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:

For the three and nine months ended September 30, 2022 and 2021 (in thousands)

For the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share data)

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 CB 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 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 nine months ended September 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 September 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 prior to adoption. 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~~’s allowance calculation includes allocations to~~ 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.

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 ~~estimates.~~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 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 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 nine in Jefferson County, four in Shelby County, and two 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 $11.9 million and $26.8 million for the three and nine months ended September 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 nine month periods ended September 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 nine months ended September 30, 2022. Excludes $7.4 million in merger related credit loss expense for the nine months ended September 30, 2021, respectively.

(2) - Excludes $24.1 million in merger expenses for the nine months ended September 30, 2022. Excludes $525,000 and $18.5 million in merger expenses for the three and nine months ended September 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 $11.3 million and $15.7 million and for the three and nine months ended September 30, 2021, respectively.

(1) - Excludes $7.4 million in merger related credit loss expense for the nine months ended September 30, 2021.

(2) - Excludes $18.5 million in pre-tax merger expenses for the nine months ended September 30, 2021.

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. No debt securities were noclassified as HTM at December 31, 2021.

All investment securities classified as ~~held to maturity~~HTM by Bancorp as of September 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, no ACL has been recorded for Bancorp’s HTM securities as of September 30, 2022. Further, as of September 30, 2022, none 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 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 September 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 $731,000 at September 30, 2022, respectively, and was included in 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, three 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.

Securities with a carrying value of ~~these~~$972 million and $879 million were pledged ~~securities was approximately $329.7 million~~ at September 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 September 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, no allowance or impairment was recorded with respect to investment securities as of September 30, 2022.

~~Stock Yards Bancorp, inc.~~Debt securities with unrealized and ~~subsidiary~~unrecognized losses at September 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 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 553 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 securities to be other-than-temporarily impaired at~~ September 30, ~~2017.~~

~~FHLB stock~~ 2022 and ~~other~~December 31, 2021, respectively. There were no credit related factors underlying unrealized and unrecognized losses on debt securities ~~are investments held by Bancorp which are not readily marketable~~ at September 30, 2022 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.

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(4)

Loans and Allowance for Credit Losses on Loans

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

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

Commercial real estate - non-owner occupied	$	1,415,180	$	1,128,244
Commercial real estate - owner occupied		819,727		678,405
Total commercial real estate		2,234,907		1,806,649

Commercial and industrial - term		751,193		596,710
Commercial and industrial - term - PPP		19,469		140,734
Commercial and industrial - lines of credit		419,048		370,312
Total commercial and industrial		1,189,710		1,107,756

Residential real estate - owner occupied		557,638		400,695
Residential real estate - non-owner occupied		302,936		281,018
Total residential real estate		860,574		681,713

Construction and land development		414,632		299,206
Home equity lines of credit		199,485		138,976
Consumer		138,843		104,294
Leases		13,959		13,622
Credits cards		20,767		17,087
Total loans (1)	$	5,072,877	$	4,169,303

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

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.

~~(3)~~

~~Loans~~

C~~omposition~~Accrued interest on loans, which is excluded from the amortized cost of loans, ~~net of deferred fees~~totaled $13 million and ~~costs, by primary loan portfolio class follows:~~$11 million at September 30, 2022 and December 31,2021, respectively, and was included in the consolidated balance sheets.

(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

Loans with carrying amounts of $2.72 billion and $2.20 billion were pledged to secure FHLB borrowing capacity at September 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 $73 million and $54 million as of September 30, 2022 and December 31, 2021, respectively.

PCD Loans

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.

Table of Contents

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:

	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

~~Stock Yards Bancorp, inc.~~At September 30, 2022, the book balance of PCD loans acquired as a result of the CB and ~~subsidiary~~KB acquisitions totaled $66 million and $13 million, respectively. Interest income recognized on loans classified as PCD totaled $1.1 million and $341,000 for the three month periods ended September 30, 2022 and 2021, respectively. For the nine month periods ended September 30, 2022 and 2021, interest income recognized on loans classified as PCD totaled $4.0 million and $450,000, respectively.

Table of Contents

Allowance for Credit Losses on Loans

The table below reflects activity in the ACL related to loans:

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

Commercial real estate - non-owner occupied	$	20,723	$	-	$	502		$	(37	)	$	-	$	21,188
Commercial real estate - owner occupied		9,842		-		(227	)		-			153		9,768
Total commercial real estate		30,565		-		275			(37	)		153		30,956

Commercial and industrial - term		12,342		-		2,055			(466	)		232		14,163
Commercial and industrial - lines of credit		5,000		-		203			(99	)		-		5,104
Total commercial and industrial		17,342		-		2,258			(565	)		232		19,267

Residential real estate - owner occupied		5,988		-		423			(17	)		2		6,396
Residential real estate - non-owner occupied		3,190		-		146			-			9		3,345
Total residential real estate		9,178		-		569			(17	)		11		9,741

Construction and land development		6,214		-		731			-			-		6,945
Home equity lines of credit		1,521		-		105			-			-		1,626
Consumer		1,113		-		162			(307	)		148		1,116
Leases		221		-		(10	)		-			-		211
Credit cards		208		-		13			-			-		221
Total	$	66,362	$	-	$	4,103		$	(926	)	$	544	$	70,083

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

Commercial real estate - non-owner occupied	$	15,960	$	3,508	$	1,744		$	(37	)	$	13	$	21,188
Commercial real estate - owner occupied		9,595		2,121		(2,103	)		(41	)		196		9,768
Total commercial real estate		25,555		5,629		(359	)		(78	)		209		30,956

Commercial and industrial - term		8,577		1,358		3,796			(594	)		1,026		14,163
Commercial and industrial - lines of credit		4,802		1,874		(1,437	)		(135	)		-		5,104
Total commercial and industrial		13,379		3,232		2,359			(729	)		1,026		19,267

Residential real estate - owner occupied		4,316		590		1,458			(30	)		62		6,396
Residential real estate - non-owner occupied		3,677		-		(349	)		-			17		3,345
Total residential real estate		7,993		590		1,109			(30	)		79		9,741

Construction and land development		4,789		419		1,809			(72	)		-		6,945
Home equity lines of credit		1,044		2		580			-			-		1,626
Consumer		772		78		565			(796	)		497		1,116
Leases		204		-		7			-			-		211
Credit cards		162		-		12			-			47		221
Total	$	53,898	$	9,950	$	6,082		$	(1,705	)	$	1,858	$	70,083

Table of Contents

(in thousands)	Beginning		Initial Allowance		Provision for Credit Losses								Ending
Three Months Ended September 30, 2021	Balance		on PCD Loans		on Loans			Charge-offs			Recoveries		Balance

Commercial real estate - non-owner occupied	$	19,747	$	-	$	(3,582	)	$	-		$	6	$	16,171
Commercial real estate - owner occupied		9,548		-		2,131			(1,361	)		-		10,318
Total commercial real estate		29,295		-		(1,451	)		(1,361	)		6		26,489

Commercial and industrial - term		9,748		-		253			(240	)		5		9,766
Commercial and industrial - lines of credit		5,240		-		(328	)		-			-		4,912
Total commercial and industrial		14,988		-		(75	)		(240	)		5		14,678

Residential real estate - owner occupied		4,350		-		420			(340	)		27		4,457
Residential real estate - non-owner occupied		3,422		-		106			-			2		3,530
Total residential real estate		7,772		-		526			(340	)		29		7,987

Construction and land development		5,193		-		45			-			-		5,238
Home equity lines of credit		1,230		-		(173	)		-			-		1,057
Consumer		572		-		145			(274	)		284		727
Leases		232		-		(38	)		-			-		194
Credit cards		142		-		21			-			-		163
Total	$	59,424	$	-	$	(1,000	)	$	(2,215	)	$	324	$	56,533

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

Commercial real estate - non-owner occupied	$	19,396	$	1,491	$	(1,692	)	$	(3,065	)	$	41	$	16,171
Commercial real estate - owner occupied		6,983		2,112		2,029			(1,361	)		555		10,318
Total commercial real estate		26,379		3,603		337			(4,426	)		596		26,489

Commercial and industrial - term		8,970		1,022		156			(409	)		27		9,766
Commercial and industrial - lines of credit		3,614		1,755		(457	)		-			-		4,912
Total commercial and industrial		12,584		2,777		(301	)		(409	)		27		14,678

Residential real estate - owner occupied		3,389		142		1,279			(383	)		30		4,457
Residential real estate - non-owner occupied		1,818		88		1,620			-			4		3,530
Total residential real estate		5,207		230		2,899			(383	)		34		7,987

Construction and land development		6,119		-		(884	)		-			3		5,238
Home equity lines of credit		895		147		14			-			1		1,057
Consumer		340		-		471			(561	)		477		727
Leases		261		-		(67	)		-			-		194
Credit cards		135		-		28			-			-		163
Total	$	51,920	$	6,757	$	2,497		$	(5,779	)	$	1,138	$	56,533

Table of Contents

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:

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

Commercial real estate - non-owner occupied	$	—	$	620	$	—	$	—
Commercial real estate - owner occupied		2,021		3,227		—		—
Total commercial real estate		2,021		3,847		—		—

Commercial and industrial - term		403		1,474		—		—
Commercial and industrial - PPP		42		42		—		—
Commercial and industrial - lines of credit		1,479		1,620		—		—
Total commercial and industrial		1,924		3,136		—		—

Residential real estate - owner occupied		511		2,468		—		—
Residential real estate - non-owner occupied		—		227		—		—
Total residential real estate		511		2,695		—		—

Construction and land development		—		—		—		—
Home equity lines of credit		—		524		—		—
Consumer		—		366		—		—
Leases		—		—		—		—
Credit cards		—		12		—		32
Total	$	4,456	$	10,580	$	—	$	32

(1) Does not include TDRs captured in the non-accrual column.

	Non-accrual Loans						Past Due 90-Days-
(in thousands)	*With No*		*Total*		*Troubled Debt*		*or-More and Still*
December 31, 2021	*Recorded ACL*		*Non-accrual Loans*		*Restructurings (1)*		*Accruing Interest*

Commercial real estate - non-owner occupied	$	486	$	720	$	—	$	—
Commercial real estate - owner occupied		665		1,748		—		—
Total commercial real estate		1,151		2,468		—		—

Commercial and industrial - term		419		670		12		—
Commercial and industrial - PPP		—		—		—		592
Commercial and industrial - lines of credit		—		228		—		56
Total commercial and industrial		419		898		12		648

Residential real estate - owner occupied		805		1,997		—		36
Residential real estate - non-owner occupied		—		293		—		—
Total residential real estate		805		2,290		—		36

Construction and land development		—		—		—		—
Home equity lines of credit		—		646		—		—
Consumer		—		410		—		—
Leases		—		—		—		—
Credit cards		—		—		—		—
Total	$	2,375	$	6,712	$	12	$	684

(1) Does not include TDRs captured in the non-accrual column.

Table of Contents

For the three and nine month periods ended September 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 nine month periods ended September 30, 2022 and 2021, no 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:

(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

Construction

and development

Commercial

excluding

and

undeveloped

Undeveloped

Real estate

industrial

land

land

mortgage

Consumer

Total

Allowance for loan losses

At December 31, 2016
$ 10,483 $ 1,923 $ 684 $ 10,573 $ 344 $ 24,007
Provision (credit)
1,518 9 (85 ) 54 154 1,650
Charge-offs
(770 ) - - (45 ) (418 ) (1,233 )
Recoveries
128 - - 98 298 524
At September 30, 2017
$ 11,359 $ 1,932 $ 599 $ 10,680 $ 378 $ 24,948

Allowance for loans collectively evaluated for impairment
$ 10,705 $ 1,932 $ 599 $ 10,668 $ 322 $ 24,226

Allowance for loans individually evaluated for impairment
$ 654 $ - $ - $ 12 $ 56 $ 722

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

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

Commercial real estate - non-owner occupied	$	6,734	$	-	$	-	$	6,734	$	998
Commercial real estate - owner occupied		5,148		-		-		5,148		849
Total commercial real estate		11,882		-		-		11,882		1,847

Commercial and industrial - term		342		819		536		1,697		390
Commercial and industrial - lines of credit		1,933		1,673		929		4,535		888
Total commercial and industrial		2,275		2,492		1,465		6,232		1,278

Residential real estate - owner occupied		3,029		-		-		3,029		363
Residential real estate - non-owner occupied		424		-		-		424		116
Total residential real estate		3,453		-		-		3,453		479

Construction and land development		613		-		-		613		9
Home equity lines of credit		524		-		-		524		-
Consumer		-		-		266		266		19
Leases		-		-		-		-		-
Credit cards		-		-		-		-		-
Total collateral dependent loans	$	18,747	$	2,492	$	1,731	$	22,970	$	3,632

			Accounts
(in thousands)			*Receivable /*						*ACL*
December 31, 2021	*Real Estate*		*Equipment*		*Other*		*Total*		*Allocation*

Commercial real estate - non-owner occupied	$	720	$	-	$	-	$	720	$	-
Commercial real estate - owner occupied		7,652		-		-		7,652		1,652
Total commercial real estate		8,372		-		-		8,372		1,652

