29% for those periods, respectively. The ACL to loans (excluding PPP loans) was 1.37% at June 30, 2022 compared to 1.34% at December 31, 2021. Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled $37 million at June 30, 2022 and $141 million at December 31, 2021, Bancorp did not 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.

Negative provision (excluding acquisition-related activity) of $700,000 and $2.5 million was recorded to provision for credit losses on loans expense for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2022, respectively. While improvement in the unemployment forecast has helped drive reductions of the ACL for loans in recent quarters, the FRB’s forecast of the Seasonally Adjusted National Civilian Unemployment Rate, which is the primary loss driver with Bancorp’s CECL model, deteriorated during the second quarter, presumptively the result of inflation and ~~2016 follows:~~

(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

~~Loans are charged~~recession-based fears. This development, along with qualitative factor updates related to the potential impact of rising rates on the C&I portfolio, resulted in increased expense within the CECL model. However, the negative impact of the economic forecast update was more than offset by the release of approximately $3.0 million in specific reserves within the ACL for individual loans related to recently acquired individual loans that ultimately paid off ~~when deemed uncollectible and a~~during the second quarter with no 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~~charge-off realized by ~~loan category~~Bancorp, driving the negative provision recorded for the three and ~~nine~~six month periods ~~ended September~~ending June 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

2022.

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~~Stock Yards Bancorp, inc.~~While net charge off activity minimal for the three month period ended June 30, 2022, net recovery activity of $535,000 was recorded for the six months ended June 30, 2022, driven by a $711,000 recovery of a C&I relationship during the first quarter that was fully charged off in the prior year, serving to increase the ACL on loans.

More than offsetting the negative provision for the for the six month period ended June 30, 2022 was credit loss expense recorded for the loan portfolio acquired from CB, which totaled $4.4 million and ~~subsidiary~~was recorded entirely in the first quarter of 2022 upon closing of the CB acquisition. Further, the ACL for loans was also increased $10 million as a result of the PCD loan portfolio added through the CB acquisition during the first quarter, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense).

Expense of $4.7 million and $3.5 million was recorded to provision for credit losses on loans for the three and six month periods ended June 30, 2021, respectively. Expense in both periods was driven by recording $7.4 million of credit loss expense on loans recorded during the second quarter as a result of the KB acquisition, which more than offset the benefits associated with improving unemployment forecasts during the three and six month periods ended June 30, 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 an increase between December 31, 2021 and June 30, 2022. The CB acquisition resulted in a $500,000 increase to the ACL for off balance sheet credit exposures during the first quarter, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense). Provision for credit loss expense of $100,000 was also recorded for the six month period ended June 30, 2022, driven largely by the addition of new lines of credit, and thus increased availability, within the C&D portfolio. The ACL for off balance sheet credit exposures ended at $4.1 million as of June 30, 2022 compared to $3.5 million as of December 31, 2021.

Bancorp’s loan portfolio is well-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, Indiana and Cincinnati, Ohio metropolitan markets. The adequacy of the ACL is monitored on an ongoing basis and it is the opinion of management that the balance of the ACL at June 30, 2022 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.

Non-interest Income

	Three months ended June 30,										Six months ended June 30,
(dollars in thousands)	2022		2021		$ Variance			% Variance			2022		2021		$ Variance			% Variance

Wealth management and trust services	$	9,495	$	6,858	$	2,637			38	%	$	17,738	$	13,106	$	4,632			35	%
Deposit service charges		2,061		1,233		828			67			3,924		2,177		1,747			80
Debit and credit card income		4,748		3,284		1,464			45			8,867		5,557		3,310			60
Treasury management fees		2,187		1,730		457			26			4,091		3,270		821			25
Mortgage banking income		1,295		1,303		(8	)		(1	)		2,298		2,747		(449	)		(16	)
Net investment product sales commissions and fees		731		545		186			34			1,338		1,009		329			33
Bank owned life insurance		270		206		64			31			536		367		169			46
Other		1,153		629		524			83			2,351		1,399		952			68

Total non-interest income	$	21,940	$	15,788	$	6,152			39	%	$	41,143	$	29,632	$	11,511			39	%

~~Non-interest~~ ~~Income and Expenses~~

~~The following table sets forth major components of~~Total non-interest income increased $6.2 million, or 39%, and ~~expenses~~$11.5 million, or 39%, for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2022 compared to the same periods of 2021, respectively. Non-interest income comprised 27.8% and ~~2016.~~28.0% of total revenues, defined as net interest income and non-interest income, for the three and six month periods June 30, 2022 compared to 27.5% and 27.2% for the same periods of 2021. WM&T services comprised 43.3% and 43.1% of total non-interest income for the three and six month periods ended June 30, 2022 compared to 43.4% and 44.2% for the same periods of 2021. Acquisition-related activity drove a significant portion of the non-interest income increase for the three and six month periods ended June 30, 2022 compared to the same periods of the prior year.

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
%

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WM&T Services:

~~The largest component of non-interest income is wealth management and trust (“WM&T”) revenue.~~ The magnitude of WM&T revenue distinguishes Bancorp from ~~most~~ other community banks of similar asset size. WM&T assets under management (AUM) totaled $2.7 billion at September 30, 2017, a 12.5% increase compared to $2.4 billion at September 30, 2016. AUM are stated at market value and while the 2017 increase was partially the result of a rising stock market during the period, primarily it represents a continuance of the 2016 trend for new clients added. WM&T revenue ~~which constitutes an average of 45% of non-interest income,~~ increased ~~$225 thousand, or 4.7% and $1.1~~$2.6 million, or ~~7.4%~~38%, and $4.6 million, or 35%, for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017 respectively,~~2022, as compared towith the same periods of 2021. Significant growth in ~~2016. Recurring fees,~~asset-based income drove the increases for both periods, consistent with both acquisition-related activity and organic new business development, which ~~generally comprise over 98%~~served to offset market declines experienced during the first half of ~~the WM&T revenue, increased $340 thousand or 7.4% and $1.4 million, or 10.7%, for the respective three and nine month periods ended September 30, 2017, as compared to the same periods in 2016.~~ 2022.

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 $2.7 million, or 40%, and $4.7 million, or 37%, for the three and six month periods ended June 30, 2022, as compared with the same periods of 2021. The increase was driven by both acquisition-related activity and organic new business development.

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 decreased ~~$115 thousand~~$43,000 and ~~$393 thousand~~$66,000 for the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2017,~~2022, as compared towith the same periods of 2021, which was driven by lower estate fee income earned.

AUM, stated at market value, totaled $6.56 billion at June 30, 2022 compared with $4.44 billion at June 30, 2021 and $4.80 billion at December 31, 2021. The large increase in ~~2016, primarily due~~AUM between June 30, 2021 and June 30, 2022 is attributed mainly to ~~a decrease in estate fees period to period.~~ AUM of $2.65 billion added through the CB acquisition, as well as net new business growth and stock market appreciation over the past twelve months.

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~~

WM&T Service Income by Account Type:

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

	Three months ended June 30,				Six months ended June 30,
(in thousands)	2022		2021		2022		2021

Investment advisory	$	3,157	$	2,936	$	6,572	$	5,675
Personal trust		3,919		1,948		6,297		3,626
Personal investment retirement		1,235		1,277		2,874		2,493
Company retirement		325		427		767		799
Foundation and endowment		229		197		490		373
Custody and safekeeping		36		37		100		72
Brokerage and insurance services		-		24		40		44
Other		594		12		598		24

Total WM&T services income	$	9,495	$	6,858	$	17,738	$	13,106

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.~~

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~~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:

AUM (not included on balance sheet) increased from $4.80 billion at December 31, 2021 to $6.56 billion at June 30, 2022 as follows:

	June 30, 2022						December 31, 2021
(in thousands)	Managed		Non-managed (1)		Total		Managed		Non-managed (1)		Total
Investment advisory	$	1,731,809	$	495,337	$	2,227,146	$	1,919,593	$	34,879	$	1,954,472
Personal trust		2,144,943		59,444		2,204,387		939,703		150,221		1,089,924
Personal investment retirement		752,067		27,122		779,189		620,312		3,478		623,790
Company retirement		51,363		597,196		648,559		35,234		599,129		634,363
Foundation and endowment		429,233		7,551		436,784		368,572		1,532		370,104

Subtotal	$	5,109,415	$	1,186,650	$	6,296,065	$	3,883,414	$	789,239	$	4,672,653
Custody and safekeeping		—		259,026		259,026		—		128,178		128,178

Total	$	5,109,415	$	1,445,676	$	6,555,091	$	3,883,414	$	917,417	$	4,800,831

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

~~Other Non-interest~~ ~~Income~~As of June 30, 2022 and ~~Non-interest Expense~~December 31, 2021, approximately 78% and 81%, 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)	June 30, 2022		December 31, 2021

Interest bearing deposits	$	171,602	$	173,603
Treasury and government agency obligations		62,395		39,736
State, county and municipal obligations		195,720		110,795
Money market mutual funds		95,224		7,299
Equity mutual funds		1,166,903		944,500
Other mutual funds - fixed, balanced and municipal		679,180		612,913
Common trust funds and collective investment funds		117,597		-
Other notes and bonds		199,572		171,087
Common and preferred stocks		2,052,255		1,681,006
Real estate mortgages		786		-
Real estate		62,792		58,344
Other miscellaneous assets (1)		305,389		84,131

Total managed assets	$	5,109,415	$	3,883,414

(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 63% in equities and 37% in fixed income securities as of June 30, 2022 compared to 68% and 32% as of December 31, 2021. 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 $828,000, or ~~1% while increasing $416 thousand,~~67%, and $1.7 million, or ~~6.0%~~80%, for the three and ~~nine~~six month periods ~~of 2017, respectively,~~ended June 30, 2022, as compared with the same periods ~~in 2016. The decline quarter~~of 2021, mainly as a result of the contribution associated with acquisition-related activity over ~~quarter was driven by a~~the past twelve months. Outside of acquisition-related growth, an 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~~has been experienced over ~~year. Management expects~~the past several years. This trend has been driven by lower check presentment volume and more recently, elevated deposit levels maintained by customers, which has in turn led to fewer overdrawn accounts in general. Further, Bancorp anticipates that future growth of this ~~source of~~ revenue ~~to slowly decline due to changes in customer behavior and ongoing regulatory restrictions. Service charges were further~~stream could be significantly impacted by ~~the introduction of a new checking account product~~changing industry practices, as many larger financial institutions have opted to greatly reduce, or completely eliminate, certain deposit service charges, particularly overdraft-related fees. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the ~~third quarter~~future, which could negatively impact the contributions made by this, or similar, revenue streams.