Commercial and industrial - term		-		598		-		598		-
Commercial and industrial - lines of credit		-		200		-		200		-
Total commercial and industrial		-		798		-		798		-

Residential real estate - owner occupied		1,997		-		-		1,997		-
Residential real estate - non-owner occupied		502		-		-		502		116
Total residential real estate		2,499		-		-		2,499		116

Construction and land development		-		-		-		-		-
Home equity lines of credit		646		-		-		646		-
Consumer		-		-		247		247		-
Leases		-		-		-		-		-
Credit cards		-		-		-		-		-
Total collateral dependent loans	$	11,517	$	798	$	247	$	12,562	$	1,768

Table of Contents

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

(in thousands)

Type of loan

Construction

and development

Commercial

excluding

and

undeveloped

Undeveloped

Real estate

December 31, 2016

industrial

land

land

mortgage

Consumer

Total

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

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

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

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

Construction

and development

Commercial

excluding

and

undeveloped

Undeveloped

Real estate

industrial

land

land

mortgage

Consumer

Total

Allowance for loan losses

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

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

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

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

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

Commercial real estate - non-owner occupied	$	1,413,186	$	133	$	1,653	$	208	$	1,994	$	1,415,180
Commercial real estate - owner occupied		819,078		415		117		117		649		819,727
Total commercial real estate		2,232,264		548		1,770		325		2,643		2,234,907

Commercial and industrial - term		749,897		204		409		683		1,296		751,193
Commercial and industrial - term - PPP		17,042		2,343		42		42		2,427		19,469
Commercial and industrial - lines of credit		417,285		1,639		2		122		1,763		419,048
Total commercial and industrial		1,184,224		4,186		453		847		5,486		1,189,710

Residential real estate - owner occupied		554,406		1,264		436		1,532		3,232		557,638
Residential real estate - non-owner occupied		302,408		430		-		98		528		302,936
Total residential real estate		856,814		1,694		436		1,630		3,760		860,574

Construction and land development		414,589		43		—		—		43		414,632
Home equity lines of credit		198,993		271		67		154		492		199,485
Consumer		138,220		302		75		246		623		138,843
Leases		13,959		—		—		—		—		13,959
Credit cards		20,731		2		2		32		36		20,767
Total	$	5,059,794	$	7,046	$	2,803	$	3,234	$	13,083	$	5,072,877

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

●

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

●

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

(in thousands)			30-59 days		60-89 days		90 or more		Total		Total
December 31, 2021	Current		Past Due		Past Due		Days Past Due		Past Due		Loans

Commercial real estate - non-owner occupied	$	1,127,448	$	-	$	81	$	715	$	796	$	1,128,244
Commercial real estate - owner occupied		677,231		360		327		487		1,174		678,405
Total commercial real estate		1,804,679		360		408		1,202		1,970		1,806,649

Commercial and industrial - term		595,070		1,032		44		564		1,640		596,710
Commercial and industrial - term - PPP		139,718		128		296		592		1,016		140,734
Commercial and industrial - lines of credit		369,963		271		22		56		349		370,312
Total commercial and industrial		1,104,751		1,431		362		1,212		3,005		1,107,756

Residential real estate - owner occupied		397,415		1,399		137		1,744		3,280		400,695
Residential real estate - non-owner occupied		280,257		403		258		100		761		281,018
Total residential real estate		677,672		1,802		395		1,844		4,041		681,713

Construction and land development		299,206		—		—		—		—		299,206
Home equity lines of credit		138,141		279		47		509		835		138,976
Consumer		103,109		724		102		359		1,185		104,294
Leases		13,622		—		—		—		—		13,622
Credit cards		17,087		—		—		—		—		17,087
Total	$	4,158,267	$	4,596	$	1,314	$	5,126	$	11,036	$	4,169,303

Table of Contents

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

●

~~Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk~~ is primarily dependent upon the financial strength of the borrower, and can be affected by market conditions and time to develop land for ultimate sale. Credit risk is also affected by availability of development financing to the extent such financing is not being provided by Bancorp.

●

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

●

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

Bancorp has loans that were acquired for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. The carrying amount of those loans is included in the balance sheet amounts of loans at ~~September 30, 2017 and December 31, 2016. Changes in the fair value adjustment for acquired impaired loans are shown in the following table:~~

(in thousands)

Accretable
discount

Non-
accretable
discount

Balance at December 31, 2015
$ 3 $ 189

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

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

~~Table of Contents~~

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

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

Unpaid

Average

(in thousands)

Recorded

principal

Related

recorded

September 30, 2017

investment

balance

allowance

investment

Loans with no related allowance recorded:

Commercial and industrial
$ 350 $ 540 $ - $ 228
Construction and development, excluding undeveloped land
737 907 - 533
Undeveloped land
474 506 - 413

Real estate mortgage

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

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

Loans with an allowance recorded:

Commercial and industrial
$ 1,787 $ 2,321 $ 654 $ 2,343
Construction and development, excluding undeveloped land
- - - -
Undeveloped land
- - - 60

Real estate mortgage

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

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

Total:

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

Real estate mortgage

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

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

~~Table of Contents~~

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

Unpaid

Average

(in thousands)

Recorded

principal

Related

recorded

December 31, 2016

investment

balance

allowance

investment

Loans with no related allowance recorded:

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

Real estate mortgage

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

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

Loans with an allowance recorded:

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

Real estate mortgage

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

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

Total:

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

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

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

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

~~Table of Contents~~

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

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

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

(in thousands)

September 30, 2017

December 31, 2016

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

Real estate mortgage

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

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

In 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.

~~Table of Contents~~

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

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

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

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

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

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

Recorded

(in thousands)

90 or more

investment

days past

> 90 days

30-59 days

60-89 days

due (includes

Total

Total

and

September 30, 2017

Current

past due

past due

non-accrual)

past due

loans

accruing

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

Real estate mortgage

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

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

December 31, 2016

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

Real estate mortgage

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

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

~~Table of Contents~~

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

Loan Risk Ratings

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

●

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

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

●

~~Substandard:~~

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

●

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

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

●

~~Doubtful:~~

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

2039

Table of Contents

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 September 30, 2022, the risk rating of loans based on year of origination was as follows:

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

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	293,231	$	384,606	$	285,261	$	114,927	$	77,978	$	166,586	$	21,887	$	1,344,476
OAEM		-		5,290		2,317		18,793		-		5,464		5,850		37,714
Substandard		-		298		4,926		19,789		-		7,257		100		32,370
Substandard non-performing		-		-		-		-		-		620		-		620
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estate non-owner occupied	$	293,231	$	390,194	$	292,504	$	153,509	$	77,978	$	179,927	$	27,837	$	1,415,180

Commercial real estate - owner occupied:
Risk rating
Pass	$	118,302	$	209,793	$	199,078	$	103,352	$	70,931	$	82,084	$	11,496	$	795,036
OAEM		2,896		1,797		4,571		735		717		101		510		11,327
Substandard		-		1,160		-		6,948		1,958		71		-		10,137
Substandard non-performing		1,538		1,213		-		359		-		117		-		3,227
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estate owner occupied	$	122,736	$	213,963	$	203,649	$	111,394	$	73,606	$	82,373	$	12,006	$	819,727

Commercial and industrial - term:
Risk rating
Pass	$	272,982	$	252,324	$	101,275	$	41,359	$	38,690	$	31,500	$	-	$	738,130
OAEM		3,968		3,166		-		345		1,809		-		-		9,288
Substandard		185		-		-		1,615		136		365		-		2,301
Substandard non-performing		464		167		581		101		30		131		-		1,474
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - term	$	277,599	$	255,657	$	101,856	$	43,420	$	40,665	$	31,996	$	-	$	751,193

Commercial and industrial - PPP
Risk rating
Pass	$	-	$	14,836	$	4,591	$	-	$	-	$	-	$	-	$	19,427
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		14		28		-		-		-		-		42
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - PPP	$	-	$	14,850	$	4,619	$	-	$	-	$	-	$	-	$	19,469

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

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

(in thousands)

Substandard

Total

September 30, 2017

Pass

OAEM

Substandard

non-performing

Doubtful

loans

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

Real estate mortgage

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

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

December 31, 2016

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

Real estate mortgage

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

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

Table of Contents

(continued)

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

Commercial and industrial - lines of credit
Risk rating
Pass	$	43,413	$	13,746	$	1,118	$	9,941	$	1,268	$	1,159	$	336,534	$	407,179
OAEM		-		-		-		-		-		391		6,601		6,992
Substandard		-		-		929		1,933		-		-		395		3,257
Substandard non-performing		-		-		-		964		-		-		656		1,620
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - lines of credit	$	43,413	$	13,746	$	2,047	$	12,838	$	1,268	$	1,550	$	344,186	$	419,048

Residential real estate - owner occupied
Risk rating
Pass	$	144,412	$	191,838	$	99,108	$	29,820	$	15,527	$	73,156	$	-	$	553,861
OAEM		365		96		-		76		-		-		-		537
Substandard		19		-		10		-		142		601		-		772
Substandard non-performing		63		220		73		692		123		1,297		-		2,468
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - owner occupied	$	144,859	$	192,154	$	99,191	$	30,588	$	15,792	$	75,054	$	-	$	557,638

Residential real estate - non-owner occupied
Risk rating
Pass	$	78,318	$	85,299	$	59,138	$	34,834	$	20,226	$	23,728	$	-	$	301,543
OAEM		-		-		118		271		126		309		-		824
Substandard		-		-		-		-		-		342		-		342
Substandard non-performing		90		23		-		-		-		114		-		227
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - non-owner occupied	$	78,408	$	85,322	$	59,256	$	35,105	$	20,352	$	24,493	$	-	$	302,936

Construction and land development
Risk rating
Pass	$	187,688	$	107,932	$	68,481	$	15,387	$	6,028	$	1,705	$	21,342	$	408,563
OAEM		-		-		-		-		-		-		999		999
Substandard		4,457		613		-		-		-		-		-		5,070
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Construction and land development	$	192,145	$	108,545	$	68,481	$	15,387	$	6,028	$	1,705	$	22,341	$	414,632

Home equity lines of credit
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	198,922	$	198,922
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		39		39
Substandard non-performing		-		-		-		-		-		-		524		524
Doubtful		-		-		-		-		-		-		-		-
Total Home equity lines of credit	$	-	$	-	$	-	$	-	$	-	$	-	$	199,485	$	199,485

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

Table of Contents

(continued)

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

Consumer
Risk rating
Pass	$	23,526	$	19,826	$	6,547	$	6,195	$	2,909	$	2,355	$	77,080	$	138,438
OAEM		39		-		-		-		-		-		-		39
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		36		76		78		25		53		98		366
Doubtful		-		-		-		-		-		-		-		-
Total Consumer	$	23,565	$	19,862	$	6,623	$	6,273	$	2,934	$	2,408	$	77,178	$	138,843

Leases
Risk rating
Pass	$	3,901	$	4,592	$	2,816	$	966	$	812	$	872	$	-	$	13,959
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Leases	$	3,901	$	4,592	$	2,816	$	966	$	812	$	872	$	-	$	13,959

Credit cards
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	20,755	$	20,755
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		12		12
Doubtful		-		-		-		-		-		-		-		-
Total Credit cards	$	-	$	-	$	-	$	-	$	-	$	-	$	20,767	$	20,767

Total loans
Risk rating
Pass	$	1,165,772	$	1,284,792	$	827,414	$	356,781	$	234,370	$	383,146	$	688,015	$	4,940,290
OAEM		7,269		10,347		7,005		20,220		2,651		6,265		13,960		67,717
Substandard		4,661		2,071		5,866		30,285		2,236		8,637		534		54,290
Substandard non-performing		2,155		1,673		758		2,194		178		2,332		1,290		10,580
Doubtful		-		-		-		-		-		-		-		-
Total Loans	$	1,179,857	$	1,298,883	$	841,043	$	409,480	$	239,435	$	400,380	$	703,799	$	5,072,877

Table of Contents

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

														Revolving
														loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year													amortized
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		-		353		1,619		248		27,856
Substandard		4,174		1,440		-		-		-		7,629		100		13,343
Substandard non-performing		-		39		78		-		592		11		-		720
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estatenon-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		-		1,396		17,939
Substandard non-performing		1,259		-		-		-		32		457		-		1,748
Doubtful		-		-		-		-		-		-		-		-
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	$	-	$	588,239
OAEM		738		86		254		3,382		8		-		-		4,468
Substandard		170		42		2,667		176		111		167		-		3,333
Substandard non-performing		-		543		72		55		-		-		-		670
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - term	$	284,058	$	143,882	$	61,981	$	56,001	$	26,200	$	24,588	$	-	$	596,710

Commercial and industrial - PPP
Risk rating
Pass	$	128,409	$	12,325	$	-	$	-	$	-	$	-	$	-	$	140,734
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - PPP	$	128,409	$	12,325	$	-	$	-	$	-	$	-	$	-	$	140,734

(continued)

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(continued)

														Revolving
														loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year													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		-		-		-		-		-		-		6,355		6,355
Substandard		-		-		1,916		-		1,549		-		1,813		5,278
Substandard non-performing		-		-		-		-		-		-		228		228
Doubtful		-		-		-		-		-		-		-		-
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	$	-	$	398,247
OAEM		101		-		174		-		-		-		-		275
Substandard		-		-		-		-		108		68		-		176
Substandard non-performing		164		103		136		230		714		650		-		1,997
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - owner occupied	$	176,752	$	100,039	$	31,637	$	17,489	$	17,421	$	57,357	$	-	$	400,695

Residential real estate - non-owner occupied
Risk rating
Pass	$	94,482	$	78,785	$	46,177	$	27,494	$	16,171	$	15,909	$	-	$	279,018
OAEM		352		126		281		132		-		462		-		1,353
Substandard		-		-		-		-		-		354		-		354
Substandard non-performing		103		-		45		28		-		117		-		293
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - non-owner occupied	$	94,937	$	78,911	$	46,503	$	27,654	$	16,171	$	16,842	$	-	$	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		-		-		-		-		102		-		-		102
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
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	$	-	$	-	$	-	$	-	$	-	$	-	$	138,239	$	138,239
OAEM		-		-		-		-		-		-		91		91
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		646		646
Doubtful		-		-		-		-		-		-		-		-
Total Home equity lines of credit	$	-	$	-	$	-	$	-	$	-	$	-	$	138,976	$	138,976

(continued)

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(continued)

													Revolving
													loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												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		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		55		304		30		11		-		4		6		410
Doubtful		-		-		-		-		-		-		-		-
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	$	-	$	13,622
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Leases	$	5,375	$	3,596	$	1,375	$	1,331	$	406	$	1,539	$	-	$	13,622

Credit cards
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	17,087	$	17,087
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Credit cards	$	-	$	-	$	-	$	-	$	-	$	-	$	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		-		-		-		-		-		-		-		-
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 ~~subsidiary~~by payment activity. The following table presents the recorded investment in credit cards based on payment activity:

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

Credit cards
Performing	$	20,723	$	17,087
Non-performing		44		—
Total credit cards	$	20,767	$	17,087

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Troubled Debt Restructurings

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

	September 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	$	902	$	202	$	—	$	950	$	202	$	—
Commercial & industrial - term		—		—		—		12		12		—
Total TDRs	$	902	$	202	$	—	$	962	$	214	$	—

During the three and nine month periods ended September 30, 2022 and 2021, there were no loans modified as TDRs and there were no 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 $786,000 and $917,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at September 30, 2022 and December 31, 2021.

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~~(4)~~(5)

Goodwill ~~and Intangible Assets~~

US As of September 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:

	September 30,		December 31,
(in thousands)	2022		2021
Commonwealth Bancshares (2022)	$	66,694	$	—
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

Note: The acquisition of The Bank Oldham County in 2013 resulted in 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, 2022, Bancorp ~~currently has goodwill~~elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting units exceeded their carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting units exceeded their fair value.

Changes in the ~~amount~~carrying value of ~~$682 thousand from the 1996 acquisition~~goodwill follows:

		Three months ended				Nine months ended
		September 30,				September 30,
(in thousands)	2022		2021			2022		2021
Balance at beginning of period	$	202,524	$	136,529		$	135,830	$	12,513
Goodwill recorded from acquisitions		—		—			66,694		124,016
Provisional period adjustments		—		(699	)		—		(699	)
Impairment		—		—			—		—
Balance at end of period	$	202,524	$	135,830		$	202,524	$	135,830

As of ~~an Indiana bank. This~~ September 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 nine months ended September 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						Nine months ended
	ended September 30,						September 30,						September 30,
(in thousands)	2017			2016			2022			2021			2022			2021
Balance at beginning of period	$	921		$	1,018		$	16,870		$	5,162		$	5,596		$	1,962
Additions for mortgage loans sold		143			105
Core deposit intangible acquired								—			—			12,724			3,404
Provisional period adjustments								—			999			—			999
Amortization		(222	)		(192	)		(956	)		(290	)		(2,406	)		(494	)
Balance at end of period	$	842		$	931		$	15,914		$	5,871		$	15,914		$	5,871

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					Nine months ended
	September 30,					September 30,
(in thousands)	2022			2021		2022			2021
Balance at beginning of period	$	13,487		$	-	$	-		$	-
Customer list intangibles acquired		—			—		14,360			—
Provisional period adjustments		—			—		—			—
Amortization		(654	)		—		(1,527	)		-
Balance at end of period	$	12,833		$	-	$	12,833		$	-

Future CDI and CLI amortization expense is estimated as follows:

(in thousands)	CDI		CLI
2022	$	956	$	654
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		-		387
2033		-		207
2034		-		28
Total future expense	$	15,914	$	12,833

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(7)

Other Assets

~~Stock Yards~~ A summary of the major components of other assets follows:

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

Cash surrender value of life insurance other than BOLI	$	14,804	$	17,875
Net deferred tax asset		55,440		24,340
Investments in tax credit related ventures		14,147		11,084
Swap assets		11,589		3,148
Prepaid assets		5,157		4,469
Trust fees receivable		3,172		2,868
Mortgage servicing rights		15,904		4,528
Other real estate owned		996		7,212
Other		14,763		10,478
Total other assets	$	135,972	$	86,002

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

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Current income tax expense

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

Deferred income tax (benefit) expense

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

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2022			2021		2022		2021
Current income tax expense:
Federal	$	9,231		$	4,730	$	12,838	$	8,202
State		1,261			642		1,875		1,188
Total current income tax expense		10,492			5,372		14,713		9,390

Deferred income tax expense (benefit):
Federal		(1,922	)		858		1,542		2,375
State		454			672		1,761		1,462
Total deferred income tax expense (benefit)		(1,468	)		1,530		3,303		3,837
Change in valuation allowance		-			-		-		-
Total income tax expense	$	9,024		$	6,902	$	18,016	$	13,227

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

							Three months ended						Nine months ended
	Nine months ended September 30,						September 30,						September 30,
	2017			2016			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								3.6			3.5			3.5			3.4
Excess tax benefit from stock-based compensation arrangements								-			(0.1	)		(1.3	)		(1.7	)
Change in cash surrender value of life insurance								-			(0.2	)		0.6			(0.7	)
Tax credits		(4.6	)		(9.4	)		(0.5	)		(1.1	)		(0.6	)		(0.8	)
Excess tax benefits from share-based compensation arrangements		(3.0	)		-
Increase in cash surrender value of life insurance		(1.4	)		(0.9	)
Tax exempt interest income		(1.1	)		(1.3	)		(0.5	)		(0.4	)		(0.7	)		(0.3	)
State income taxes, net of federal benefit		0.7			0.9
Non-deductible merger expenses								-			0.1			0.2			0.5
Insurance captive								(0.3	)		(0.3	)		(0.3	)		(0.2	)
Other, net		0.3			2.7			0.7			0.5			(0.3	)		(0.3	)
Effective income tax rate		25.9	%		27.0	%
Effective tax rate								24.0	%		23.0	%		22.1	%		20.9	%

~~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 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:

September 30,

December 31,

2017

2016

(in thousands)

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

Interest bearing deposits:

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

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

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

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

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

(in thousands)

Amount

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

~~Table of Contents~~

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

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

Non-interest bearing demand deposits	$	2,200,041	$	1,755,754
Interest bearing deposits:
Interest bearing demand		2,106,267		2,131,928
Savings		555,928		415,258
Money market		1,163,563		1,050,352

Time deposits of $250 thousand or more		92,529		89,745
Other time deposits(1)		382,445		344,477
Total time deposits		474,974		434,222
Total interest bearing deposits		4,300,732		4,031,760
Total deposits	$	6,500,773	$	5,787,514

~~(7)~~(1)

~~Securities Sold Under Agreements to Repurchase~~Includes $1 million and $5 million in brokered deposits as of September 30, 2022 and December 31, 2021, respectively.

~~Securities sold under agreements~~Deposits totaling $1.12 billion were assumed on March 7, 2022 in relation to ~~repurchase, which~~the CB acquisition.

(10)

Securities Sold Under Agreements to Repurchase

SSUAR represent ~~excess funds from~~a funding source of Bancorp and are primarily used by commercial customers ~~as part of a~~in conjunction with collateralized corporate cash management ~~service, totaled $71.9 million~~accounts. Such repurchase agreements are considered financing agreements and ~~$67.6 million at~~ mature within one business day from the transaction date. At September 30, ~~2017~~ 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.

Information concerning SSUAR follows:

(dollars in thousands)	September 30, 2022			December 31, 2021
Outstanding balance at end of period	$	124,567		$	75,466
Weighted average interest rate at end of period		0.64	%		0.04	%

	Three months ended						Nine months ended
	September 30,						September 30,
(dollars in thousands)	2022			2021			2022			2021

Average outstanding balance during the period	$	139,749		$	71,065		$	123,845		$	57,980
Average interest rate during the period		0.50	%		0.03	%		0.27	%		0.04	%
Maximum outstanding at any month end during the period	$	139,825		$	81,964		$	149,179		$	81,964

SSUAR totaling $66 million were assumed on March 7, 2022 in relation to the CB acquisition.

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~~(8)~~(11)

~~Federal Home Loan Bank Advances~~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 Bancorp’s option on a quarterly basis. Bancorp chose not to redeem the subordinated notes on October 1, 2022 and carried the note at the costs noted below at September 30, 2022.

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

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 outstanding~~is a member of the FHLB of Cincinnati. As a member of the FHLB, Bancorp has access to credit products of the FHLB. Bancorp views these borrowings ~~totaling $50.1 million and $51.1 million at~~ as a potential low cost alternative to brokered deposits. At September 30, ~~2017~~ 2022 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:~~

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

~~Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral agreement and FHLB stock. Bancorp~~ ~~at times utilizes these borrowings to match fund long-term fixed rate loans. At September 30, 2017, the amount of~~ 2021, available credit from the FHLB totaled ~~$367.3 million.~~$1.36 billion and $1.00 billion, respectively. Bancorp also had unsecured available FFP lines with correspondent banks totaling $90 million and $80 million at September 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 September 30, 2022, which was added during the first quarter of 2022 to allow capital flexibility at the Bank level, if ever needed.

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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. and subsidiary~~

~~(11)~~

~~Net Income Per Share~~

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

Three months ended

Nine months ended

(in thousands, except per share data)

September 30,

September 30,

2017

2016

2017

2016

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

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

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

~~(12)~~

~~Defined Benefit Retirement Plan~~

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

~~(13)~~

~~Stock-Based Compensation~~

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

Bancorp currently has one stock-based compensation plan. At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. No additional shares were made available. As of ~~September 30, 2017, there were 285,133 shares available for future awards.~~

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

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

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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.

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~~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.

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

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

Grant date

weighted-

Number

average cost

Unvested at December 31, 2015
155,858 $ 18.98

2016 activity:

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

2017 activity:

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

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

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

Vesting

Expected

Grant

period

Fair

shares to

year

in years

value

be awarded

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

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

~~(14)~~

~~Stock Split~~

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

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

~~(15)~~(12)

Commitments and Contingent Liabilities

As of September 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)	September 30, 2022		December 31, 2021
Commercial and industrial	$	813,750	$	625,858
Construction and land development		481,956		292,351
Home equity		348,216		247,885
Credit cards		61,599		40,471
Overdrafts		57,963		51,104
Letters of credit		35,001		30,779
Other		93,502		76,721
Future loan commitments		256,549		325,983
Total off balance sheet commitments to extend credit	$	2,148,536	$	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 30, ~~2017,~~ 2022 and December 31, 2021, Bancorp had accrued ~~$350 thousand~~$4.8 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). Provision for credit loss expense of $800,000 was also recorded for the nine month period ended September 30, 2022, driven mainly by the addition of new lines of credit, and thus increased availability, and largely concentrated within the C&D portfolio.

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

Certain commercial customers require confirmation of Bancorp’s letters of credit by other banks since Bancorp does not have a rating by a national rating agency. Terms of the agreements range from one month to a year with certain agreements requiring between one and six months’ notice to cancel. If an event of default on all contracts had occurred at September 30, 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 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.

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~~(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.~~

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~~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
September 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	$	114,426	$	—	$	—	$	114,426
Government sponsored enterprise obligations		—		151,299		—		151,299
Mortgage backed securities - government agencies		—		750,589		—		750,589
Obligations of states and political subdivisions		—		127,215		—		127,215
Other		—		5,644		—		5,644

Total available for sale debt securities		114,426		1,034,747		—		1,149,173

Mortgage loans held for sale		—		5,230		—		5,230
Rate lock loan commitments		—		118		—		118
Mandatory forward contracts		—		431		—		431
Interest rate swaps		—		11,589		—		11,589
Total assets	$	114,426	$	1,052,115	$	—	$	1,166,541

Liabilities:
Interest rate swaps	$	—	$	11,600	$	—	$	11,600

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	$	—	$	—	$	122,501
Government sponsored enterprise obligations		—		135,021		—		135,021
Mortgage backed securities - government agencies		—		846,624		—		846,624
Obligations of states and political subdivisions		—		75,075		—		75,075
Other		—		1,077		—		1,077

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

Interest rate swaps		—		3,148		—		3,148

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

Liabilities:
Interest rate swaps	$	—	$	3,162	$	—	$	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 are recorded at fair value upon capitalization, are amortized to correspond with estimated servicing income, and are periodically assessed for impairment based on fair value at~~Collateral dependent loans – For collateral-dependent loans where Bancorp has determined that the ~~reporting date. Fair value~~liquidation or foreclosure of the collateral is ~~based on a valuation model that calculates~~probable, or where the present value of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income. These measurements are classified as Level 3. At September 30, 2017 and December 31, 2016 there was no valuation allowance for the mortgage servicing rights, as fair value exceeded cost. Accordingly, MSRs are not included in either table below for September 30, 2017 or December 31, 2016. See Note 4 for more information regarding MSRs.