Debit and credit card income consists of ~~2016. The product provides~~interchange revenue, ancillary ~~services to customers, while carrying a monthly service charge. The income associated with the new checking account product was approximately $641 thousand~~fees and incentives received from card processors. Debit and credit card revenue increased $1.5 million, or 45%, and $3.3 million, or 60%, 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~~six month periods ended June 30, 2022, as compared with the same periods ~~in 2016. Bankcard~~of 2021, as a result of increased transaction ~~revenue primarily represents~~volume and continued expansion of the customer bases, both organically and through acquisition-related activity. Total debit card income ~~the Bank derives from customers’ use of debit~~increased $968,000, or 41%, and $2.4 million, or 60%, and total credit ~~cards. Bancorp began offering credit cards to business customers late in 2015. Revenue on credit cards totaled $276 thousand~~card income increased $496,000, or 54%, and ~~$795 thousand~~$955,000, or 58%, for the three and ~~nine~~six month periods ~~of 2017, respectively,~~ended June 30, 2022, compared ~~to $206 thousand and $520 thousand for~~ the same periods ~~in 2016.~~of the prior year. Bancorp expects ~~volume~~this revenue stream will continue to grow with the expansion of the customer base and further development of the debit and credit card ~~transactions~~businesses.

Treasury management fees primarily consist of fees earned for cash management services provided to ~~increase~~commercial customers. This category continues to stand out as ~~this product is expanded within the commercial customer base. Interchange income on debit cards declined $35 thousand~~a consistent, growing source of revenue for Bancorp and ~~$66 thousand in~~increased $457,000, or 26%, and $821,000, or 25%, for the three and ~~nine~~six month periods ~~of 2017, respectively,~~ending June 30, 2022, as compared towith the same periods of 2021, driven by increased transaction volume, new product sales and customer base expansion. Both organic and acquisition-related sales efforts have led to increases in ~~2016.~~online services, reporting, ACH origination, remote deposit and fraud mitigation services over the past twelve months. Bancorp ~~expects future decreases in interchange rates~~anticipates this income category will continue to increase based on ~~debit cards as merchants structure their technology~~continued customer base growth and ~~processes to take advantage~~the expanding suite 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~~

services offered within Bancorp’s treasury management platform.

Mortgage banking ~~revenue~~income primarily includes gains on sales of mortgage ~~loans. Bancorp~~’sloans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary ~~market. Interest rates on the loans sold are locked with the borrower~~market, primarily to FNMA and ~~investor prior to closing the loans, thus~~FHLMC. Bancorp ~~bears no interest rate risk related to these loans. The department~~ offers conventional, VA, FHA and ~~FHA~~GNMA 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~~$8,000, or ~~27.1%~~1%, and ~~$516 thousand,~~$449,000, or ~~17.8%~~16%, for the ~~respective~~ three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2022, as compared with the same periods of 2021. Overall volume has declined in ~~2016, primarily due~~2022 compared to ~~lower transaction volume. In Bancorp’s primary market~~the prior year as a result of ~~Louisville, Kentucky~~rising interest rates and low housing inventory. While this has in turn led to the ~~housing inventory was low, particularly~~three and six month period declines noted above, mortgage banking income has benefitted from the addition of a mortgage loan servicing portfolio that services approximately $1.48 billion in mortgage loans as a result of the ~~first half of 2017, contributing to this decline.~~CB acquisition.

~~Securities brokerage~~Net investment product sales commissions and fees decreased $7 thousand or 1.3% while increasing $45 thousand, or 2.9%, for the respective three and nine month periods ended September 30, 2017 as compared with the same periods in 2016. Revenue fluctuations correspondare generated primarily ~~to overall brokerage volume. Brokerage commissions and fees earned consist primarily of~~on stock, bond and mutual fund sales, as well as quarterly 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 account 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 $186,000, or 34%, and $329,000, or 33%, for the ~~third quarter~~three and ~~$964 thousand for the first nine months of 2017,~~six month periods ended June 30, 2022, 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 2021, driven by acquisition-related growth, which included the ~~second quarter~~addition of ~~2017.~~ three financial advisors, and increased trading activity.

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 $64,000, or 31%, and $169,000, or 46%, for the three and six month periods ending June 30, 2022 compared to the same periods of the prior year, which was attributed mainly to the contribution of the BOLI portfolio added as a result of the KB acquisition in May of 2021.

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Other non-interest income ~~decreased $216 thousand~~increased $524,000, or ~~30.3%~~83%, and ~~$193 thousand,~~$952,000, or ~~11%~~68%, for the ~~respective~~ three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2022 compared with the same periods of 2021. The increases were driven largely by the contribution from LFA, a financial advising firm added through the CB acquisition, the insurance captive acquired through the KB acquisition in ~~2016. The primary driver~~May of 2021 and an increase in other miscellaneous fee income.

Non-interest Expenses

	Three months ended June 30,										Six months ended June 30,
(dollars in thousands)	2022		2021		$ Variance			% Variance			2022		2021		$ Variance			% Variance

Compensation	$	22,204	$	15,680	$	6,524			42	%	$	40,173	$	28,507	$	11,666			41	%
Employee benefits		4,429		3,367		1,062			32			8,968		6,628		2,340			35
Net occupancy and equipment		3,663		2,244		1,419			63			6,688		4,289		2,399			56
Technology and communication		3,984		2,670		1,314			49			7,403		5,016		2,387			48
Debit and credit card processing		1,665		976		689			71			3,002		1,681		1,321			79
Marketing and business development		1,445		822		623			76			2,217		1,346		871			65
Postage, printing and supplies		825		460		365			79			1,558		869		689			79
Legal and professional		1,027		666		361			54			1,677		1,128		549			49
FDIC insurance		536		349		187			54			1,181		754		427			57
Amortization of investments in tax credit partnerships		89		231		(142	)		(61	)		177		262		(85	)		(32	)
Capital and deposit based taxes		582		527		55			10			1,100		985		115			12
Merger expenses		-		18,100		(18,100	)		(100	)		19,500		18,500		1,000			5
FHLB early termination penalty		-		474		(474	)		(100	)		-		474		(474	)		(100	)
Intangible amortization		1,611		127		1,484			1,169			2,324		204		2,120			1,039
Other		2,615		1,484		1,131			76			5,004		2,507		2,497			100

Total non-interest expenses	$	44,675	$	48,177	$	(3,502	)		(7	)%	$	100,972	$	73,150	$	27,822			38	%

Total non-interest expenses decreased $3.5 million, or 7%, and increased $27.8 million, or 38%, for the three and six month periods ended June 30, 2022 compared to the same periods of 2021, the variances stemming largely from the timing of the ~~decline was swap fee income, which declined $116 thousand in the third quarter~~CB and ~~$251 thousand~~KB acquisitions. Compensation and employee benefits comprised 59.6% and 48.7% of Bancorp’s total non-interest expenses for the ~~first nine months~~three and six month periods ended June 30, 2022, compared to 39.5% and 48.0% for the same periods of ~~2017,~~2021. Excluding merger expenses, compensation and employee benefits comprised 59.6% and 60.3% for the three and six month periods ended June 30, 2022, compared to 63.3% and 64.3% for the same periods of 2021.

Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $6.5 million, or 42%, and $11.7 million, or 41%, for the three and six month periods ended June 30, 2022, as compared with the same periods of 2021. The increases were attributed largely to growth in ~~2016. These fees are an infrequent source~~full time equivalent employees, as well as annual merit-based salary increases. Net full time equivalent employees totaled 1,018 at June 30, 2022 compared to 820 at December 31, 2021 and 823 at June 30, 2021. The acquisitions of ~~revenue due to~~KB in May of 2021 and CB in the ~~unique nature~~first quarter of ~~the transactions. This category contains a variety of other income sources none of which~~2022 resulted in ~~individually significant variances.~~the addition of 372 full time equivalent employees and the correlating increase in compensation expense.

~~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 or 7.8% for the third quarter of 2017, and $3.0~~$1.1 million, or ~~8.4%~~32% and $2.3 million, or 35%, for the ~~first nine months of 2017,~~three and six month periods ended June 30, 2022, as compared with the same periods of 2021, driven primarily by the overall increase 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 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-timefull time equivalent employees ~~compared with 558 at September 30, 2016.~~

~~Net occupancy expense~~ decreased $25 thousand or 1.5% for the third quarter and increased $49 thousand or 1.0% for the nine months ended September 30, 2017, as compared with the same periods in 2016. The quarterly decrease was the result of timing of normal maintenance activities. The increase year over year was largely due to increased recurring expenses for multiple bank properties and a decrease in sub-lease rents.noted above.

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

~~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~~ Net occupancy expense ~~decreased~~ ~~$114 thousand~~increased $1.4 million, or ~~32%~~63%, and ~~$319 thousand,~~$2.4 million, or ~~30.7%~~56%, for the ~~respective~~ three and ~~nine~~six 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 June 30, 2022, as compared with the same periods of ~~2016. This expense reflects~~2021, driven by the two acquisitions completed over the past twelve months. In connection with the CB acquisition, 15 branches were acquired, four of which were closed shortly after acquisition in addition to one existing SYB location, as a result of branch overlap. Further, two operational buildings were also acquired and are currently listed for sale. The KB acquisition in May of 2021 resulted in the addition of 19 branch locations in addition to operational buildings. At June 30, 2022, Bancorp’s branch network consists of 73 locations throughout Louisville, central, eastern and Northern Kentucky, as well as the MSAs of Indianapolis, Indiana and Cincinnati, Ohio.

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 $1.3 million, or 49%, and $2.4 million, or 48%, for the three and six month periods ended June 30, 2022 compared to the same periods of 2021, consistent with acquisition-related activity, customer expansion and core system upgrades.

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 $689,000, or 71%, and $1.3 million, or 79%, for the three and six month periods ending June 30, 2022 compared to the same periods 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.

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 $623,000, or 76%, and $871,000, or 65%, for the three and six month periods ending June 30, 2022, as compared to the same periods of 2021. The increases correspond with strategic decisions to advertise and promote in Bancorp’s new markets, as well as the general expansion of Bancorp’s existing and prospective customer base and a post-pandemic return to in-person client meeting/entertainment.

Postage, printing and supplies expense increased $365,000, or 79%, and $689,000, or 79%, for the three and six month periods ended June 30, 2022 compared to the same periods of 2021, consistent with increased customer communication and Bancorp’s expansion tied to acquisition-related activity over the past twelve months.

Legal and professional fees increased $361,000, or 54%, and $549,000, or 49%, for the three and six month periods ended June 30, 2022 compared to the same periods of last year, the increase being attributed to various consulting engagements, collection-related expenses and litigation costs arising through the normal course of business. Legal and professional fees associated with merger-related activity are captured in merger expenses.

FDIC insurance increased $187,000, or 54%, and $427,000, or 57%, for the three and six month periods ended June 30, 2022, as compared to the same periods of 2021, consistent with organic and acquisition-related balance sheet growth for which the insurance is assessed on.

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 decreased $142,000 and $85,000 for ~~details~~the three and six month periods ending June 30, 2022 compared to the same periods of last year.

Capital and deposit based taxes, which consist primarily of capital-based local income taxes and franchise taxes, increased $55,000, or 10%, and $115,000, or 12%, for the three and six month periods ended June 30, 2022 compared to the same periods of 2021, attributed to both organic and acquisition-related growth.

Merger expenses represent non-recurring expenses associated with completion of the CB 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 $0 and $19.5 million for the three and six month periods ended June 30, 2022, compared to $18.1 million and $18.5 million for the same periods of 2021.