~~For impaired loans in the table below, fair value~~borrower is ~~calculated as carrying value of loans with a specific valuation allowance, less the specific allowance,~~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		Nine months
	Fair Value Measurements Using:						Total		ended		ended
September 30, 2022 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2022		September 30, 2022

Collateral dependent loans	$	—	$	—	$	13,039	$	13,039	$	377	$	377
Other real estate owned		—		—		996		996		—		—

(in thousands)

Fair value at December 31, 2016

Losses for 9 month

period ended

Total

Level 1

Level 2

Level 3

September 30, 2016

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

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

									Losses recorded
									Three months		Nine months
	Fair Value Measurements Using:						Total		ended		ended
December 31, 2021 (in thousands)	Level 1		Level 2		Level 3		Fair Value		September 30, 2021		September 30, 2021

Collateral dependent loans	$	—	$	—	$	4,487	$	4,487	$	—	$	—
Other real estate owned		—		—		7,212		7,212		—		—

~~For the securities portfolio, Bancorp monitors the valuation technique used by pricing agencies to ascertain when transfers between levels have occurred. The nature of other assets and~~

There were no liabilities measured at fair value ~~is such that transfers in and out of any level are expected to be rare. For the~~ ~~nine months ended~~ on a non-recurring basis at September 30, ~~2017, there were no transfers between Levels 1, 2, or 3.~~ 2022 and 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.

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

Collateral dependent loans	$	13,039	Appraisal	Appraisal discounts		24.1	%
Other real estate owned		996	Appraisal	Appraisal discounts		57.0

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

December 31, 2016

amount

Fair value

Level 1

Level 2

Level 3

Financial assets

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

Financial liabilities

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

~~Table of Contents~~

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

(in thousands)	Carrying				Fair Value Measurements Using:
September 30, 2022	amount		Fair value		Level 1		Level 2		Level 3

Assets
Cash and cash equivalents	$	329,921	$	329,921	$	329,921	$	—	$	—
HTM debt securities		478,125		433,371		—		433,371		—
Federal Home Loan Bank stock		10,928		10,928		—		10,928		—
Loans, net		5,002,794		4,753,475		—		—		4,753,475
Accrued interest receivable		17,568		17,568		17,568		—		—

Liabilities
Non-interest bearing deposits	$	2,200,041	$	2,200,041	$	2,200,041	$	—	$	—
Transaction deposits		3,825,758		3,825,758		—		3,825,758		—
Time deposits		474,974		462,307		—		462,307		—
Securities sold under agreement to repurchase		124,567		124,567		—		124,567		—
Federal funds purchased		8,970		8,970		—		8,970		—
Subordinated debentures		26,244		26,361		—		26,361		—
Accrued interest payable		401		401		401		—		—

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

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

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

~~Mortgage loans held for sale~~

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

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

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

~~Loans, net~~

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

~~Deposits~~

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

~~Federal Home Loan Bank advances~~

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

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

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

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

~~Limitations~~

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

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

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

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.

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(15)

Mortgage Banking Activities

~~Stock Yards Bancorp, inc.~~Mortgage banking activities primarily include residential mortgage originations and ~~subsidiary~~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 September 30,						Nine months ended September 30,
(in thousands)	2022			2021			2022			2021
Balance, beginning of period:	$	10,045		$	5,420		$	8,614		$	22,547
Origination of mortgage loans held for sale		31,446			50,111			111,026			169,542
Loans held for sale acquired		-			-			3,559			3,071
Proceeds from the sale of mortgage loans held for sale		(36,427	)		(45,920	)		(118,639	)		(187,667	)
Net gain on sale of mortgage loans held for sale		166			590			670			2,708
Balance, end of period	$	5,230		$	10,201		$	5,230		$	10,201

The following table represents the components of Mortgage banking income:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2022			2021			2022			2021

Net gain realized on sale of mortgage loans held for sale	$	166		$	590		$	670		$	2,708
Net change in fair value recognized on loans held for sale		(113	)		-			(70	)		-
Net change in fair value recognized on rate lock loan commitments		134			-			1,324			-
Net change in fair value recognized on forward contracts		101			-			(534	)		-
Net gain recognized		288			590			1,390			2,708

Net loan servicing income		1,172			434			3,089			1,021
Amortization of mortgage servicing rights		(869	)		(252	)		(2,206	)		(677	)
Change in mortgage servicing rights valuation allowance		-			-			-			-
Net servicing income recognized		303			182			883			344

Other mortgage banking income		112			143			728			610
Total mortgage banking income	$	703		$	915		$	3,001		$	3,662

Activity for capitalized mortgage servicing rights was as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2022			2021			2022			2021
Balance at beginning of period	$	16,504		$	4,657		$	4,528		$	2,710
MSRs acquired		—			—			12,676			1,662
Additions for mortgage loans sold		269			195			906			905
Amortization		(869	)		(252	)		(2,206	)		(677	)
Impairment		—			—			—			—
Balance at end of period	$	15,904		$	4,600		$	15,904		$	4,600

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 September 30, 2022 and December 31, 2021 were $27 million and $6 million, respectively. MSRs with an estimated fair value of $13 million at the date of acquisition were acquired as part of CB acquisition. There was no valuation allowance recorded for MSRs as of September 30, 2022 and December 31, 2021, as fair value exceeded carrying value.

Total outstanding principal balances of loans serviced for others were $2.11 billion and $698 million at September 30, 2022 and December 31, 2021, respectively. Loans serviced for others acquired as part of the CB acquisition totaled $1.48 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:

	September 30, 2022
(in thousands)	Notional Amount		Fair Value
Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	5,217	$	5,230

Included in other assets:
Rate lock loan commitments	$	14,768	$	118
Mandatory forward contracts		13,250		431

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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 September 30, 2022
Balance, beginning of period	$	(87,054	)	$	-		$	(283	)	$	(87,337	)
Net current period other comprehensive loss		(40,580	)		-			-			(40,580	)
Balance, end of period	$	(127,634	)	$	-		$	(283	)	$	(127,917	)

Three months ended September 30, 2021
Balance, beginning of period	$	2,295		$	(58	)	$	(447	)	$	1,790
Net current period other comprehensive income (loss)		(4,453	)		32			-			(4,421	)
Balance, end of period	$	(2,158	)	$	(26	)	$	(447	)	$	(2,631	)

	Net unrealized			Net unrealized			Minimum
	gains (losses)			gains (losses)			pension
	on available for			on cash			liability
(in thousands)	sale debt securities			flow hedges			adjustment			Total
Nine months ended September 30, 2022
Balance, beginning of period	$	(7,657	)	$	-		$	(283	)	$	(7,940	)
Net current period other comprehensive loss		(119,977	)		-			-			(119,977	)
Balance, end of period	$	(127,634	)	$	-		$	(283	)	$	(127,917	)

Nine months ended September 30, 2021
Balance, beginning of period	$	9,310		$	(122	)	$	(447	)	$	8,741
Net current period other comprehensive income (loss)		(11,468	)		96			-			(11,372	)
Balance, end of period	$	(2,158	)	$	(26	)	$	(447	)	$	(2,631	)

~~(18)~~(17)

~~Derivative Financial Instruments~~Preferred Stock

Bancorp has one class of preferred stock (no 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				Nine months ended
	September 30,				September 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net income available to stockholders	$	28,455	$	23,162	$	63,155	$	50,056

Weighted average shares outstanding - basic		29,144		26,485		28,509		24,360
Dilutive securities		260		241		243		242
Weighted average shares outstanding- diluted		29,404		26,726		28,752		24,602

Net income per share - basic	$	0.98	$	0.87	$	2.22	$	2.05
Net income per share - diluted		0.97		0.87		2.20		2.03

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

Three months ended

Nine months ended

(shares in thousands)

September 30,

2022

2021

2022

2021

Antidilutive SARs

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Stock-Based Compensation

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

At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018, shareholders approved an additional 500,000 shares for issuance under the plan. As of September 30, 2022, there were 383,000 shares available for future awards. The 2005 Stock Incentive Plan expired in April 2015 and SARs granted under this plan expire as late as 2025. The 2015 Stock Incentive Plan has no defined expiration date.

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

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

Assumptions	2022			2021
Dividend yield		2.38	%		2.52	%
Expected volatility		25.42	%		25.19	%
Risk free interest rate		1.98	%		1.22	%
Expected life (in years)		7.1			7.1

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

RSA Grants – RSAs granted to officers vest over five years. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. For grants in 2015 and forward, dividends are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.

PSU Grants – PSUs vest based upon service and a three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one-year post-vesting holding period and therefore the fair value of such grants incorporates a liquidity discount related to the holding period of 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 $208,000 during the firstnine 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 September 30, 2022
(in thousands)	Stock Appreciation Rights			Restricted Stock Awards			Restricted Stock Units			Performance Stock Units			Total

Expense	$	94		$	346		$	80		$	717		$	1,237
Deferred tax benefit		(20	)		(72	)		(17	)		(150	)		(259	)
Total net expense	$	74		$	274		$	63		$	567		$	978

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

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

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

Expense	$	282		$	1,028		$	252		$	1,723		$	3,285
Deferred tax benefit		(59	)		(216	)		(53	)		(362	)		(690	)
Total net expense	$	223		$	812		$	199		$	1,361		$	2,595

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

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

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	$	95	$	346	$	79	$	590	$	1,110
2023		311		1,192		2		1,555		3,060
2024		205		969		—		855		2,029
2025		146		737		—		—		883
2026		88		421		—		—		509
2027		10		47		—		—		57
Total estimated expense	$	855	$	3,712	$	81	$	3,000	$	7,648

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 and life 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		—		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		—		11.82
Exercised		(63	)	15.24	-	36.65		16.93		2,658		2.79
Forfeited		—			—			—		—		—
Outstanding, September 30, 2022		485		$15.24	-	$54.91	$	34.65	$	16,171	$	5.85		5.2

Vested and exercisable		348		$15.24	-	$50.71	$	30.92	$	12,882	$	4.99		4.2
Unvested		137		35.90	-	54.91		44.06		3,228		8.02		3.2
Outstanding, September 30, 2022		485		$15.24	-	$54.91	$	34.65	$	16,171	$	5.85		5.2

Vested in the current year		44		$35.90	-	$50.71	$	39.36	$	1,246	$	6.73

(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		35			58.47
Restrictions lapsed and shares released		(31	)		40.42
Shares forfeited		(6	)		46.91
Unvested at September 30, 2022		97		$	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				Shares
Grant	*period*		*Fair*		*expected to*
year	*in years*		*value*		*be awarded*
2020		3	$	32.27		65,111
2021		3		44.44		47,280
2022		3		48.48		51,929

(20)

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

Notional amount	$	140,360	$	123,983	$	140,360	$	123,983
Weighted average maturity (years)		7.1		7.2		7.1		7.2
Fair value	$	11,589	$	3,148	$	11,600	$	3,162

Table of Contents

(21) Regulatory Matters

~~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)~~

~~Regulatory Matters~~

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

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

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

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

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

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

~~The Basel III rules also establish~~edBanking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.

Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of ~~2.5%, to be phased in over three years through December 31, 2018,~~Common Equity Tier 1 Risk-Based Capital above the ~~regulatory~~ minimum risk-based capital ~~ratios. When fully phased in~~requirements for the 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 September 30, 2022, the adequately-capitalized minimums, including the capital conservation buffer, ~~will result in the following minimum ratios:~~

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

~~a tier~~ 8.5% Tier 1 ~~risk-based capital~~ 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~~

10.5% Total Risk-Based Capital ratio.

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 September 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
September 30, 2022	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total risk-based capital (1)
Consolidated	$	728,051		12.16	%	$	479,113		8.00	%	NA		NA
Bank		697,115		11.67			477,688		8.00		$	597,110		10.00	%

Common equity tier 1 risk-based capital (1)
Consolidated		640,363		10.69			269,501		4.50		NA		NA
Bank		635,427		10.64			268,700		4.50			388,122		6.50

Tier 1 risk-based capital (1)
Consolidated		666,363		11.13			359,335		6.00		NA		NA
Bank		635,427		10.64			358,266		6.00			477,688		8.00

Leverage (2)
Consolidated		666,363		8.85			301,181		4.00		NA		NA
Bank		635,427		8.45			300,927		4.00			376,159		5.00

Table of Contents

(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.

Table of Contents

(22) Segments

~~(20)~~

~~Segments~~

~~Bancorp~~’sBancorp’s principal activities include commercial banking and ~~wealth management and trust (WM&T).~~WM&T. Commercial banking provides a full range of loan and deposit products to individual consumers and businesses. Commercial banking also includes Bancorp’s mortgage ~~origination~~banking and ~~securities brokerage~~investment products sales activity. WM&T provides ~~financial management services including~~ investment management, financial & retirement planning and trust ~~and~~& estate ~~administration, and~~services, as well as retirement plan ~~services.~~management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

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

~~Principally, all~~The majority of the net assets of ~~Stock Yards~~ Bancorp ~~Inc.~~ are involved in the commercial banking segment. ~~Bancorp has~~ As of September 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				Three months ended September 30, 2022						Three months ended September 30, 2021
	Commercial		management
(in thousands)	banking		and trust		Total		Commercial Banking		WM&T		Total		Commercial Banking			WM&T		Total

Three months ended September 30, 2017
Net interest income	$	26,089	$	75	$	26,164	$	62,270	$	106	$	62,376	$	45,414		$	69	$	45,483
Provision for loan losses		150		-		150
Provision for credit losses								4,803		—		4,803		(1,525	)		—		(1,525	)
Wealth management and trust services		-		5,025		5,025		—		9,152		9,152		—			7,128		7,128
All other non-interest income		6,078		-		6,078		15,712		—		15,712		10,486			—		10,486
Non-interest expense		18,491		2,826		21,317
Income before income taxes		13,526		2,274		15,800
Non-interest expenses								39,370		5,503		44,873		31,072			3,486		34,558
Income before income tax expense								33,809		3,755		37,564		26,353			3,711		30,064
Income tax expense		3,284		812		4,096		8,209		815		9,024		6,070			832		6,902
Net income	$	10,242	$	1,462	$	11,704		25,600		2,940		28,540		20,283			2,879		23,162
Less net income attributable to NCI								85		—		85		—			—		—
Net income attributable to stockholders							$	25,515	$	2,940	$	28,455	$	20,283		$	2,879	$	23,162

Segment assets	$	3,153,886	$	2,027	$	3,155,913	$	7,522,113	$	32,097	$	7,554,210	$	6,177,355		$	3,833	$	6,181,188

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

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

	Nine months ended September 30, 2022						Nine months ended September 30, 2021

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

Net interest income	$	167,811	$	309	$	168,120	$	124,672	$	220	$	124,892
Provision for credit losses		6,882		—		6,882		1,147		—		1,147
Wealth management and trust services		—		26,890		26,890		—		20,234		20,234
All other non-interest income		39,117		—		39,117		27,012		—		27,012
Non-interest expenses		129,936		15,909		145,845		97,249		10,459		107,708
Income before income tax expense		70,110		11,290		81,400		53,288		9,995		63,283
Income tax expense		15,566		2,450		18,016		11,058		2,169		13,227
Net income		54,544		8,840		63,384		42,230		7,826		50,056
Less net income attributable to NCI		229		—		229		—		—		—
Net income attributable to stockholders	$	54,315	$	8,840	$	63,155	$	42,230	$	7,826	$	50,056

Segment assets	$	7,522,113	$	32,097	$	7,554,210	$	6,177,355	$	3,833	$	6,181,188

4268

Table of Contents

(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 September 30, 2022						Three months ended September 30, 2021

(in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total
Wealth management and trust services	$	—	$	9,152	$	9,152	$	—	$	7,128	$	7,128
Deposit service charges		2,179		—		2,179		1,768		—		1,768
Debit and credit card income		4,710		—		4,710		3,887		—		3,887
Treasury management fees		2,221		—		2,221		1,771		—		1,771
Mortgage banking income(1)		703		—		703		915		—		915
Net investment product sales commissions and fees		892		—		892		780		—		780
Bank owned life insurance(1)		516		—		516		275		—		275
Gain (loss) on sale of premises and equipment (1)		3,074		—		3,074		—		—		—
Other(2)		1,417		—		1,417		1,090		—		1,090
Total non-interest income	$	15,712	$	9,152	$	24,864	$	10,486	$	7,128	$	17,614

	Nine months ended September 30, 2022						Nine months ended September 30, 2021

(Dollars in thousands)	Commercial Banking		WM&T		Total		Commercial Banking		WM&T		Total
Wealth management and trust services	$	—	$	26,890	$	26,890	$	—	$	20,234	$	20,234
Deposit service charges		6,103		—		6,103		3,945		—		3,945
Debit and credit card income		13,577		—		13,577		9,444		—		9,444
Treasury management fees		6,312		—		6,312		5,041		—		5,041
Mortgage banking income(1)		3,001		—		3,001		3,662		—		3,662
Net investment product sales commissions and fees		2,230		—		2,230		1,789		—		1,789
Bank owned life insurance(1)		1,052		—		1,052		642		—		642
Gain (loss) on sale of premises and equipment (1)		3,074		—		3,074		(41)		—		(41)
Other(2)		3,768		—		3,768		2,530		—		2,530
Total non-interest income	$	39,117	$	26,890	$	66,007	$	27,012	$	20,234	$	47,246

(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 $3.2 million and $2.9 million at September 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 $620,000 and $437,000 for the nine month periods ended September 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 nine months ended September 30, 2022.

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(24) Leases

Bancorp has operating leases for various branch locations with terms ranging from approximately one year to 18 years, some of which include options to extend the leases in five-year increments. A total of four 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)	September 30, 2022			December 31, 2021

Balance Sheet
Operating lease right-of-use asset	$	16,046		$	14,958
Operating lease liability		17,408			16,408

Weighted average remaining lease term (years)		8.4			9.4
Weighted average discount rate		2.90	%		3.02	%

Maturities of lease liabilities:
One year or less	$	843		$	2,634
Year two		3,358			2,673
Year three		3,057			2,408
Year four		2,319			1,924
Year five		1,842			1,608
Greater than five years		8,329			7,699
Total lease payments	$	19,748		$	18,946
Less imputed interest		2,340			2,538
Total	$	17,408		$	16,408

	Three months ended		Three months ended
(in thousands)	September 30, 2022		September 30, 2021
Income Statement
Components of lease expense:
Operating lease cost	$	793	$	616
Variable lease cost		57		57
Less sublease income		24		9
Total lease cost	$	826	$	664

	Nine months ended		Nine months ended
(in thousands)	September 30, 2022		September 30, 2021
Income Statement
Components of lease expense:
Operating lease cost	$	2,241	$	1,623
Variable lease cost		172		170
Less sublease income		72		36
Total lease cost	$	2,341	$	1,757

	Nine months ended		Nine months ended
(in thousands)	September 30, 2022		September 30, 2021
Cash flow Statement
Supplemental cash flow information:
Operating cash flows from operating leases	$	2,746	$	1,898

As of September 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:

●

Changes in, or forecasts of, future political and economic conditions, inflation or recession and efforts to control related developments;

●

changes in laws and regulations or the interpretation thereof;

●

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;

●

impairment of goodwill, MSRs, other intangible assets and/or DTAs;

●

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

●

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.;

●

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;

●

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; 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,

~~Overview~~ 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 ~~2017 through September 30, 2017~~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 held a 60% interest in 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 ~~completed~~ recorded goodwill of approximately $67 million and incurred merger related expenses totaling $19.5 million during the first ~~nine months~~quarter of ~~2017~~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 ~~net income of $33.1 million, an 8.8% increase over~~ the ~~comparable period in 2016. The increase is primarily due~~corresponding offset recorded to ~~higher net interest income, higher non-interest income, and a reduction in~~goodwill (as opposed to provision for ~~loan losses. These increases were partially offset by higher non-interest expense. Diluted earnings per share~~credit loss expense), and $4.4 million of provision for credit loss expense attributed to the acquired non-PCD portfolio, which represented the acquisition-related credit loss expense at the time of acquisition.

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 approximately $123 million and incurred merger related expenses totaling $18.1 million for the ~~first nine months~~year ended December 31, 2021 as a result of ~~2017 were $1.44, compared with $1.34~~the KB acquisition.

The acquisition of KB had a significant impact on the ACL and credit loss provisioning for the ~~first nine months~~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 ~~2016. Bancorp's~~$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 of provision for credit loss expense 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)

The following table presents an overview of Bancorp’s financial performance for the ~~first nine~~three months ended September 30, 2022 and 2021:

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

Net income attributed to stockholders	$	28,455		$	23,162		$	5,293		23	%
Diluted earnings per share	$	0.97		$	0.87		$	0.10		11	%
ROA		1.47	%		1.50	%	(3) bps			-2	%
ROE		14.85	%		13.92	%	93 bps			7	%

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

General highlights for the three months ended September 30, 2022 compared to September 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. The three months ended September 30, 2022 represented the second full quarter of activity associated with the CB acquisition. There were no merger related expenses recorded for the three months ended September 30, 2022.

●

Bancorp 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 September 30, 2021 represented the first full quarter of activity associated with the KB acquisition. The merger related expenses recorded for the three months ended September 30, 2021 were associated entirely with the CB acquisition, which was completed during the first quarter of 2022.

●

Net income totaled $28.5 million, resulting in diluted EPS of $0.97 for the three months ended September 30, 2022, an 11% increase over $0.87 for the same period of 2021. Significant factors affecting the results for the three months ended September 30, 2022 and 2021 include:

The three months ended September 30, 2022 represented the second full quarter of activity related to the CB acquisition. No merger related expenses were recorded during the period.

The three months ended September 30, 2021 represented the first full quarter of activity related to the KB acquisition, but also included $525,000 of merger related expenses associated entirely with the CB acquisition, which was completed during the first quarter of 2022.

Net interest income increased $16.9 million, or 37%, for the three months ended September 30, 2022 compared to the same period of 2021, driven by acquisition-related growth and organic growth in loans and investment securities, as well as the significant benefit provided by substantial upward movement in the interest rate environment during the period.

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Provision for credit loss expense of $4.8 million was recorded for the three months ended September 30, 2022, which was the result of strong loan growth and to a lesser extent, the increase in the projected unemployment rate forecast used in the CECL model. Negative provision of $1.5 million was recorded for the third quarter of the prior year, which was driven by generally improving CECL model factors at the time, including an improved unemployment forecast.

●

NIM increased 32 bps to 3.46% for the three months ended September 30, 2022 compared to 3.14% 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 September 30, 2022 due to the timing of the third quarter 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 $1.10 billion, or 28%, compared to September 30, 2021, driven by the addition of $630 million in loans from the CB acquisition and strong organic growth. Average loans (excluding PPP loans) increased $1.03 billion, or 27%, for the three months ended September 30, 2022 compared to the same period in 2021.

●

The c~~ontinued positive effect~~PPP loan portfolio decreased $212 million, or 92%, compared to September 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 $3.7 million, or 84%, decline in PPP-related interest and fee income ~~nearly 6% compared with that~~ for the ~~third quarter~~three months ended September 30, 2022 compared to the same period of ~~2016;~~2021.

●

~~A six basis point~~Bancorp’s ACL on loans to total loans was 1.38% at September 30, 2022 compared to 1.29% at December 31, 2021, the increase stemming mainly from acquisition-related activity within the ACL on loans, strong organic loan growth and to a lesser extent, the aforementioned increase in ~~net interest margin sequentially from~~ the ~~second quarter of 2017;~~projected unemployment rate forecast.

●

~~A reduction~~Deposit balances increased $1.16 billion, or 22%, compared to September 30, 2021, as a result of assuming approximately $1.12 billion in deposits during the ~~provision~~ ~~for loan losses~~first quarter in relation to the CB acquisition. The growth stemming from the first quarter CB acquisition was partially offset during the second and third quarters, as ~~credit quality remained excellent;~~a result of anticipated seasonal deposit runoff related mainly to public fund deposits and time deposit attrition.

●

~~Steady growth in fee~~Total non-interest income increased $7.3 million, or 41%, for the three month period ended September 30, 2022 compared to the same period of 2021. The third quarter 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 decreased compared to the prior year period due to the rising rate environment’s impact on overall mortgage volume. In addition, a non-recurring $3.1 million gain resulting from the ~~Wealth Management and Trust Group;~~sale of certain overlapping acquired properties was recorded during the three months ended September 30, 2022.

●

~~A tax benefit from~~Non-interest expenses increased $10.3 million, or 30%, for the ~~wind-down~~three months ended September 30, 2022 compared to the same period of ~~a tax-credit partnership;~~2021, attributed mainly to acquisition-related activity. Non-interest expenses have generally remained controlled and in line with expectations.