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During the three months ended June 30, 2021, an early termination fee of $474,000 was recorded in 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 excess liquidity held on the balance sheet and the near-term outlook for low interest rates at the time of payoff. No such activity was recorded during the first half of 2022. Bancorp currently has no FHLB advances outstanding.

Intangible amortization expense consists of amortization associated with the CDI of acquired deposit portfolios, as well as other intangibles related to customer lists of the WM&T and ~~income tax impact~~LFA business lines added through the CB acquisition. The intangibles amortized through this category of non-interest expense are generally amortized over a period of approximately ten years. Intangible amortization for ~~these credits.~~the three and six month periods ended June 30, 2022 totaled $1.6 million and $2.3 million compared to $127,000 and $204,000 for the same periods of the prior year, the significant increase stemming from the CB acquisition.

Other non-interest expenses increased ~~$190 thousand or 5.5%~~$1.1 million and ~~$1.3~~$2.5 million ~~or 13.6% in~~for the ~~respective~~ three and ~~nine~~six month periods ~~ending September~~ended June 30, ~~2017,~~2022, as compared ~~with~~to the same periods of 2021. The most notable drivers of the increases were expenses associated with the addition of the insurance captive as a result of the KB acquisition in ~~2016. The quarterly increase was largely due to recording a $266 thousand liability related to an estimated loss from certain administrative proceedings arising~~May of 2021, increased card reward expense correlating with growth in the ~~course of our business. The increase~~debit and credit card business lines, higher fraud-related expenses and other ancillary expenses tied to Bancorp’s general growth over the past twelve months.

Bancorp’s efficiency ratio (FTE) for the ~~year to date 2017~~three month period ended June 30, 2022 was 56.42%, while the ratio for the corresponding six month period was ~~largely due~~68.53%, the latter reflecting one-time merger-related expenses attributed to the CB acquisition, which were all recorded in the first quarter of 2022. Excluding these non-recurring expenses and amortization of investments in tax credit partnerships, the adjusted efficiency ratio, a ~~combination~~non-GAAP measure, would have been 56.31% and 55.18% for the three and six month periods ended June 30, 2022. By comparison, Bancorp’s efficiency ratio for the three and six month periods ended June 30, 2021 was 83.86% and 67.01%. Bancorp’s adjusted efficiency ratio for the three and six months ended June 30, 2021 was 51.95% and 49.82%. See the section titled “Non-GAAP Financial Measures” for reconcilement of ~~numerous items,~~non-GAAP to GAAP measures.

Income Tax Expense

A comparison of income tax expense and ETR follows:

	Three months ended June 30,											Six months ended June 30,
(dollars in thousands)	2022			2021			$ Variance		% Variance			2022			2021			$ Variance		% Variance

Income before income tax expense	$	34,449		$	5,048		$	29,401		582	%	$	43,836		$	33,219		$	10,617		32	%
Income tax expense		7,547			864			6,683		773			8,992			6,325			2,667		42
Effective tax rate		21.9	%		17.1	%	480 bps			28			20.5	%		19.0	%	150 bps			8

Fluctuations in the ~~largest of which~~ETR are ~~detailed below:~~primarily attributed to the following:

●

$~~382 thousand~~Changes in the cash surrender value of ~~net recoveries on sales~~life insurance policies can vary widely from period to period, driven largely by changes in the markets. The related impact is inversely correlated with the ETR generally, with cash surrender value declines typically serving to increase the ETR and vice versa. Changes in the cash surrender value of ~~foreclosed assets in 2016~~life insurance policies increased the ETR 1.1% for the six months ended June 30, 2022, compared ~~with~~to a ~~net recovery in 2017~~1.1% decrease for the same period of ~~$39 thousand.~~the prior year.

●

~~Legal and professional fees increased $351 thousand primarily~~The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity. The ETR was reduced 2.4% for the six month period ended June 30, 2022 compared to a reduction of 3.2% for the same period of 2021, as a result of ~~expenses associated with elevated collection efforts on impaired credits.~~increased levels of exercise activity.

●

~~Local Franchise taxes based upon deposit balances which Bancorp pays~~Tax-exempt interest income earned on loans and investment securities reduced the ETR 0.8% for the six month period ended June 30, 2022 compared to a reduction of 0.3% for the same period of the prior year, the larger reduction in ~~lieu of income taxes in Kentucky~~the current year being attributed to tax-exempt loans and ~~Ohio, were up $174~~ ~~thousand during~~securities added through acquisitions over the ~~nine month period. Deposit growth drove the increased expense.~~past twelve months.

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●

As ~~described above,~~ ~~during 2016~~a result of the KB acquisition in May of 2021, Bancorp ~~introduced~~acquired an insurance captive. The Captive provides insurance against certain risks for which insurance may not currently be available or economically feasible to Bancorp and SYB, as well as a ~~checking product that offers benefits~~group of third-party insurance captives. The tax advantages of the Captive, including the tax-deductible nature of premiums paid to ~~account owners. The expense associated with~~ the ~~product totaled $145 thousand~~Captive as well as the tax-exemption for premiums received by the Captive, serve to reduce income tax expense. Related activity reduced the ETR 0.4% for the ~~first nine months~~six month period ended June 30, 2022, compared to reduction of ~~2017 as opposed to $28 thousand~~0.1% for the same period ~~in 2016.~~of 2021.

●

~~Losses relating~~Non-deductible merger expenses recorded during the six month period ended June 30, 2022 served to ~~check and debit card fraud increased $84 thousand~~increase the ETR 0.3%, compared to an increase of 0.9% for ~~the first nine months of 2017 over~~ the same period ~~in 2016.~~of 2021.

●

~~In the third quarter of 2017 we recorded a $266~~ ~~thousand liability related~~Financial Condition – June 30, 2022 Compared to ~~an estimated loss from certain administrative proceedings arising in the course of our business.~~

December 31, 2021

●

Overview

Total assets increased $937 million, or 14%, to $7.58 billion at June 30, 2022 from $6.65 billion at December 31, 2021. Total assets of $1.34 billion were added on March 7, 2022 as a result of the CB acquisition, including loans of $632 million (net of purchase accounting adjustments) and total investment securities of $247 million. In addition, goodwill of $67 million was recorded in relation to the transaction. Total loans (excluding loans added through the CB acquisition and the PPP portfolio) grew $182 million, or 5%, between December 31, 2021 and June 30, 2022.

Total liabilities increased $863 million, or 15%, to $6.83 billion at June 30, 2022 from $5.97 billion at December 31, 2021. Total liabilities of $1.24 billion were assumed on March 7, 2022 as a result of the CB acquisition, including total deposits of $1.12 billion. Further, SSUAR totaling $66 million and subordinated debentures of $26 million were also assumed as a result of the CB acquisition.

Stockholders’ equity increased $71 million, or 11%, to $747 million at June 30, 2022 from $676 million at December 31, 2021. Stock issued in relation to the CB acquisition, which totaled $134 million, and net income of $34.7 million were offset by a $79 million negative change in AOCI and dividends declared during the first six months of 2022. The large decline in AOCI from December 31, 2021 to June 30, 2022 was the result of the rising interest rate environment and its corresponding impact on the valuation of the AFS debt securities portfolio.

Cash and Cash Equivalents

Cash and cash equivalents declined $387 million, or 40%, ending at $574 million at June 30, 2022 compared to $961 million at December 31, 2021. The decline stemmed largely from anticipated seasonal deposit run-off associated with public fund balances and customer tax payment activity. The average balance of cash and cash equivalents increased $380 million over the past twelve months, as Bancorp has maintained elevated levels of liquidity stemming from the PPP and deposit growth associated with both acquisition-related activity and the customer base maintaining higher deposit balances in general for the past several quarters.

Investment Securities

Investment securities increased $445 million, or 38%, to $1.63 billion at June 30, 2022 compared to $1.18 billion at December 31, 2021. In addition to securities totaling $247 million being added as a result of the CB acquisition, Bancorp continued to actively invest in the securities portfolio during the first half of 2022 in an effort to deploy excess liquidity by purchasing $545 million of debt securities during six months ended June 30, 2022. Partially offsetting growth associated with purchasing and acquisition-related activity was scheduled maturity/amortization and prepayment activity, as well as market depreciation of approximately $105 million stemming from an upward move in the interest rate environment experienced through the during the first half of 2022.

~~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.~~A portion of the securities added during the first quarter of 2022, through both acquisition and ~~subsidiary~~normal investment activity, were classified as HTM. As of June 30, 2022, Bancorp’s investment security portfolio consisted of AFS and HTM securities as detailed below:

	AFS		HTM		Total
(in thousands)			Carrying		Investment
June 30, 2022	Fair Value		Value		Securities

U.S. Treasury and other U.S. Government obligations	$	115,532	$	219,574	$	335,106
Government sponsored enterprise obligations		117,703		27,847		145,550
Mortgage backed securities - government agencies		765,522		238,028		1,003,550
Obligations of states and political subdivisions		135,268		-		135,268
Other		6,014		-		6,014

Total investment securities	$	1,140,039	$	485,449	$	1,625,488

~~Income Taxes~~Premises and Equipment

~~Bancorp recorded income tax expense of~~ ~~$4.1 million~~Premises and $11.6 million for the three and nine month periods ended September 30, 2017, respectively, as compared with $3.9 million and $11.2 million for the same periods in 2016. The effective rate for both the three and nine months ended September 30, 2017, was 25.9% in 2017 as compared to 27.1% and 27.0% for the three and nine months ended September 30, 2016, respectively. Refer to Footnote 5 toequipment are presented on the consolidated ~~financial statements for a reconciliation~~balance sheets net of related depreciation on the ~~statutory and effective income tax rates.~~

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

~~The effective tax rate in 2017 was largely reduced~~purchase accounting. Premises and equipment increased $43 million, or 55%, between December 31, 2021 and June 30, 2022, driven by the CB acquisition. As a result of the ~~adoption~~acquisition, 15 branches were acquired, four of ~~ASU 2016-09 “Compensation~~ ~~– Stock Compensation Improvements~~which were closed shortly acquisition as a result of overlapping with existing locations of the Bank. In addition, two operational buildings were also acquired through CB and are currently listed for sale. Bancorp’s branch network now consists of 73 locations throughout Louisville, central, eastern and northern, Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs.

Goodwill

At June 30 2022, Bancorp had $203 million in goodwill recorded on its balance sheet, including $67 million recorded in association with the March 7, 2022 acquisition of CB. As permitted under GAAP, management has up to ~~Employee Share-Based Payment Accounting”. The new standard requires excess tax benefits~~12 months following the date of acquisition to finalize the fair values of the acquired assets and ~~deficiencies~~assumed liabilities related to ~~share-based payment awards~~the CB acquisition. During this measurement period, Bancorp may record subsequent adjustments to ~~be reflected~~goodwill for provisional amounts recorded at the acquisition date.

Events that may trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price falling below tangible book value), negative trends in overall financial performance and regulatory action. At September 30, 2021, Bancorp elected to perform a qualitative assessment to determine if it was more-likely-than-not that the ~~statement of operations as a component~~fair value of the ~~provision for income taxes. For~~Commercial Banking reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the ~~three~~carrying value of the reporting unit exceeded its fair value.

Core Deposit and ~~nine months ended September~~Customer List Intangibles

CDIs and CLIs arising from business acquisitions are initially measured at fair value and are then amortized on an accelerated method based on their useful lives. As a result of the 2022 CB acquisition, a CDI asset of $13 million was recorded. As a result of the 2021 KB acquisition, a CDI asset of $4 million was recorded. As of June 30, ~~2017 Bancorp~~2022 and December 31, 2021, Bancorp’s CDI assets were $17 million and $6 million, respectively.

CLI assets totaling $14 million were also recorded ~~a benefit of $241 thousand~~in association with the CB acquisition. Of this total, $12 million was attributed to CB’s WM&T segment and ~~$1.4~~$2 million ~~respectively for such excess benefits against the provision for income tax expense. Prior~~related to ~~adoption of ASU 2016-09 these tax benefits~~LFA. No similar assets were recorded ~~directly~~in relation to ~~additional paid-in capital. Tax benefits recorded to capital for~~ the ~~three and nine months ended September~~KB acquisition. As of June 30, ~~2016 were $443 thousand and $963 thousand, respectively.~~

~~Commitments~~

Bancorp uses a variety of financial instruments in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. 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~~2022, Bancorp’s CLI assets increased $116.4 million, or 3.8%, 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 of this increase the result of short-term investments made at quarter end largely offset by maturities during 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 at September 30, 2017 and $100 million at December 31, 2016, normally have a maturity of less than one month, and are purchased at quarter-end as part of a tax minimization strategy. The remaining variance was attributable to reduction in unrealized losses on the securities portfolio to $431 thousand at September 30, 2017 as compared to unrealized losses of $1.9 million at December 31, 2016. Funds from maturing available-for-sale investments were held as cash, or invested short term, to fund future loan growth.$14 million.

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~~Stock Yards Bancorp, inc.~~Other Assets and ~~subsidiary~~Other Liabilities

~~Total liabilities~~ Other assets increased $96.0 million, December 31, 2016 to September 30, 2017, from $2.7 billion to $2.8 billion, respectively. Federal funds purchased and other short-term borrowing increased $114.6 million, period to period, primarily the result of $150 million in borrowing for the short-term investments mentioned above. Bancorp uses short-term lines of credit to manage its overall liquidity position. Due to normal cyclical activity total deposits decreased $38.6$40 million, or ~~1.5%~~46%, ~~period~~ to ~~period. Interest bearing demand deposits accounts~~$126 million at June 30, 2022. Other liabilities decreased ~~$42.7~~$9 million, or ~~5.6%; time deposits, $17.8~~10%, to $87 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%.

~~Elements of Loan Portfolio~~at June 30, 2022.

The ~~following table sets forth~~increase in other assets stems mainly from the ~~major classifications~~addition of $13 million in MSR assets related to the CB acquisition and a $17 million increase in DTAs driven by the significant market depreciation experienced within the AFS debt securities portfolio for the six months ended June 30, 2022 associated with rising interest rates. An increase in the market value of interest rate swap-related assets and further investment in tax credit assets also contributed to the increase, albeit to a lesser extent.

The decrease in other liabilities was attributed mainly to the reduction of various accrued liabilities, such as employee incentive compensation and benefits.

As of June 30, 2022, Bancorp did not incur any impairment with respect to its intangible assets or other long-lived assets.

Loans

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

(dollars in thousands)	June 30, 2022		December 31, 2021		$ Variance			% Variance

Commercial real estate - non-owner occupied	$	1,397,330	$	1,128,244	$	269,086			24	%
Commercial real estate - owner occupied		787,559		678,405		109,154			16	%
Total commercial real estate		2,184,889		1,806,649		378,240			21	%

Commercial and industrial - term		667,338		596,710		70,628			12	%
Commercial and industrial - term - PPP		36,767		140,734		(103,967	)		-74	%
Commercial and industrial - lines of credit		423,066		370,312		52,754			14	%
Total commercial and industrial		1,127,171		1,107,756		19,415			2	%

Residential real estate - owner occupied		533,577		400,695		132,882			33	%
Residential real estate - non-owner occupied		293,852		281,018		12,834			5	%
Total residential real estate		827,429		681,713		145,716			21	%

Construction and land development		372,197		299,206		72,991			24	%
Home equity lines of credit		192,102		138,976		53,126			38	%
Consumer		137,278		104,294		32,984			32	%
Leases		14,611		13,622		989			7	%
Credits cards		21,647		17,087		4,560			27	%
Total loans (1)	$	4,877,324	$	4,169,303	$	708,021			17	%

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

Total loans increased $708 million, or 17%, from December 31, 2021 to June 30, 2022, driven by the addition of $630 million in loans related to acquisition-related expansion and strong organic loan growth, which more than offset a $104 million decline in the PPP 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

Excluding the loans acquired through the CB acquisition and the PPP portfolio, loan growth of $182 million, or 5%, was experienced between December 31, 2021 and June 30, 2022, driven largely by growth across virtually every loan portfolio segment.

~~(1)~~

After hitting a pandemic-era low of 36.5% at March 31, 2021, total line of credit utilization has improved significantly, reaching 40.5% at June 30, 2022, led by C&I utilization, which strengthened from 23.9% to 31.0% over that same period, respectively. However, line of credit usage has remained below pre-pandemic levels, as the availability of PPP lending facilities limited utilization for much of 2021 and into 2022, with customers continuing to maintain elevated levels of liquidity amidst current economic uncertainty.

~~Undeveloped land consists of land acquired for development by the borrower, but for which no development has yet taken place.~~

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~~Stock Yards~~PPP loans of $37 million ($38 million gross of unamortized deferred fees and costs) were outstanding at June 30, 2022. Bancorp ~~inc.~~has $1 million in net unrecognized fees related to the PPP as of June 30, 2022, which will be recognized immediately once the loans are paid off or forgiven by the SBA. While the timing of forgiveness activity will continue to impact results, the related fee recognition has become less significant as the balance of the overall portfolio has shrunk. At June 30, 2022, approximately 96% of the dollars originated through the PPP have been forgiven and ~~subsidiary~~approximately 97% of the fee income received in relation to the PPP has been recognized.

~~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 which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass Louisville, Kentucky, central, eastern and northern Kentucky, as well as the ~~second quarter of 2017,~~ ~~driven by solid loan production that continued to exceed the average pace recorded over the last three years. While all of the Company's markets participated in this growth,~~ Indianapolis, ~~through excellent leadership~~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 MSAs.

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~~both June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the total participated ~~portions~~portion of loans of this nature ~~were $18.3 million and $15.8 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.totaled $5 million.

The ~~allowance methodology is driven by risk ratings, historical losses,~~following table presents the maturity distribution 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~~rate sensitivity of the ~~historical look-back period from 24 quarters to 28 quarters. This expansion~~total loan portfolio as 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.June 30, 2022:

~~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.~~

	Maturity
June 30, 2022 (in thousands)	Within one year		After one but within five years		After five but within fifteen years		Ater fifteen years		Total		% of Total
Total Loans
Fixed rate	$	170,025	$	1,417,951	$	1,094,591	$	754,684	$	3,437,251		70	%
Variable rate		521,561		510,005		357,886		50,621		1,440,073		30	%
Total	$	691,586	$	1,927,956	$	1,452,477	$	805,305	$	4,877,324		100	%

~~As of~~ ~~September 30, 2017~~In the ~~allowance for~~event where Bancorp structures a loan ~~loss was $24.9 million,~~with 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%~~maturity exceeding five years (typically CRE loans), ~~respectively. The allowance as a percent of period end loans, as of each period end, was 1.07% and 1.04%, respectively.~~

~~Table of Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~an automatic rate adjustment will typically be set in place at five years from origination date to limit interest rate sensitivity.

Non-performing Loans and 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)	June 30, 2022			December 31, 2021

Non-accrual loans	$	7,827		$	6,712
Troubled debt restructurings		-			12
Loans past due 90 days or more and still accruing		1,176			684
Total non-performing loans		9,003			7,408

Other real estate owned		7,601			7,212
Total non-performing assets	$	16,604		$	14,620

Non-performing loans to total loans		0.18	%		0.18	%
Non-performing loans to total loans (excluding PPP) (1)		0.19	%		0.18	%
Non-performing assets to total assets		0.22	%		0.22	%
ACL for loans to total non-performing loans		737	%		728	%

(1) See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

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Non-performing assets as of ~~September~~June 30, ~~2017 were comprised~~2022 consisted of ~~33 non-accrual~~164 loans, ranging in ~~amount from $1~~individual amounts up to ~~$907 thousand, five accruing TDRs,~~$917,000, and ~~foreclosed~~OREO. OREO at June 30, 2022 included four CRE properties and one residential real estate held for sale. Foreclosed real estate held at September 30, 2017 included properties of three former lending relationships, with a combined value of $2.6 million. At September 30, 2017 there were two properties, with a combinedproperty.

The following table presents the recorded investment in non-accrual loans by portfolio:

(in thousands)	June 30, 2022		December 31, 2021

Commercial real estate - non-owner occupied	$	647	$	720
Commercial real estate - owner occupied		1,593		1,748
Total commercial real estate		2,240		2,468

Commercial and industrial - term		1,023		670
Commercial and industrial - PPP		—		—
Commercial and industrial - lines of credit		164		228
Total commercial and industrial		1,187		898

Residential real estate - owner occupied		3,348		1,997
Residential real estate - non-owner occupied		233		293
Total residential real estate		3,581		2,290

Construction and land development		—		—
Home equity lines of credit		378		646
Consumer		441		410
Leases		—		—
Credit cards		—		—
Total non-accrual loans	$	7,827	$	6,712

As of ~~$75 thousand,~~June 30, 2022, non-accrual loans totaled $8 million. The increase in total non-accrual loans between December 31, 2021 and June 30, 2022 stemmed mainly from non-accrual loans added through the CB acquisition.

Delinquent Loans

Delinquent loans (consisting of all loans 30 days or more past due) totaled $18 million and $11 million at June 30, 2022 and December 31, 2021. The increase between December 31, 2021 and June 30, 2022 was driven by a large CRE relationship going past due as well as loans added through the CB acquisition. Delinquent loans to total loans were 0.37% and 0.26% at June 30, 2022 and December 31, 2021, respectively. Despite the increase during the first six months of 2022, delinquent loan levels remain low by historical comparison.

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Allowance for Credit Losses on Loans

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.