●

~~Solid retur~~nsBancorp’s efficiency ratio (FTE) for the three months ended September 30, 2022 was 51.30% compared to 54.63% for the same period of 2021. Bancorp also considers an adjusted efficiency ratio, which eliminates net gains (losses) on ~~average~~sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of acquired premises and equipment, if applicable, and the fluctuation in non-interest expenses related to amortization of investments in tax credit partnerships and non-recurring merger expenses. Bancorp’s adjusted efficiency ratio for the three months ended September 30, 2022 was 53.06% compared to 53.72% 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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The following table presents an overview of Bancorp’s financial performance for the nine months ended September 30, 2022 and 2021:

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

Net income attributed to stockholders	$	63,155		$	50,056		$	13,099		26	%
Diluted earnings per share	$	2.20		$	2.03		$	0.17		8	%
ROA		1.14	%		1.25	%	(9) bps			-9	%
ROE		11.44	%		12.37	%	(93) bps			-8	%

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

General highlights for the nine months ended September 30, 2022 compared to September 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 ~~equity.~~$1.12 billion in deposits. Given the timing of the acquisition, the nine months ended September 30, 2022 did not include a full nine months of activity associated with the CB acquisition. Further, $19.5 million in merger related expenses were recorded in the first nine months of 2022 in addition to $4.4 million of credit loss expense associated with the acquired loan portfolio.

●

Bancorp 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. Given the timing of the acquisition, the nine months ended September 30, 2021 only represented four months of activity associated with the KB acquisition and included $19.0 million of merger related expenses in addition to $7.4 million in credit loss expense associated with the acquired loan portfolio.

●

Net income totaled $63.2 million, resulting in diluted EPS of $2.20 for the nine months ended September 30, 2022, an 8% increase over $2.03 for the same period of 2021. Significant factors affecting the results for the nine months ended September 30, 2022 and 2021 include:

The nine months ended September 30, 2022 represented approximately seven months of activity related to the CB acquisition, including $19.5 million in merger related expenses and $4.4 million of credit loss expense related to the acquired loan portfolio.

The nine months ended September 30, 2021 represented only four months of activity related to the KB acquisition and included $19.0 million of merger related expenses ($525,000 of which related to the CB acquisition) and $7.4 million in credit loss expense related to the acquired loan portfolio.

Net interest income increased $43.2 million, or 35%, for the nine months ended September 30, 2022 compared to the same period of 2021, driven by acquisition-related growth and organic portfolio growth in loans and investment securities, as well as the significant benefit provided by substantial upward movement in the interest rate environment during the period.

Total provision for credit loss expense was $6.9 million for the nine months ended September 30, 2022 compared to $1.1 million for the same period of last year. The expense recorded for both periods was driven largely by the respective acquisitions. However, contrasting projected unemployment rate forecasts used in the CECL model for these respective periods had opposing effects on provision for credit loss expense. While the projected unemployment rate forecast has increased in the current year on the heels of inflation and recession-based concerns, increasing expense, the prior year benefitted from a then-improving forecast, partially offsetting our growth-related expense.

●

NIM decreased 4 bps to 3.25% for the nine months ended September 30, 2022 compared to 3.29% for the same period in 2021. While the aggressive interest rate actions taken by the FRB in 2022 have had a positive impact on net interest income and NIM, the significantly higher interest rate environment experienced for the nine months ended September 30, 2022 was not enough to offset the 20 bps benefit provided by the PPP portfolio for the same period of the prior year.

●

Total loans (excluding PPP loans) increased $1.10 billion, or 28%, compared to September 30, 2021, driven by the addition of $630 million in loans from the CB acquisition and strong organic portfolio growth. Average loans (excluding PPP loans) increased $1.26 billion, or 37%, for the nine months ended September 30, 2022 compared to the same period in 2021.

●

The PPP loan portfolio decreased $212 million, or 92%, compared to September 30, 2021, as the result of forgiveness activity, driving a $13.7 million, or 75%, decline in PPP-related interest and fee income for the nine months ended September 30, 2022 compared to the same period of 2021.

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●

Bancorp’s ACL on loans to total loans was 1.38% at September 30, 2022 compared to 1.29% at December 31, 2021, the increase stemming mainly from acquisition-related activity within the ACL on loans, strong organic loan growth and to a lesser extent, the aforementioned increase in the projected unemployment rate forecast.

●

Deposit balances increased $1.16 billion, or 22%, compared to September 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 and third quarters, as a result of anticipated seasonal deposit runoff related mainly to public fund deposits and time deposit attrition.

●

Total non-interest income increased $18.8 million, or 40%, for the nine months ended September 30, 2022 compared to the same period of 2021. The first nine months 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 in volume driven by rising rates compared to the historic low rates benefitted much of 2021. In addition, a non-recurring $3.1 million gain resulting from the sale of certain overlapping acquired properties was recorded during third quarter.

●

Non-interest expenses increased $38.1 million, or 35%, for the nine months ended September 30, 2022 compared to the same period of 2021. While both periods experienced elevated non-interest expense as a result of 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 nine months ended September 30, 2022 was 62.11% compared to 62.47% for the same period of 2021, the elevated ratios being the result of one-time merger-related expenses incurred as a result of the respective acquisitions in both periods. Bancorp also considers an adjusted efficiency ratio, which eliminates net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of acquired premises and equipment, if applicable, and the fluctuation in non-interest expenses related to amortization of investments in tax credit partnerships and non-recurring merger expenses. Bancorp’s adjusted efficiency ratio for the nine months ended September 30, 2022 was 54.41% compared to 51.25% 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 September 30,	2022			2021			$/bp		%

Net interest income	$	62,376		$	45,483		$	16,893		37	%
Net interest income (FTE)*		62,608			45,643			16,965		37	%
Net interest spread		3.31	%		3.08	%	23 bps			7	%
Net interest margin		3.46	%		3.14	%	32 bps			10	%
Average interest earning assets	$	7,181,781		$	5,760,760		$	1,421,021		25	%
Average interest bearing liabilities		4,619,927			3,617,833			1,002,094		28	%

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

Net interest income	$	168,120		$	124,892		$	43,228		35	%
Net interest income (FTE)*		168,797			125,178			43,619		35	%
Net interest spread		3.16	%		3.22	%	(6) bps			-2	%
Net interest margin		3.25	%		3.29	%	(4) bps			-1	%
Average interest earning assets	$	6,936,718		$	5,091,596		$	1,845,122		36	%
Average interest bearing liabilities		4,524,390			3,222,861			1,301,529		40	%

*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 September 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 FRB has taken aggressive interest rate action over the past several months, implementing multiple rate hikes in an effort to tame inflation that has reached its highest levels in decades. The FFTR was increased to a range of 1.50% - 1.75% with consecutive and escalating rate increases of 25 bps, 50 bps and 75 bps in March, May and June, respectively, taking Prime to 4.75% by the end of the second quarter. The FRB remained committed to its goal of taming inflation through interest rate increases during the third quarter, hiking rates 75 bps each in both late-July and late-September, bringing the FFTR to a range of 3.00% - 3.25%, and Prime to 6.25%, as of September 30, 2022. While the third quarter hikes provided meaningful benefit to NIM, the average interest rate environment experienced for the three months ended September 30, 2022 did not capture the full benefit of the FRB’s third quarter interest rate actions given the timing of the increases. Further, Bancorp elected to raise its deposit rates in July in anticipation of these rate increases, representing the Company’s first deposit rate increases in nearly two years, which partially negated some of the NIM benefit associated with the aforementioned FRB rate hikes.

The current economic outlook suggests continued interest rate action from the FRB through at least the end of 2022 and prospects of a continuing rising rate environment. While Bancorp expects rising rates to have a positive effect on NIM, pricing pressure/competition for both loans and deposits, changing levels of liquidity within the banking system and the possibility of a flattening yield curve could continue to place pressure on NIM.

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

Net interest ~~income increased $4.4 million, or 6.1%~~spread (FTE) and NIM were 3.31% and 3.46%, 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 30, ~~2017, Bancorp recorded a $1.7 million provision for loan losses,~~2022 compared to ~~$2.5 million~~3.08% and 3.14% 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 September 30, 2022 was significantly impacted by the following:

●

A rapidly rising interest rate environment 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 3.00% - 3.25%, and Prime at 6.25%, as of September 30, 2022 as a result of aggressive interest rate action from the FRB over the past two quarters.

●

Substantial balance sheet growth stemming from both acquisition-related activity and organic growth, which resulted in total average earning asset growth of $1.42 billion, or 25%, and average interest-bearing liability growth of $1.00 billion, or 28%, for the three months ended September 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. After reaching a peak towards the end of 2021, levels of average excess liquidity, and its corresponding impact on NIM, have continued to decline through September 30, 2022.

●

PPP forgiveness activity, which accelerates the recognition of fee income on these loans, has declined significantly in 2022, as the vast majority of the original portfolio has been forgiven. The average balance of the PPP loan portfolio decreased $258 million, and related income decreased $3.7 million, for the three months ended September 30, 2022 compared to the same period of 2021.

Net interest income (FTE) increased $17.0 million, or 37%, for the ~~inherent losses on outstanding loans.~~three months ended September 30, 2022 compared to the same period of 2021, largely as a result of acquisition-related activity, but also driven in part by strong loan growth, substantial investment in the investment securities portfolio and the benefits of a rising interest rate environment.

Total ~~non-interest income in the~~ ~~first nine months of 2017~~average interest earning assets increased ~~$1.4 million,~~$1.42 billion, or ~~4.2%~~25%, ~~compared with the same period in 2016, and comprised 30.0% of total revenues, as compared~~ to ~~31.6%~~$7.18 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 September 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 climbing 50 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.

~~Table of Contents~~

~~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”3.74%. 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 $776 million, or 19%, for the three months ended September 30, 2022 compared to the same period of 2021. Average non-PPP loan growth of $1.03 billion, or 27%, was driven by acquisition-related expansion and strong organic growth, which was partially offset by a $258 million, or 92%, decline in average PPP loan balances, as forgiveness activity increased.

●

Average investment securities grew $735 million, or 71%, for the three months ended September 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 decreased $90 million, or 17%, for the three months ended September 30, 2022, as loan growth, investment in the securities portfolio and seasonal deposit run-off led to lower levels of liquidity as compared to the same period of the prior year.

NetTotal interest income ~~of $11.7~~(FTE) increased $20.5 million, or 44%, to $67.6 million for the three months ended September 30, ~~2017~~2022, as compared to the same period of 2021.

●

Interest and fee income (FTE) on loans increased $13.4 million, or 31%, to $56.9 million for the three months ended September 30, 2022 compared to the same period of 2021, driven by both organic and acquisition-related growth in the non-PPP portfolio and the rising rate environment, which more than offset a $3.7 million, or 84%, decline in PPP-related income. The yield on the overall loan portfolio increased 43 bps to 4.56% for the three months ended September 30, 2022 compared to 4.13% for the same period of the prior year, while the yield on the non-PPP loan portfolio increased 54 bps compared to the prior year period, driven by the rising rate environment and strong loan growth.

●

Significant growth in average investment securities led to a $4.7 million increase in interest income (FTE) on the portfolio for the three months ended September 30, 2022 compared to the same period of 2021, driving a 52 bps, or 41%, increase in the corresponding yield on the portfolio. Substantial deployment of excess liquidity over the past twelve months benefitted the investment portfolio, as the yields earned on current year purchases have improved dramatically in tandem with rising rates.

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●

Interest income on FFS and interest bearing due from bank balances increased $2.2 million for the three months ended September 30, 2022, as rising short-term interest rates more than offset a $90 million decline in related average balances. The yield on these assets increased 204 bps to 2.19% for the three months ended September 30, 2022 compared to the same period of 2021, stemming from the dramatic increase in the FFTR over the past several months.

Total average interest bearing liabilities increased ~~$1.2 million,~~$1.00 billion, or ~~11.8%~~28%, ~~from $10.5~~to $4.62 billion for the three-month period ended September 30, 2022 compared with the same period in 2021, with the total average cost increasing 27 bps to 0.43%.

●

Average interest bearing deposits increased $919 million, or 26%, for the three months ended September 30, 2022 compared to the same period in 2021, with interest-bearing demand deposits accounting for $513 million, or 56%, of the increase. The significant growth was attributed mainly to acquisition-related activity, as $1.12 billion in deposits were added during the first quarter of 2022 in relation to the CBT acquisition. Excluding acquisition-related activity, period-end interest-bearing deposit balances have declined in 2022, driven largely by seasonal fluctuation in public funds and time deposit attrition.

●

Consistent with the average interest bearing deposit growth noted above, average SSUAR balances increased $69 million, for the three months ended September 30, 2022 compared to the same period of 2021.

●

Average FHLB advances decreased $10 million for the three months ended September 30, 2022 compared to the same period of the prior year, as all outstanding FHLB advances either matured or were paid off by the end of 2021.

●

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

Total interest expense increased $3.6 million for the ~~comparable 2016 period. Basic net income per share was $0.52~~three months ended September 30, 2022 compared to the same period of 2021, driven by acquisition-related average balance growth, Bancorp’s first deposit rate increases in almost two years and debt assumed through the CB acquisition. As a result, the percentage cost of interest bearing liabilities increased 27 bps to 0.43% for the ~~third quarter~~three months ended September 30, 2022 compared to the same period of ~~2017, an~~2021.

●

Total interest bearing deposit expense increased $3.0 million as a result of acquisition-related growth and the aforementioned deposit rate increases, resulting in a 24 bps increase in the cost of interest bearing deposits. Bancorp expects pricing pressure/competition stemming from the rising rate environment to drive further deposit rate/cost increases in the coming months.

●

SSUAR interest expense increased $170,000 for the three months ended September 30, 2022 compared to the same period of the prior year, consistent with the average balance growth and deposit rate increases noted above for interest bearing deposits.

●

Interest expense totaling $359,000 was recorded for the three months ended September 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 September 30, 2022, as all FHLB advances either matured or paid off by the end 2021, resulting in a decline of $51,000 compared to the same period of the prior year.

Table of ~~10.6% from the $0.47~~Contents

Net Interest Income (FTE) – Nine months ended September 30, 2022 compared to September 30, 2021

Net interest spread (FTE) and NIM were 3.16% and 3.25%, for the ~~third quarter of 2016. Net income per share on a diluted basis was $0.51 for the third quarter of 2017, as~~nine months ended September 30, 2022 compared to ~~$0.46~~3.22% and 3.29% for the same period in ~~2016. See Note 11 for additional information related to net income per share.~~2021, respectively. NIM during the nine months ended September 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 $1.85 billion, or 36%, and average interest-bearing liability growth of $1.30 billion, or 40%, for the nine months ended September 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. After reaching a peak towards the end of 2021, levels of excess liquidity, and its corresponding impact on NIM, have continued to decline through September 30, 2022.

●

PPP forgiveness activity, which accelerates the recognition of fee income on these loans and has declined significantly in 2022, as the vast majority of the original portfolio has been forgiven. The average balance of the PPP loan portfolio decreased $410 million, and related income decreased $13.7 million, for the nine months ended September 30, 2022 compared to the same period of 2021.

~~Annualized return on average assets and annualized return on average stockholders’ equity were 1.53% and 14.03%~~

Net interest income (FTE) increased $43.6 million, or 35%, ~~respectively,~~ for the ~~third quarter of 2017,~~nine months ended September 30, 2022 compared ~~with 1.44% and 13.47%, respectively, for~~to the same period of 2021, largely as a result of acquisition-related activity, but also driven in ~~2016.~~part by strong organic loan growth, substantial investment in the investment securities portfolio and the benefits of a rising interest rate environment.

NetTotal average interest earning assets increased $1.85 billion, or 36%, to $6.94 billion for the nine months ended September 30, 2022, as compared to the same period of 2021, with the average rate earned on total interest earning assets unchanged at 3.41%.

●

Average total loan balances increased $850 million, or 22%, for the nine months ended September 30, 2022 compared to the same period of 2021. Average non-PPP loan growth of $1.26 billion, or 37%, was driven by acquisition-related expansion and strong organic growth, which was partially offset by a $410 million, or 87%, decline in average PPP loan balances, as forgiveness activity increased.

●

Average investment securities grew $800 million for the nine months ended September 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 $196 million, or 54%, for the nine months ended September 30, 2022 due to on-going excess balance sheet liquidity.

Total interest income ~~of $33.1~~(FTE) increased $47.3 million, or 36%, to $177.2 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 for2022, as compared to 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
%

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

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

Nine months ended September 30,

2017

2016

Average

Average

Average

Average

(Dollars in thousands)

balances

Interest

rate

balances

Interest

rate

Earning assets:

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

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

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

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

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

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

Interest bearing liabilities:

Deposits:

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

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

Non-interest bearing liabilities:

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

Stockholders’ equity
324,235 300,743

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

~~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 $31.9 million, or 26%, to $152.5 million for the ~~most significant component~~nine months ended September 30, 2022 compared to the same period of 2021, driven by both organic and acquisition-related growth in the ~~Bank's earnings is total interest income less total interest expense.~~non-PPP portfolio and the rising rate environment, which more than offset a $13.7 million, or 75%, decline in PPP-related income. The ~~level~~yield on the overall loan portfolio climbed to 4.31% for the nine months ended September 30, 2022, compared to 4.16% for the same period 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.~~2021.

●

~~Net~~Significant growth in average investment securities led to a $11.8 million increase interest ~~spread is~~income (FTE) on the ~~difference between taxable equivalent~~ ~~rates~~portfolio for the nine months ended September 30, 2022 compared to the same period of 2021, driving a 30 bps, or 22%, 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.~~

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●

Interest income on FFS and interest bearing due from bank balances increased $3.5 million for the nine months ended September 30, 2022, as a ~~fully tax equivalent~~result of average balance growth stemming from excess balance sheet liquidity and rising short term interest rates. The yield on these assets increased 79 bps to 0.92% for the nine months ended September 30, 2022 compared to the same period of 2021, stemming from the dramatic increase in the FFTR over the past several months.

Total average interest bearing liabilities increased $1.30 billion, or 40%, to $4.52 billion for the nine month period ended September 30, 2022 compared with the same period in 2021, with the total average cost increasing 6 bps to 0.25%.

●

Average interest bearing deposits increased $1.24 billion, or 39%, for the nine months ended September 30, 2022 compared to the same period in 2021, with interest-bearing demand deposits accounting for $684 million, or 55%, 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. However, excluding acquisition-related activity, period-end deposit balances have declined in 2022, driven largely by seasonal fluctuation in public funds and time deposit attrition.

●

Consistent with the average interest bearing deposit growth noted above, average SSUAR balances increased $66 million, for the nine months ended September 30, 2022 compared to the same period of 2021.

●

Average FHLB advances decreased $19 million for the nine months ended September 30, 2022 compared to the same period of the prior year, as all outstanding FHLB advances either matured or were paid off by the end of 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 nine months ended September 30, 2022 totaled $20 million.

Total interest expense increased $3.7 million, or 79%, for the nine months ended September 30, 2022 compared to the same period of 2021, driven by acquisition-related average balance growth, Bancorp’s first deposit rate increases in almost two years and debt assumed through the CB acquisition. As a result, the percentage cost of interest bearing liabilities increased 6 bps to 0.25% for the nine months ended September 30, 2022 compared to the same period of 2021.

●

Total interest bearing deposit expense increased $3.0 million, or 70%, as a result of acquisition-related activity and the aforementioned deposit rate increases, resulting in a 4 bps increase in the cost of interest bearing deposits. Bancorp expects pricing pressure/competition stemming from the rising rate environment to drive further deposit rate/cost increases in the coming months.

●

Interest expense totaling $670,000 was recorded for the nine months ended September 30, 2022 as a result of the subordinated debentures assumed through the CB acquisition, approximately $232,000 of which stems from purchase accounting-related mark-to-market amortization.

●

No interest expense on FHLB advances was recorded for the nine months ended September 30, 2022, as all FHLB advances either matured or paid off by the end of 2021, resulting in a decline of $301,000 compared to the same period of the prior year.

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

	Three months ended September 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	$	442,880	$	2,450		2.19	%	$	532,549	$	208		0.15	%
Mortgage loans held for sale		8,694		103		4.70			8,875		53		2.37
Investment securities:
Taxable		1,677,745		7,503		1.77			1,009,674		3,206		1.26
Tax-exempt		91,852		534		2.31			25,038		122		1.93
Total securities		1,769,597		8,037		1.80			1,034,712		3,328		1.28

Federal Home Loan Bank stock		11,712		172		5.83			11,364		83		2.90

SBA Paycheck Protection Program (PPP) loans		22,939		703		12.16			281,420		4,423		6.24
Non-PPP loans		4,925,959		56,177		4.52			3,891,840		39,013		3.98
Total loans		4,948,898		56,880		4.56			4,173,260		43,436		4.13

Total interest earning assets		7,181,781		67,642		3.74			5,760,760		47,108		3.24

Less allowance for credit losses on loans		67,473							61,324

Non-interest earning assets:
Cash and due from banks		88,434							65,682
Premises and equipment, net		117,296							77,855
Bank owned life insurance		81,841							52,631
Goodwill		198,634							136,369
Accrued interest receivable and other		61,207							107,203

Total assets	$	7,661,720						$	6,139,176


Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,213,657	$	2,536		0.45	%	$	1,700,631	$	470		0.11	%
Savings		566,045		171		0.12			400,288		37		0.04
Money market		1,168,111		1,524		0.52			965,518		168		0.07
Time		497,170		218		0.17			459,348		728		0.63
Total interest bearing deposits		4,444,983		4,449		0.40			3,525,785		1,403		0.16

Securities sold under agreements to repurchase		139,749		176		0.50			71,065		6		0.03
Federal funds purchased		8,985		50		2.21			10,983		5		0.18
Federal Home Loan Bank advances		-		-		0.00			10,000		51		2.02
Subordinated debentures		26,210		359		5.43			-		-		0.00


Total interest bearing liabilities		4,619,927		5,034		0.43			3,617,833		1,465		0.16

Non-interest bearing liabilities:
Non-interest bearing demand deposits		2,169,280							1,771,432
Accrued interest payable and other		112,191							89,812
Total liabilities		6,901,398							5,479,077

Stockholders’ equity		760,322							660,099
Total liabilities and stockholders' equity	$	7,661,720						$	6,139,176

Net interest income			$	62,608						$	45,643

Net interest spread						3.31	%						3.08	%

Net interest margin						3.46	%						3.14	%

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

	Nine months ended September 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	$	557,578	$	3,845		0.92	%	$	361,713	$	358		0.13	%
Mortgage loans held for sale		9,542		177		2.48			10,703		175		2.19
Investment securities:
Taxable		1,557,119		18,988		1.63			813,199		8,245		1.36
Tax-exempt		74,093		1,320		2.38			18,030		228		1.69
Total securities		1,631,212		20,308		1.66			831,229		8,473		1.36

Federal Home Loan Bank stock		12,015		328		3.65			11,312		204		2.41

SBA Paycheck Protection Program (PPP) loans		62,933		4,680		9.94			473,185		18,359		5.19
Non-PPP loans		4,663,438		147,841		4.24			3,403,454		102,285		4.02
Total loans		4,726,371		152,521		4.31			3,876,639		120,644		4.16

Total interest earning assets		6,936,718		177,179		3.41			5,091,596		129,854		3.41

Less allowance for credit losses on loans		63,857							57,620

Non-interest earning assets:
Cash and due from banks		92,890							55,707
Premises and equipment, net		105,994							66,818
Bank owned life insurance		62,924							41,962
Goodwill		184,404							67,674
Accrued interest receivable and other		79,238							97,984
Total assets	$	7,398,311						$	5,364,121


Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,199,702	$	4,169		0.25	%	$	1,515,903	$	1,242		0.11	%
Savings		536,680		277		0.07			303,150		59		0.03
Money market		1,138,848		2,174		0.26			902,040		423		0.06
Time		495,609		770		0.21			413,885		2,624		0.85
Total interest bearing deposits		4,370,839		7,390		0.23			3,134,978		4,348		0.19

Securities sold under agreements to repurchase		123,845		250		0.27			57,980		16		0.04
Federal funds purchased		9,515		72		1.01			10,505		11		0.14
Federal Home Loan Bank advances		-		-		0.00			19,398		301		2.07
Subordinated debentures		20,191		670		4.44			-		-		0.00


Total interest bearing liabilities		4,524,390		8,382		0.25			3,222,861		4,676		0.19

Non-interest bearing liabilities:
Non-interest bearing demand deposits		2,038,168							1,517,423
Accrued interest payable and other		97,362							82,599
Total liabilities		6,659,920							4,822,883

Stockholders’ equity		738,391							541,238
Total liabilities and stockholders' equity	$	7,398,311						$	5,364,121

Net interest income			$	168,797						$	125,178

Net interest spread						3.16	%						3.22	%

Net interest margin						3.25	%						3.29	%

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

●

Average loan balances include the principal balance of non-accrual loans, as well as unearned income such as loan premiums, discounts, fees/costs and exclude participation loans accounted for as secured borrowings. Participation loans averaged $5 million for the three-month periods ended both September 30, 2022 and 2021, respectively. Participation loans averaged $5 million and $7 million for the nine-month periods ended September 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~~$232,000 and ~~$203 thousand, respectively,~~$160,000 for the ~~three month~~three-month periods ended September 30, ~~2017~~2022 and ~~2016~~2021, respectively, and ~~$599 thousand~~$677,000 and ~~$637 thousand, respectively,~~$286,000 for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2022 and ~~2016.~~2021, respectively.

●

~~Average balances for loans include~~Interest income includes loan fees of $2.2 million ($590,000 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~~$4.2 million ~~and $16.3~~($3.7 million ~~respectively,~~associated with the PPP) for the ~~three month~~three-month periods ended September 30, ~~2017~~2022 and ~~2016~~2021, respectively, and ~~$18.9~~$8.9 million ($4.1 million associated with the PPP) and ~~$11.2~~$16.3 million ~~respectively,~~($14.9 million associated with the PPP) for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2022 and ~~2016.~~2021. Interest income on loans may be materially 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 funding 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 September 30, 2022 were derived from 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 65%. However, given the level 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 the end of 2022. The anticipated lower deposit beta would result in the Company’s interest rate sensitivity position turning slightly asset ~~sensitive as~~sensitive. Further, 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.