The following table reflects activity in the ~~process of foreclosure.~~ACL on loans for the three and six months ended June 30, 2022:

~~(1)~~
(in thousands) Beginning
Initial
Allowance
on PCD

Provision for
Credit Losses
Ending
Three Months Ended June 30, 2022

Balance

Loans

on Loans

Charge-offs

Recoveries

Balance

Commercial real estate - non-owner occupied
$ 20,620 $ - $ 101 $ - $ 2 $ 20,723
Commercial real estate - owner occupied
11,326 - (1,464 ) (41 ) 21 9,842
Total commercial real estate
31,946 - (1,363 ) (41 ) 23 30,565

Commercial and industrial - term
11,108 - 1,174 (15 ) 75 12,342
Commercial and industrial - lines of credit
6,508 - (1,508 ) - - 5,000
Total commercial and industrial
17,616 - (334 ) (15 ) 75 17,342

Residential real estate - owner occupied
5,363 - 575 (7 ) 57 5,988
Residential real estate - non-owner occupied
3,361 - (176 ) - 5 3,190
Total residential real estate
8,724 - 399 (7 ) 62 9,178

Construction and land development
5,864 - 422 (72 ) - 6,214
Home equity lines of credit
1,467 - 54 - - 1,521
Consumer
1,049 - 141 (235 ) 158 1,113
Leases
211 - 10 - - 221
Credit cards
190 - (29 ) - 47 208
Total
$ 67,067 $ - $ (700 ) $ (370 ) $ 365 $ 66,362

(in thousands)	Beginning		Initial Allowance on PCD		Provision for Credit Losses								Ending
Six Months Ended June 30, 2022	Balance		Loans		on Loans			Charge-offs			Recoveries		Balance

Commercial real estate - non-owner occupied	$	15,960	$	3,508	$	1,242		$	-		$	13	$	20,723
Commercial real estate - owner occupied		9,595		2,121		(1,876	)		(41	)		43		9,842
Total commercial real estate		25,555		5,629		(634	)		(41	)		56		30,565

Commercial and industrial - term (1)		8,577		1,358		1,741			(128	)		794		12,342
Commercial and industrial - lines of credit		4,802		1,874		(1,640	)		(36	)		-		5,000
Total commercial and industrial		13,379		3,232		101			(164	)		794		17,342

Residential real estate - owner occupied		4,316		590		1,035			(13	)		60		5,988
Residential real estate - non-owner occupied		3,677		-		(495	)		-			8		3,190
Total residential real estate		7,993		590		540			(13	)		68		9,178

Construction and land development		4,789		419		1,078			(72	)		-		6,214
Home equity lines of credit		1,044		2		475			-			-		1,521
Consumer		772		78		403			(489	)		349		1,113
Leases		204		-		17			-			-		221
Credit cards		162		-		(1	)		-			47		208
Total	$	53,898	$	9,950	$	1,979		$	(779	)	$	1,314	$	66,362

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Bancorp’s ACL for loans was $66 million as of June 30, 2022 compared to $54 million as of December 31, 2021. The change in the ACL for loans was driven by a number of competing factors, which resulted in the $12 million, or 23%, increase experienced for the first six months of 2022. Acquisition-related activity was responsible for a total increase to the ACL for loans of $14 million at acquisition date, comprised of a $10 million day one adjustment for specific reserves placed on acquired PCD loans (offset to goodwill) and $4.4 million of provision for credit loss expense on loans 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 $2 million for the first six months of 2022. While improvement in the unemployment forecast has helped drive reductions of the ACL for loans in recent quarters, the FRB’s forecast of the Seasonally Adjusted National Civilian Unemployment Rate, which is the primary loss driver with Bancorp’s CECL model, deteriorated during the second quarter, presumptively the result of inflation and recession-based fears. This development, along with qualitative factor updates related to the potential impact of rising rates on the C&I portfolio, resulted in increased expense within the CECL model. However, the negative impact of the economic forecast update was more than offset by the release of approximately $3.0 million in specific reserves within the ACL for individual loans related to recently acquired individual loans that ultimately paid off during the second quarter with no loss or charge-off realized by Bancorp, driving the negative provision recorded for the six month period ending June 30, 2022.

In addition, net recovery activity of $535,000 was recorded for the six months ended June 30, 2022, driven mainly by a $711,000 recovery of a C&I relationship during the first quarter that was fully charged off in the prior year, serving to increase the ACL for loans.

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 change, Bancorp could experience further adjustments in its required ACL for loans credit loss expense.

~~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):

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

	June 30, 2022								December 31, 2021
(dollars in thousands)	Allocated Allowance		% of Total ACL on loans			ACL to Total Loans (1)			Allocated Allowance		% of Total ACL on loans			ACL to Total Loans (1)

Commercial real estate - non-owner occupied	$	20,723		31	%		1.48	%	$	15,960		30	%		1.41	%
Commercial real estate - owner occupied		9,842		15	%		1.25	%		9,595		18	%		1.41	%
Total commercial real estate		30,565		46	%		1.40	%		25,555		48	%		1.41	%

Commercial and industrial - term (1)		12,342		19	%		1.85	%		8,577		16	%		1.44	%
Commercial and industrial - lines of credit		5,000		7	%		1.18	%		4,802		9	%		1.30	%
Total commercial and industrial		17,342		26	%		1.59	%		13,379		25	%		1.38	%

Residential real estate - owner occupied		5,988		9	%		1.12	%		4,316		8	%		1.08	%
Residential real estate - non-owner occupied		3,190		5	%		1.09	%		3,677		7	%		1.31	%
Total residential real estate		9,178		14	%		1.11	%		7,993		15	%		1.17	%

Construction and land development		6,214		10	%		1.67	%		4,789		9	%		1.60	%
Home equity lines of credit		1,521		2	%		0.79	%		1,044		2	%		0.75	%
Consumer		1,113		2	%		0.81	%		772		1	%		0.74	%
Leases		221		0	%		1.51	%		204		0	%		1.50	%
Credit cards		208		0	%		0.96	%		162		0	%		0.95	%
Total	$	66,362		100	%		1.37	%	$	53,898		100	%		1.34	%

(1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee.

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~~Stock Yards~~The table below details net charge-offs to average loans outstanding by category of loan for the three and six month periods ended June 30, 2022 and 2021, respectively.

	2022								2021
Three months ended June 30,	Net (charge offs)/			Average		Net (charge offs)/ recoveries to average			Net (charge offs)/			Average		Net (charge offs)/ recoveries to average
(dollars in thousands)	recoveries			Loans		loans			recoveries			Loans		loans

Commercial real estate - non-owner occupied	$	2		$	1,392,742		0.00	%	$	(3,061	)	$	1,003,623		-0.30	%
Commercial real estate - owner occupied		(20	)		792,673		0.00	%		555			554,736		0.10	%
Total commercial real estate		(18	)		2,185,415		0.00	%		(2,506	)		1,558,359		-0.16	%

Commercial and industrial - term		60			671,539		0.01	%		(98	)		491,094		-0.02	%
Commercial and industrial - term - PPP		-			48,364		0.00	%		-			510,963		0.00	%
Commercial and industrial - lines of credit		-			417,482		0.00	%		-			275,019		0.00	%
Total commercial and industrial		60			1,137,385		0.01	%		(98	)		1,277,076		-0.01	%

Residential real estate - owner occupied		50			511,111		0.01	%		(37	)		313,935		-0.01	%
Residential real estate - non-owner occupied		5			294,487		0.00	%		1			201,100		0.00	%
Total residential real estate		55			805,598		0.01	%		(36	)		515,035		-0.01	%

Construction and land development		(72	)		358,066		-0.02	%		3			276,018		0.00	%
Home equity lines of credit		-			188,422		0.00	%		1			114,582		0.00	%
Consumer		(77	)		135,776		-0.06	%		(108	)		76,730		-0.14	%
Leases		-			14,233		0.00	%		-			13,868		0.00	%
Credit cards		47			21,118		0.22	%		-			12,994		0.00	%
Total	$	(5	)	$	4,846,013		0.00	%	$	(2,744	)	$	3,844,662		-0.07	%

Six months ended June 30,	Net (charge offs)/			Average		Net (charge offs)/ recoveries to average			Net (charge offs)/			Average		Net (charge offs)/ recoveries to average
(dollars in thousands)	recoveries			Loans		loans			recoveries			Loans		loans

Commercial real estate - non-owner occupied	$	14		$	1,302,604		0.00	%	$	(3,030	)	$	943,644		-0.32	%
Commercial real estate - owner occupied		1			753,414		0.00	%		555			537,304		0.10	%
Total commercial real estate		15			2,056,018		0.00	%		(2,475	)		1,480,948		-0.17	%

Commercial and industrial - term		666			644,461		0.10	%		(147	)		452,971		-0.03	%
Commercial and industrial - term - PPP		-			80,070		0.00	%		-			569,068		0.00	%
Commercial and industrial - lines of credit		(36	)		401,126		-0.01	%		-			247,592		0.00	%
Total commercial and industrial		630			1,125,657		0.06	%		(147	)		1,269,631		-0.01	%

Residential real estate - owner occupied		47			473,599		0.01	%		(40	)		288,123		-0.01	%
Residential real estate - non-owner occupied		8			289,525		0.00	%		2			180,539		0.00	%
Total residential real estate		55			763,124		0.01	%		(38	)		468,662		-0.01	%

Construction and land development		(72	)		337,927		-0.02	%		3			280,011		0.00	%
Home equity lines of credit		-			171,691		0.00	%		1			107,803		0.00	%
Consumer		(140	)		125,097		-0.11	%		(94	)		92,681		-0.10	%
Leases		-			14,006		0.00	%		-			14,110		0.00	%
Credit cards		47			19,744		0.24	%		-			12,025		0.00	%
Total	$	535		$	4,613,264		0.01	%	$	(2,750	)	$	3,725,871		-0.07	%

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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 an increase between December 31, 2021 and June 30, 2022. The CB acquisition resulted in a $500,000 increase to the ACL for off balance sheet credit exposures during the first quarter, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense). Provision for credit loss expense of $100,000 was also recorded for the six month period ended June 30, 2022, driven largely by the addition of new lines, and thus increased availability, within the C&D portfolio. ACL for off balance sheet credit exposures stood at $4.1 million as of June 30, 2022 compared to $3.5 million as of December 31, 2021.

Deposits

(dollars in thousands)	June 30, 2022		December 31, 2021		$ Variance		% Variance

Non-interest bearing demand deposits	$	2,121,304	$	1,755,754	$	365,550		21	%

Interest bearing deposits:
Interest bearing demand		2,184,579		2,131,928		52,651		2	%
Savings		571,856		415,258		156,598		38	%
Money market		1,167,538		1,050,352		117,186		11	%

Time deposits of $250 thousand or more		95,958		89,745		6,213		7	%
Other time deposits		407,895		344,477		63,418		18	%
Total time deposits		503,853		434,222		69,631		16	%

Total interest bearing deposits		4,427,826		4,031,760		396,066		10	%

Total deposits (1)	$	6,549,130	$	5,787,514	$	761,616		13	%

(1)

Includes $10 million and $5 million in brokered deposits as of June 30, 2022 and December 31, 2021, respectively.

Total deposits increased $762 million, or 13%, from December 31, 2021 to June 30, 2022. At acquisition date, deposits totaling $1.12 billion were assumed as a result of the CB acquisition. Excluding the deposits acquired through the CB acquisition, deposits decreased $358 million, or 6%, during the first six months of 2022, attributed mainly to anticipated seasonal deposit run-off and time deposit maturities.

Securities Sold Under Agreements to Repurchase

SSUAR represent a funding source of Bancorp ~~inc.~~ and ~~subsidiary~~are primarily used by commercial customers in conjunction with collateralized corporate cash management accounts. Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. At June 30, 2022 and December 31, 2021, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities that were owned and controlled by Bancorp.

Information regarding SSUAR follows:

(dollars in thousands)	June 30, 2022			December 31, 2021
Outstanding balance at end of period	$	161,512		$	75,466
Weighted average interest rate at end of period		0.44	%		0.04	%

	Three months ended						Six months ended
	June 30,						June 30,
(dollars in thousands)	2022			2021			2022			2021

Average outstanding balance during the period	$	140,169		$	55,673		$	115,761		$	51,330
Average interest rate during the period		0.16	%		0.04	%		0.13	%		0.04	%
Maximum outstanding at any month end during the period	$	161,512		$	63,942		$	161,512		$	63,942

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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 increased $86 million, between December 31, 2021 and June 30, 2022, as SSUAR totaling $66 million were assumed as part of the CB acquisition. The remaining fluctuation in SSUAR is consistent with the general trend of customers maintaining elevated deposit balances over the past several quarters.

Subordinated debentures

As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of June 30, 2022, subordinated notes added through the CB acquisition totaled $26 million.

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~~$485 million and $899 million at ~~September~~June 30, ~~2017. These investments~~2022 and December 31, 2021, respectively. The decrease experienced for the first six months of 2022 is attributed to significant investment in the securities portfolio, strong organic loan growth and seasonal deposit runoff. 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~~AFS debt security portfolio was $1.14 billion and $1.18 billion at June 30, 2022 and December 31, 2021 respectively. The lack of growth in AFS debt security portfolio for the first six months of 2022 is attributed to both classifying securities purchased and acquired during the first quarter as HTM for general capital purposes, as well as significant market depreciation experienced on the AFS portfolio since December 31, 2021 due to rising rates. The investment portfolio ~~was $571.5 million at September 30, 2017. The portfolio~~(HTM and AFS) includes scheduled maturities of $26 million and cash flows on amortizing debt securities of approximately ~~$216.7~~$206 million (based on assumed prepayment speeds as of June 30, 2022) 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~~June 30, ~~2017,~~2022, total investment securities pledged for these purposes comprised ~~58%~~64% of the ~~available-for-sale investment~~debt securities portfolio, leaving ~~$241.8~~approximately $586 million of unpledged ~~securities, including $150 million which matured the first week of October..~~debt securities.

~~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~~June 30, ~~2017,~~2022, such deposits totaled ~~$2.4~~$5.76 billion and represented ~~99%~~88% of Bancorp’s total deposits, as compared ~~to $2.5~~with $5.05 billion, or ~~98%~~87% of total deposits at December 31, ~~2016.~~2021. 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~~June 30, ~~2017~~2022 and December 31, 2021, 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 $10 million and $5 million, respectively, all of which is attributed to deposits added through the acquisition-related activity over the past twelve months.

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Included in ~~the~~ total deposit balances at ~~September~~June 30, ~~2017 is $122.4~~2022 are $628 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. At December 31, 2021, public funds deposits totaled $645 million, the increase experienced during the first six months of 2022 being attributed mainly to relationships added through the CB acquisition.

~~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~~June 30, ~~2017,~~2022 and December 31, 2021, available credit from the FHLB totaled ~~$367.3 million.~~$1.22 billion and $1.00 billion, respectively. Additionally, Bancorp had unsecured available ~~federal funds purchased~~FFP lines with correspondent banks totaling ~~$105~~$100 million and $80 million at ~~September~~June 30, ~~2017.~~2022 and December 31, 2021, respectively. In addition, Bancorp had borrowing capacity of $20 million available through an unsecured borrowing line at the holding company.

~~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.~~

~~Table of Contents~~

~~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 June 30, 2022, the Bank could pay an amount equal to $43 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 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 $467 million as of June 30, 2022 compared to December 31, 2021, the increase being driven by both the CB acquisition and new lines of credit. Total average line of credit utilization declined to 40.5% as of June 30, 2022 compared to 41.2% at December 31, 2021, however, both represent significant improvement from the pandemic-era low of 36.5% experienced at March 31, 2021. C&I line of credit utilization was 31.0% at June 30, 2022 compared to 31.8% at December 31, 2021 and 27.4% at June 30, 2021.

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.

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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 $4.1 million and $3.5 million as of June 30, 2022 and December 31, 2021, respectively. The CB acquisition resulted in a $500,000 increase to the ACL for off balance sheet credit exposures, with the corresponding offset recorded to goodwill (as opposed to provision expense). In addition, $100,000 of provision expense was recorded for the six month period ended June 30, 2022, driven largely by the addition of new lines, and thus increased availability, within the C&D portfolio.

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, TPS and the maturity of time deposits.

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

Capital

~~Capital Resources~~

At ~~September~~June 30, ~~2017,~~2022, stockholders’ equity totaled ~~$334.3~~$747 million, representing an increase of ~~$20.4~~$71 million, ~~since~~or 11%, compared to December 31, ~~2016. See~~2021. The increase for the ~~Consolidated Statement~~first six months of ~~Changes~~2022 was attributed mainly to stock issued in ~~Stockholders’ Equity for further detail~~relation to the CB acquisition, which totaled $134 million. Further, net income of $34.7 million was offset by a $79 million negative change in AOCI and dividends declared during the ~~changes in equity since the end~~first six months of ~~2015. One component of equity is accumulated other comprehensive income which, for Bancorp,~~2022. 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 September 30, 2017 compared with a loss of $1.5 million on~~The large decline in AOCI from December 31, ~~2016. The $968 thousand positive difference is primarily a reflection~~2021 to June 30, 2022 was the result of the ~~effect of the changing~~rising interest rate environment ~~during~~and its corresponding impact on the ~~first nine months~~valuation of ~~2017 as short term rates increased slightly, while~~the AFS debt securities portfolio. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long ~~term rates decreased, which decreased Bancorp’s unrealized loss on securities available~~ history of no credit losses. See the “Consolidated Statement of Changes in Stockholders’ Equity”for ~~sale.~~further detail of changes in equity.

As a result of ~~September 30, 2017, Bancorp meets all requirements to be considered~~the large interest-rate driven changes in AOCI noted above, as well ~~capitalized under regulatory risk-based capital rules,~~as acquisition-related growth, Bancorp’s TCE ratio and is not subject to limitations due to the capital conservation buffer. See Footnote 19 to the consolidated financials for more information regarding Bancorp’s and the Bank’s risk-based capital amounts and ratios as of September 30, 2017 andtangible book value per share, both non-GAAP disclosures, experienced declines between December 31, ~~2016.~~2021 and June 30, 2022. TCE was 7.00% at June 30, 2022 compared to 8.22% at December 31, 2021, while tangible book value per share was $17.59 at June 30, 2022 compared to $20.09 at December 31, 2021. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

e)	~~Non-GAAP Financial Measures~~

In ~~addition~~May 2021, Bancorp’s Board of Directors extended its share repurchase program authorizing the repurchase of up to ~~capital ratios defined by banking regulators,~~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 ~~considers various ratios when evaluating capital adequacy~~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 ~~overhead, including tangible common equity to tangible assets, tangible common equity per share, and adjusted efficiency ratio, all of which are non-GAAP measures.~~

~~Bancorp believes~~ the ~~tangible common equity ratios are important because of their widespread use by investors as means to evaluate capital adequacy, as they reflect the level~~increased importance of capital ~~available to withstand unexpected market conditions. Because US GAAP does not include capital ratio measures, there are~~preservation, no ~~US GAAP financial measures comparable to these ratios.~~shares were repurchased in 2021, nor the first six months of 2022. Approximately 741,000 shares remain eligible for repurchase under the current repurchase plan.

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~~Stock Yards~~Bank holding companies and their subsidiary banks are required by regulators to meet risk-based capital standards. These standards, or ratios, measure the relationship of 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 ~~inc.~~ and ~~subsidiary~~

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.

The following table ~~reconciles Bancorp’s calculation of tangible common equity to amounts reported under US GAAP.~~sets forth consolidated Bancorp’s and the Bank’s risk based capital ratios:

(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

	June 30, 2022			December 31, 2021

Total risk-based capital(1)
Consolidated		12.27	%		12.79	%
Bank		11.63			12.42

Common equity tier 1 risk-based capital(1)
Consolidated		10.81			11.94
Bank		10.62			11.56

Tier 1 risk-based capital(1)
Consolidated		11.26			11.94
Bank		10.62			11.56

Leverage(2)
Consolidated		8.58			8.86
Bank		8.06			8.57

(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.

Capital ratios as of June 30, 2022 decreased compared December 31, 2021 as a result of substantial average asset and risk-weighted asset growth, driven by both organic and acquisition-related activity. While pressure was placed on risk-based capital and leverage ratios due to this growth, Bancorp continues to 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.

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 adequately-capitalized. At June 30, 2022, 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.

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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 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 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 would have exceeded the well-capitalized level.

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Non-GAAP Financial Measures

The following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity (TCE), a non-GAAP disclosure. Bancorp provides the TCE per share, a non-GAAP measure, in addition to those defined by banking regulators, based on its widespread use by investors as a means to evaluate capital adequacy:

(dollars in thousands, except per share data)	June 30, 2022			December 31, 2021

Total stockholders' equity - GAAP (a)	$	747,131		$	675,869
Less: Goodwill		(202,524	)		(135,830	)
Less: Core deposit and other intangibles		(30,357	)		(5,596	)
Tangible common equity - Non-GAAP (c)	$	514,250		$	534,443

Total assets - GAAP (b)	$	7,583,105		$	6,646,025
Less: Goodwill		(202,524	)		(135,830	)
Less: Core deposit and other intangibles		(30,357	)		(5,596	)
Tangible assets - Non-GAAP (d)	$	7,350,224		$	6,504,599

Total stockholders' equity to total assets - GAAP (a/b)		9.85	%		10.17	%
Tangible common equity to tangible assets - Non-GAAP (c/d)		7.00	%		8.22	%

Total shares outstanding (e)		29,243			26,596

Book value per share - GAAP (a/e)	$	25.55		$	25.41
Tangible common equity per share - Non-GAAP (c/e)		17.59			20.09

The general decline between December 31, 2021 and June 30, 2022 for the ratios displayed in the table above is attributed mainly to unrealized losses within the AFS debt securities portfolio stemming from the significant increase in interest rates during the six months of 2022, which drove a $79 million decline in AOCI and as a result, a decline in stockholders equity. Further, acquisition-related growth served to increase goodwill and total assets, which also contributed to lower ratios.

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The 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 believes these non-GAAP disclosures 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 and are not at risk of non-performance.

(dollars in thousands)	June 30, 2022			December 31, 2021

Total loans - GAAP (a)	$	4,877,324		$	4,169,303
Less: PPP loans		(36,767	)		(140,734	)
Total non-PPP loans - Non-GAAP (b)	$	4,840,557		$	4,028,569

ACL for loans (c)	$	66,362		$	53,898
Non-performing loans (d)		9,003			7,408
Delinquent loans (e)		17,973			11,036

ACL for loans to total loans - GAAP (c/a)		1.36	%		1.29	%
ACL for loans to total loans - Non-GAAP (c/b)		1.37	%		1.34	%

Non-performing loans to total loans - GAAP (d/a)		0.18	%		0.18	%
Non-performing loans to total loans - Non-GAAP (d/b)		0.19	%		0.18	%

Delinquent loans to total loans - GAAP (e/a)		0.37	%		0.26	%
Delinquent loans to total loans - Non-GAAP (e/b)		0.37	%		0.27	%

The 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.

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2022			2021			2022			2021

Total non-interest expenses - GAAP (a)	$	44,675		$	48,177		$	100,972		$	73,150
Less: Non-recurring merger expenses		—			(18,100	)		(19,500	)		(18,500	)
Less: Amortization of investments in tax credit partnerships		(89	)		(231	)		(177	)		(262	)
Total non-interest expenses - Non-GAAP (c)	$	44,586		$	29,846		$	81,295		$	54,388

Total net interest income, FTE	$	57,244		$	41,661		$	106,189		$	79,535
Total non-interest income		21,940			15,788			41,143			29,632
Less: Gain/loss on sale of securities		—			—			—			—
Total revenue - GAAP (b)	$	79,184		$	57,449		$	147,332		$	109,167

Efficiency ratio - GAAP (a/b)		56.42	%		83.86	%		68.53	%		67.01	%
Efficiency ratio - Non-GAAP (c/b)		56.31	%		51.95	%		55.18	%		49.82	%

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

~~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.”

~~Table of Contents~~

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.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings.

Bancorp and the Bank are defendants 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~~June 30, ~~2017.~~2022.

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

July 1 - July 31
- $ - - -
August 1 - August 31
2,280 $ 35.62 - -
Sep 1 - Sep 30
2,306 $ 37.52 - -
Total
4,586 $ 36.58 - -

	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

April 1 - April 30		2,061	$	42.81			—	$	—
May 1 - May 31		9,440		54.73			—		—
June 1 - June 30		7,406		60.32			—		—
					��
Total		18,907	$	55.62			—	$	—		741,196

(1)

Shares repurchased during the three-month period ended June 30, 2022 represent shares withheld to pay taxes due on the exercise of equity grants.

~~(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 2021, nor through the first six months of ~~Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~2022. 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. ~~September 30, 2017 Quarterly Report on~~’s Form 10-Q ~~filed on November 3, 2017,~~Report for the quarterly period ended June 30, 2022 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)~~104	~~Notes to Consolidated Financial Statements~~The cover page from Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended June 30, 2022 formatted in inline XBRL and contained in Exhibit 101.

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~~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~~ August 5, 2022	By:	~~By:~~ /s/ ~~Nancy B. Davis~~James A. Hillebrand ~~Nancy B.~~ ~~Davis,~~James A. Hillebrand Chairman and CEO (Principal Executive ~~Vice President,~~Officer)




Date: August 5, 2022		/s/ T. Clay Stinnett T. Clay Stinnett EVP, Treasurer and ~~Chief~~CFO (Principal Financial ~~Officer~~ Officer)

117

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

~~incorporation or organization)~~ 1040 East Main Street, Louisville, Kentucky		~~Identification No.)~~ 40206
(Address of principal executive offices)		(Zip Code)

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

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

~~Item~~	~~Page~~

PART I – FINANCIAL INFORMATION


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~~(Loss)	5 6

	Condensed Consolidated Statements of Changes in ~~Stockholders~~’Stockholders’ Equity ~~(Unaudited)~~ ~~for the nine months ended September 30, 2017 and 2016~~	6 7

	Condensed Consolidated Statements of Cash Flows ~~(Unaudited) for the nine months ended September 30, 2017 and 2016~~	7 9

	Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~	811


Item 2.	~~Management~~’s Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.	4373

Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk~~Risk.	68115

Item 4.	Controls and ~~Procedures~~Procedures.	69115



PART II – OTHER INFORMATION

Item 1. Legal Proceedings.	115

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.	69116

Item 6. Exhibits.	116

~~Item 6.~~	~~Exhibits~~
	70
Signatures	117

Acronym or Term		Definition		Acronym or Term		Definition		Acronym or Term	Definition
ACH		Automatic Clearing House		EPS		Earnings Per Share		NCI	Non-controlling interest
AFS		Available for Sale		ETR		Effective Tax Rate		NIM	Net Interest Margin (FTE)
APIC		Additional paid-in capital		EVP		Executive Vice President		NPV	Net Present Value
ACL		Allowance for Credit Losses		FASB		Financial Accounting Standards Board		Net Interest Spread	Net Interest Spread (FTE)
AOCI		Accumulated Other Comprehensive Income		FDIC		Federal Deposit Insurance Corporation		NM	Not Meaningful
ASC		Accounting Standards Codification		FFP		Federal Funds Purchased		OAEM	Other Assets Especially Mentioned
ASU		Accounting Standards Update		FFS		Federal Funds Sold		OREO	Other Real Estate Owned
ATM		Automated Teller Machine		FFTR		Federal Funds Target Rate		PPP	SBA Paycheck Protection Program
AUM		Assets Under Management		FHA		Federal Housing Authority		PV	Present Value
Bancorp / the Company		Stock Yards Bancorp, Inc.		FHC		Financial Holding Company		PCD	Purchased Credit Deteriorated
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
CB		Commonwealth Bancshares, Inc. and Commonwealth Bank & Trust Company		GLBA		Gramm-Leach-Bliley Act		SAB	Staff Accounting Bulletin
CD		Certificate of ~~Sponsoring Organizations~~Deposit		GNMA		Government National Mortgage Association		SAR	Stock Appreciation Right
CDI		Core Deposit Intangible		HELOC		Home Equity Line of Credit		SBA	Small Business Administration
CECL		Current Expected Credit Loss (ASC-326)		HTM		Held to Maturity		SEC	Securities and Exchange Commission
CEO		Chief Executive Officer		ITM		Interactive Teller Machine		SOFR	Secured Overnight Financing Right
CFO		Chief Financial Officer		KB		Kentucky Bancshares, Inc. and Kentucky Bank		SSUAR	Securities Sold Under Agreements to Repurchase
CLI		Customer list intangible		KSB		King Bancorp, Inc. and King Southern Bank		SVP	Senior Vice President
COVID-19		Coronavirus Disease - 2019		LFA		Landmark Financial Advisors, LLC		TBA	To Be Annouced
CRA		Community Reinvestment Act ~~of 1977~~		LIBOR		London Interbank Offered Rate		TBOC	The Bank Oldham County
CRE		Commercial Real Estate		Loans		Loans and Leases		TCE	Tangible Common Equity
Dodd-Frank Act		The Dodd-Frank Wall Street Reform and Consumer Protection Act
	~~EPS~~MBS		~~Earnings Per Share~~Mortgage Backed Securities		TDR		Troubled Debt Restructuring
~~FASB~~DTA		~~Financial Accounting Standards Board~~Deferred Tax Asset		MSA		Metropolitan Statistical Area		TPS	Trust Preferred Securities
~~FDIC~~DTL	~~Federal Deposit Insurance Corporation~~
~~FHA~~Deferred Tax Liability	~~Federal Housing Administration~~
~~FHLB~~MSRs	~~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
DCF		Discounted Cash Flow		NASDAQ		The NASDAQ Stock Market, LLC		WM&T	Wealth Management and Trust

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~ CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) **For the three and six months ended June 30, 2022 and 2021 (in thousands, except per share data)**
~~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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~
~~Consolidated Statements of Cash Flows (Unaudited)~~
~~For the nine months ended September 30, 2017 and 2016~~
~~(In thousands)~~

	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

	2022			2021
Cash flows from operating activities:
Net income	$	34,844		$	26,894
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		2,079			2,672
Depreciation, amortization and accretion, net		10,031			4,888
Deferred income tax expense		4,771			2,307
Gain on sale of mortgage loans held for sale		(504	)		(2,118	)
Origination of mortgage loans held for sale		(79,643	)		(119,431	)
Proceeds from sale of mortgage loans held for sale		82,275			141,747
Bank owned life insurance income		(536	)		(367	)
Loss on the disposal of premises and equipment		28			41
Gain on the sale of other real estate owned		0			(47	)
Stock compensation expense		2,048			2,263
Excess tax benefit from share-based compensation arrangements		(1,112	)		(1,150	)
Net change in accrued interest receivable and other assets		(4,747	)		(4,420	)
Net change in accrued interest payable and other liabilities		(27,776	)		(6,105	)
Net cash provided by operating activities		21,758			47,174
Cash flows from investing activities:
Purchases of available for sale debt securities		(85,659	)		(204,228	)
Proceeds from sales of acquired available for sale debt securities		2,111			91,094
Proceeds from maturities and paydowns of available for sale debt securities		78,409			80,122
Purchases of held to maturity debt securities		(459,183	)		0
Proceeds from maturities and paydowns of held to maturity debt securities		159,119			0
Proceeds from redemption of Federal Home Loan Bank stock		0			3,881
Net change in non-PPP loans		(180,130	)		(158,253	)
Net change in PPP loans		103,967			235,864
Purchases of premises and equipment		(13,563	)		(1,752	)
Other investment activities		0			(3,965	)
Proceeds from sales of other real estate owned		56			261
Cash from acquisition, net of cash paid		349,456			24,981
Net cash provided by (used in) investing activities		(45,417	)		68,005
Cash flows from financing activities:
Net change in deposits		(358,526	)		232,255
Net change in securities sold under agreements to repurchase and federal funds purchased		18,223			4,086
Proceeds from Federal Home Loan Bank advances		0			20,000
Repayments of Federal Home Loan Bank advances		0			(132,745	)
Repayment of acquired line of credit		(3,200	)		0
Share repurchases related to compensation plans		(3,559	)		(3,166	)
Cash disbursements to non-controlling interest		(208	)		0
Cash dividends paid		(16,394	)		(13,361	)
Net cash (used in) provided by financing activities		(363,664	)		107,069
Net change in cash and cash equivalents		(387,323	)		222,248
Beginning cash and cash equivalents		961,192			317,945
Ending cash and cash equivalents	$	573,869		$	540,193

For the six months ended June 30,
Supplemental cash flow information:	2022		2021
Interest paid	$	2,147	$	2,971
Income taxes paid, net of refunds		7,989		13,359
Cash paid for operating lease liabilities		1,800		1,190
Supplemental non-cash activity:
Unfunded commitments in tax credit investments	$	6,907	$	5,766
Due to broker		0		1,985
Dividends payable to stockholders		182		175
Loans transferred to OREO		445		30

Liabilities assumed in conjunction with acquisition:
Fair value of assets acquired	$	1,403,509	$	1,389,327
Consideration paid in acquisition		30,994		28,276
Common stock issued in acquisition		133,825		204,670
Non-controlling interest of acquired entity		3,094		0
Total consideration paid		167,913		232,946
Liabilities assumed	$	1,235,596	$	1,156,381

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				Provisional Period		As Recorded
(in thousands)	By CB			Adjustments (1)				Adjustments (1)		by Bancorp
Assets aquired:
Cash and due from banks	$	380,450		$	0			$	—	$	380,450
Mortgage loans held for sale		3,559			0				—		3,559
Available for sale debt securities (2)		247,209			(416	)	a		—		246,793
Federal Home Loan Bank stock, at cost		4,436			0				—		4,436
Loans		645,551			(13,147	)	b		—		632,404
Allowance for credits losses on loans		(16,102	)		6,152		c		—		(9,950	)
Net loans		629,449			(6,995	)			—		622,454
Premises and equipment, net		28,784			4,009		d		—		32,793
Accrued interest receivable		1,973			0				—		1,973
Goodwill		5,412			(5,412	)	e		—		—
Core deposit intangible		0			12,724		f		—		12,724
Customer list intangibles		0			14,360		g		—		14,360
Mortgage servicing rights		9,387			3,289		h		—		12,676
Deferred income taxes, net		0			(3,727	)	i		—		(3,727	)
Other assets		9,389			(1,065	)	j		—		8,324
Total assets acquired	$	1,320,048		$	16,767			$	-	$	1,336,815

Liabilities assumed:
Deposits:
Non-interest bearing	$	302,098		$	0			$	—	$	302,098
Interest bearing		818,334			371		k		—		818,705
Total deposits		1,120,432			371				—		1,120,803
Securities sold under agreements to repurchase		66,220			0				—		66,220
Subordinated debentures		26,806			(794	)	l		—		26,012
Line of credit		3,200			0				—		3,200
Accrued interest payable		243			0				—		243
Other liabilities		17,822			1,296		m		—		19,118
Total liabilities assumed		1,234,723			873				—		1,235,596
Net assets acquired	$	85,325		$	15,894			$	-	$	101,219

Consideration for common stock										$	133,825
Cash consideration paid											30,994
Noncontrolling interest of acquired entity											3,094
Total consideration										$	167,913

Goodwill										$	66,694

(in thousands)

Fair value adjustment - acquired non PCD loans	$	(9,216	)
Fair value adjustment - acquired PCD loans		(4,094	)
Eliminate unrecognized loan fees on acquired loans and fair value hedge		163
Net loan fair value adjustments	$	(13,147	)

(in thousands)

Reversal of historical CB allowance for credit losses on loans	$	(16,102	)
Estimate of lifetime credit losses for PCD loans		9,950
Net change in allowance for credit losses	$	(6,152	)

(in thousands)	Three months ended June 30, 2022			Three months ended June 30, 2021

Net interest income	$	56,984		$	55,595
Provision for credit losses		(200	)		(3,167	)
Non-interest income		21,940			29,396
Non-interest expense		44,675			52,563
Income before taxes		34,449			35,595
Income tax expense		7,547			6,735
Net income		26,902			28,860
Less net income attributed to noncontrolling interest		108			94
Net income available to stockholders	$	26,794		$	28,766

Earnings per share
Basic	$	0.92		$	0.99
Diluted		0.91			0.98

Basic weighted average shares outstanding		29,131			29,049
Diluted weighted average shares outstanding		29,346			29,288

(in thousands)	Six months ended June 30, 2022			Six months ended June 30, 2021

Net interest income	$	110,777		$	111,106
Provision for credit losses (1)		(2,350	)		(4,242	)
Non-interest income		44,083			59,430
Non-interest expense (2)		91,964			102,993
Income before taxes		65,246			71,785
Income tax expense		14,014			13,676
Net income		51,232			58,109
Less net income attributed to noncontrolling interest		159			174
Net income available to stockholders	$	51,073		$	57,935

Earnings per share
Basic	$	1.76		$	2.00
Diluted		1.74			1.98

Basic weighted average shares outstanding		29,094			29,022
Diluted weighted average shares outstanding		29,355			29,263

(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

(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)	Carrying		Unrecognized
June 30, 2022	value		Gains		Losses			Fair value

U.S. Treasury and other U.S. Government obligations	$	219,574	$	0	$	(4,559	)	$	215,015
Government sponsored enterprise obligations		27,847		22		(665	)		27,204
Mortgage backed securities - government agencies		238,028		1		(19,402	)		218,627
Total held to maturity debt securities	$	485,449	$	23	$	(24,626	)	$	460,846

(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

	AFS Debt Securities				HTM Debt Securities
(in thousands)	Amortized cost		Fair value		Carrying value		Fair value

Due within one year	$	9,518	$	9,481	$	16,029	$	15,815
Due after one year but within five years		158,324		151,417		204,196		199,369
Due after five years but within 10 years		58,836		53,826		26,451		26,290
Due after 10 years		170,886		159,793		745		745
Mortgage backed securities - government agencies		857,086		765,522		238,028		218,627
Total available for sale debt securities	$	1,254,650	$	1,140,039	$	485,449	$	460,846

	AFS Debt Securities
	Less than 12 months					12 months or more					Total
(in thousands)	*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
June 30, 2022	*value*		*losses*			*value*		*losses*			*value*		*losses*

U.S. Treasury and other U.S.Government obligations	$	115,533	$	(6,314	)	$	0	$	0		$	115,533	$	(6,314	)
Government sponsored enterprise obligations		80,629		(3,574	)		8,102		(302	)		88,731		(3,876	)
Mortgage-backed securities - government agencies		472,323		(49,162	)		273,568		(42,647	)		745,891		(91,809	)
Obligations of states andpolitical subdivisions		126,114		(13,098	)		823		(183	)		126,937		(13,281	)
Other		6,014		(207	)		0		0			6,014		(207	)
Total AFS debt securities	$	800,613	$	(72,355	)	$	282,493	$	(43,132	)	$	1,083,106	$	(115,487	)

December 31, 2021

U.S. Treasury and other U.S.Government obligations	$	122,501	$	(1,252	)	$	0	$	0		$	122,501	$	(1,252	)
Government sponsored enterprise obligations		23,789		(223	)		447		(13	)		24,236		(236	)
Mortgage-backed securities - government agencies		615,130		(10,027	)		102,637		(3,127	)		717,767		(13,154	)
Obligations of states and political subdivisions		46,493		(686	)		484		(16	)		46,977		(702	)
Other		957		(18	)		0		0			957		(18	)
Total AFS debt securities	$	808,870	$	(12,206	)	$	103,568	$	(3,156	)	$	912,438	$	(15,362	)

(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

	CB			KB
(in thousands)	March 7, 2022			May 31, 2021

Purchase price of PCD loans at acquisition	$	88,549		$	32,765
Allowance for credit losses at acquisition		(9,950	)		(6,757	)
Non-credit discount at acquisition		(4,094	)		(735	)
Fair value of PCD loans at acquisition	$	74,505		$	25,273

(in thousands)	Beginning		Initial ACL on Loans Purchased with Credit		Provision for Credit Losses								Ending
Six Months Ended June 30, 2021	Balance		Deterioration		on Loans			Charge-offs			Recoveries		Balance

Commercial real estate - non-owner occupied	$	19,396	$	1,491	$	1,890		$	(3,065	)	$	35	$	19,747
Commercial real estate - owner occupied		6,983		2,112		(102	)		0			555		9,548
Total commercial real estate		26,379		3,603		1,788			(3,065	)		590		29,295

Commercial and industrial - term		8,970		1,022		(97	)		(169	)		22		9,748
Commercial and industrial - lines of credit		3,614		1,755		(129	)		0			0		5,240
Total commercial and industrial		12,584		2,777		(226	)		(169	)		22		14,988

Residential real estate - owner occupied		3,389		142		859			(43	)		3		4,350
Residential real estate - non-owner occupied		1,818		88		1,514			0			2		3,422
Total residential real estate		5,207		230		2,373			(43	)		5		7,772

Construction and land development		6,119		0		(929	)		0			3		5,193
Home equity lines of credit		895		147		187			0			1		1,230
Consumer		340		0		326			(287	)		193		572
Leases		261		0		(29	)		0			0		232
Credit cards		135		0		7			0			0		142
Total	$	51,920	$	6,757	$	3,497		$	(3,564	)	$	814	$	59,424

	Non-accrual Loans						Past Due 90-Days-
(in thousands)	*With No*		*Total*		*Troubled Debt*		*or-More and Still*
June 30, 2022	*Recorded ACL*		*Non-accrual Loans*		*Restructurings (1)*		*Accruing Interest*

Commercial real estate - non-owner occupied	$	0	$	647	$	0	$	27
Commercial real estate - owner occupied		298		1,593		0		528
Total commercial real estate		298		2,240		0		555

Commercial and industrial - term		419		1,023		0		224
Commercial and industrial - PPP		0		0		0		33
Commercial and industrial - lines of credit		0		164		0		49
Total commercial and industrial		419		1,187		0		306

Residential real estate - owner occupied		1,081		3,348		0		0
Residential real estate - non-owner occupied		0		233		0		180
Total residential real estate		1,081		3,581		0		180

Construction and land development		0		0		0		0
Home equity lines of credit		0		378		0		40
Consumer		0		441		0		75
Leases		0		0		0		0
Credit cards		0		0		0		20
Total	$	1,798	$	7,827	$	0	$	1,176

(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

(in thousands)			Accounts Receivable /						ACL
June 30, 2022	Real Estate		Equipment		Other		Total		Allocation

Commercial real estate - non-owner occupied	$	4,216	$	0	$	0	$	4,216	$	588
Commercial real estate - owner occupied		3,601		0		0		3,601		851
Total commercial real estate		7,817		0		0		7,817		1,439

Commercial and industrial - term		537		485		284		1,306		354
Commercial and industrial - lines of credit		2,008		1,032		0		3,040		770
Total commercial and industrial		2,545		1,517		284		4,346		1,124

Residential real estate - owner occupied		4,029		0		0		4,029		370
Residential real estate - non-owner occupied		438		0		0		438		116
Total residential real estate		4,467		0		0		4,467		486

Construction and land development		3,852		0		0		3,852		419
Home equity lines of credit		378		0		0		378		0
Consumer		0		0		229		229		19
Leases		0		0		0		0		0
Credit cards		0		0		0		0		0
Total collateral dependent loans	$	19,059	$	1,517	$	513	$	21,089	$	3,487

(in thousands)			30-59 days		60-89 days		90 or more		Total		Total
June 30, 2022	Current		Past Due		Past Due		Days Past Due		Past Due		Loans

Commercial real estate - non-owner occupied	$	1,393,506	$	3,303	$	308	$	213	$	3,824	$	1,397,330
Commercial real estate - owner occupied		785,831		446		624		658		1,728		787,559
Total commercial real estate		2,179,337		3,749		932		871		5,552		2,184,889

Commercial and industrial - term		665,752		600		280		706		1,586		667,338
Commercial and industrial - term - PPP		34,421		2,236		77		33		2,346		36,767
Commercial and industrial - lines of credit		421,888		917		176		85		1,178		423,066
Total commercial and industrial		1,122,061		3,753		533		824		5,110		1,127,171

Residential real estate - owner occupied		529,094		1,945		410		2,128		4,483		533,577
Residential real estate - non-owner occupied		292,839		692		46		275		1,013		293,852
Total residential real estate		821,933		2,637		456		2,403		5,496		827,429

Construction and land development		371,869		328		0		0		328		372,197
Home equity lines of credit		191,475		258		184		185		627		192,102
Consumer		136,447		395		84		352		831		137,278
Leases		14,611		0		0		0		0		14,611
Credit cards		21,618		4		5		20		29		21,647
Total	$	4,859,351	$	11,124	$	2,194	$	4,655	$	17,973	$	4,877,324

(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