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 decreases of 100 and 200 bps in interest rates would also have a negative effect on net interest income. ~~If rates raise 200 basis points,~~These results depict a relatively neutral interest rate risk profile. The decrease in net interest income ~~would increase 2.12%. The excess liquidity held~~ in ~~interest bearing deposit accounts and other short-term investments along with~~the rising rate scenarios is primarily due to variable rate loans ~~now at or above their floors gives Bancorp significant assets that will reprice as rates move. Those same~~and short-term investments repricing slower than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in athe down 100 ~~basis point rate scenario.~~and 200 bps scenarios, 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			Basis Points			Basis Points			Basis Points			Basis Points
% Change from base net interest income at September 30, 2022		-8.28	%		-0.42	%		-0.42	%		-0.56	%		-1.11	%

~~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 69% fixed and ~~after the .25% increase in Prime in June of 2017, the majority of Bancorp’s~~31% 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 65%) or ~~above their floors.~~ one month LIBOR/SOFR (approximately 35%).

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 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.

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 also allows for the continued use of any appropriate benchmark rate for new contracts.

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~~Stock Yards Bancorp, inc.~~As of September 30, 2022, the Company had approximately $455 million in loans and ~~subsidiary~~$140 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 $76 million in loans that were indexed to SOFR at September 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 has historically used derivative financial instruments as part of its interest rate risk management, including interest rate swaps designated as cash flow ~~hedges described in Note~~ ~~18 to Bancorp’s consolidated financial statements are recognized on~~hedges. For these derivatives, the ~~consolidated balance sheet at fair value, with changes in fair value due to changes in prevailing interest rates, recorded net~~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 September 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 September 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						Nine months ended
	September 30,						September 30,
(dollars in thousands)	2022			2021			2022			2021

Beginning balance	$	66,362		$	59,424		$	53,898		$	51,920
Acquisition - PCD loans (goodwill adjustment)		-			-			9,950			6,757
Adjusted beginning balance		66,362			59,424			63,848			58,677

Provision for credit losses - loans		4,103			(1,000	)		1,653			(4,900	)
Provision for credit losses - acquired loans		-			-			4,429			7,397
Total provision for credit losses on loans		4,103			(1,000	)		6,082			2,497

Total charge-offs		(926	)		(2,215	)		(1,705	)		(5,779	)
Total recoveries		544			324			1,858			1,138
Net loan (charge-offs) recoveries		(382	)		(1,891	)		153			(4,641	)
Ending balance	$	70,083		$	56,533		$	70,083		$	56,533

Average total loans	$	4,948,898		$	4,173,260		$	4,726,371		$	3,876,639

Provision for credit losses on loans to average total loans (1)		0.08	%		-0.02	%		0.13	%		0.06	%
Net loan (charge-offs) recoveries to average total loans (1)		-0.01	%		-0.05	%		0.00	%		-0.12	%
ACL for loans to total loans		1.38	%		1.35	%		1.38	%		1.35	%
ACL for loans to total loans (excluding PPP) (2)		1.39	%		1.43	%		1.39	%		1.43	%
ACL for loans to average total loans		1.42	%		1.35	%		1.48	%		1.46	%

(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 $70 million as of September 30, 2022 compared to $54 million at December 31, 2021, representing an ACL to total loans ratio of 1.38% and 1.29% for those periods, respectively. The ACL to loans (excluding PPP loans) was 1.39% at September 30, 2022 compared to 1.34% at December 31, 2021. Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled $19 million at September 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.

Provision of $4.1 million was recorded to provision for credit losses on loans expense for the three month period ended September 30, 2022, driven by strong third quarter loan growth and to a lesser extent, a negative economic forecast. For the second consecutive quarter, the projected unemployment rate forecast, which is the primary loss driver with Bancorp’s CECL model, increased due to inflation and recession-based concerns. Further, net charge off activity for the three months ended September 30, 2022 totaled $382,000, serving to reduce the ACL for loans slightly.

Provision expense (excluding acquisition-related activity) of $1.7 million was recorded for the nine month period ended September 30, 2022. Strong loan growth, the aforementioned increase in the projected unemployment rate forecast, along with qualitative factor updates related to the potential impact of rising rates on the C&I portfolio, have been the main drivers of expense within the CECL model for 2022. Further, net charge off/recovery activity for the nine months ended September 30, 2022 has been minimal. However, 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 partially offset the expense drivers noted above for nine month periods ~~ended~~ending September 30, ~~2017 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 off when deemed uncollectible and a loss is identified or after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries may occur. Periodically, loans are partially charged off to net realizable value based upon collateral analysis and collection status.

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

(in thousands)

Three months

Nine months

ended September 30,

ended September 30,

Net loan charge-offs (recoveries)

2017

2016

2017

2016

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

2022.

Table of Contents

~~Stock Yards Bancorp, inc.~~Credit loss expense recorded for the acquired CB loan portfolio totaled $4.4 million and ~~subsidiary~~

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

~~The following table sets forth major components~~was recorded in the first quarter of ~~non-interest income and expenses~~2022 upon closing of the CB acquisition, bringing total provision for credit losses on loans to $6.1 million for the ~~three and~~ nine ~~month periods~~months ended September 30, ~~2017 and 2016.~~

Three months

Nine months

ended September 30,

ended September 30,

(In thousands)

2017

2016

% Change

2017

2016

% Change

Non-interest income:

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

Non-interest expenses:

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

2022. 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).

Negative provision of $1 million was recorded for the three months ended September 30, 2021, driven mainly by the benefits of improvement in the unemployment forecast for the period. Provision for credit loss expense of $2.5 million was recorded for the nine months ended September 30, 2021, as the benefits of an improving unemployment forecast in that period were more than offset by expense associated with the non-PCD loan portfolio added through the KB acquisition.

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 September 30, 2022. The ~~largest component~~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 for off balance sheet credit exposures of ~~non-interest income~~$800,000 was also recorded for the nine month period ended September 30, 2022, driven largely by the addition of new lines of credit, and thus increased availability, largely within the C&D portfolio. The ACL for off balance sheet credit exposures ended at $4.8 million as of September 30, 2022 compared to $3.5 million as of December 31, 2021.

Bancorp’s loan portfolio is ~~wealth~~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 ~~and trust (“WM&T”) revenue. The magnitude~~that the balance 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~~the ACL at September 30, ~~2017, a 12.5% increase compared~~2022 is adequate to ~~$2.4 billion at September 30, 2016. AUM are stated at market value and while~~absorb probable losses inherent in the ~~2017 increase was partially the result of a rising stock market during the period, primarily it represents a continuance~~loan portfolio as of the ~~2016 trend for new clients added. WM&T revenue, which constitutes an average~~financial statement date.

Table of ~~45% of~~Contents

Non-interest Income

	Three months ended September 30,										Nine months ended September 30,
(dollars in thousands)	2022		2021		$ Variance			% Variance			2022		2021		$ Variance			% Variance

Wealth management and trust services	$	9,152	$	7,128	$	2,024			28	%	$	26,890	$	20,234	$	6,656			33	%
Deposit service charges		2,179		1,768		411			23			6,103		3,945		2,158			55
Debit and credit card income		4,710		3,887		823			21			13,577		9,444		4,133			44
Treasury management fees		2,221		1,771		450			25			6,312		5,041		1,271			25
Mortgage banking income		703		915		(212	)		(23	)		3,001		3,662		(661	)		(18	)
Net investment product sales commissions and fees		892		780		112			14			2,230		1,789		441			25
Bank owned life insurance		516		275		241			88			1,052		642		410			64
Gain on sale of premises		3,074		-		3,074			100			3,074		-		3,074			100
Other		1,417		1,090		327			30			3,768		2,489		1,279			51
Total non-interest income	$	24,864	$	17,614	$	7,250			41	%	$	66,007	$	47,246	$	18,761			40	%

Total non-interest income increased ~~$225 thousand, or 4.7% and $1.1~~$7.3 million, or ~~7.4%~~41%, and $18.8 million, or 40%, for the three and nine month periods ended September 30, ~~2017 respectively,~~2022 compared to the same periods ~~in 2016. Recurring fees, which generally comprise over 98%~~ of 2021, respectively. Non-interest income comprised 28.5% and 28.2% of total revenues, defined as net interest income and non-interest income, for the three and nine month periods September 30, 2022 compared to 27.9% and 27.4% for the same periods of 2021. WM&T ~~revenue, increased $340 thousand or 7.4%~~services comprised 36.8% and ~~$1.4 million, or 10.7%,~~40.7% of total non-interest income for the ~~respective~~ three and nine month periods ended September 30, ~~2017, as~~2022 compared to 40.5% and 42.8% for the same periods of 2021. Acquisition-related activity has driven a significant portion of the non-interest income increase for the three and nine month periods ended September 30, 2022 compared to the same periods of the prior year.

WM&T Services:

The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $2.0 million, or 28%, and $6.7 million, or 33%, for the three and nine month periods ended September 30, 2022, as compared with the same periods of 2021. Significant growth in ~~2016.~~ AUM drove the increases for both periods, consistent with both acquisition-related activity and organic new business development. However, significant declines in both fixed income and equity markets have weighed heavily on WM&T revenue in 2022, particularly for the three months ended September 30, 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 $2.0 million, or 31%, and $6.7 million, or 35%, for the three and nine month periods ended September 30, 2022, as compared with the same periods of 2021. The increase was driven by both acquisition-related activity and organic 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~~$138,000 and ~~$393 thousand~~$203,000 for the three and nine ~~months~~month periods ended September 30, ~~2017,~~2022, as compared towith the same periods of 2021, which was driven mainly by lower estate fee income earned.

AUM, stated at market value, totaled $6.30 billion at September 30, 2022 compared with $4.51 billion at September 30, 2021 and $4.80 billion at December 31, 2021. The large increase in ~~2016, primarily due~~AUM between September 30, 2021 and September 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 organic net new business growth 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~~

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

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2022		2021		2022		2021

Investment advisory	$	3,585	$	3,148	$	10,157	$	8,823
Personal trust		3,025		1,855		9,898		5,481
Personal investment retirement		1,677		1,330		4,551		3,823
Company retirement		425		503		1,192		1,302
Foundation and endowment		284		208		774		581
Custody and safekeeping		107		40		207		112
Insurance services		15		25		55		69
Other		34		19		56		43

Total WM&T services income	$	9,152	$	7,128	$	26,890	$	20,234

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

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

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

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

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

Assets Under Management by Account Type

September 30, 2017

September 30, 2016

Assets

Assets

(in thousands)

Managed

Non-
managed
(1)

Managed

Non-
managed
(1)

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

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

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

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

~~Table of Contents~~

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

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

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

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

Managed Assets by Class of Investment

As of September 30,

(in thousands)

2017

2016

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

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

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

~~Table of Contents~~

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

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

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

~~Other Non-interest~~ ~~Income and Non-interest Expense~~Assets Under Management by Account Type:

~~Service~~AUM (not included on balance sheet) increased from $4.80 billion at December 31, 2021 to $6.30 billion at September 30, 2022 as follows:

	September 30, 2022						December 31, 2021
(in thousands)	Managed		Non-managed (1)		Total		Managed		Non-managed (1)		Total
Investment advisory	$	2,097,746	$	59,536	$	2,157,282	$	1,919,593	$	34,879	$	1,954,472
Personal trust		1,675,389		461,899		2,137,288		939,703		150,221		1,089,924
Personal investment retirement		715,799		25,581		741,380		620,312		3,478		623,790
Company retirement		48,844		549,658		598,502		35,234		599,129		634,363
Foundation and endowment		406,637		7,476		414,113		368,572		1,532		370,104

Subtotal	$	4,944,415	$	1,104,150	$	6,048,565	$	3,883,414	$	789,239	$	4,672,653
Custody and safekeeping		—		244,923		244,923		—		128,178		128,178

Total	$	4,944,415	$	1,349,073	$	6,293,488	$	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.

As of September 30, 2022 and December 31, 2021, approximately 79% and 81%, respectively, of AUM were actively managed. Company retirement plan accounts consist primarily of participant-directed assets. The amount of custody and safekeeping accounts are insignificant.

Table of Contents

Managed Trust Assets under Management by Class of Investment:

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

Interest bearing deposits	$	166,039	$	173,603
Treasury and government agency obligations		112,838		39,736
State, county and municipal obligations		192,378		110,795
Money market mutual funds		100,558		7,299
Equity mutual funds		1,068,664		944,500
Other mutual funds - fixed, balanced and municipal		617,302		612,913
Common trust funds and collective investment funds		119,939		-
Other notes and bonds		204,046		171,087
Common and preferred stocks		2,012,449		1,681,006
Real estate mortgages		778		-
Real estate		62,411		58,344
Other miscellaneous assets (1)		287,013		84,131

Total managed assets	$	4,944,415	$	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 62% in equities and 38% in fixed income securities as of September 30, 2022 compared to 68% and 32% as of December 31, 2021. This composition has remained relatively consistent from period to period.

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 $411,000, or ~~1% while increasing $416 thousand,~~23%, and $2.2 million, or ~~6.0%~~55%, for the three and nine month periods ~~of 2017, respectively,~~ended September 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, 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. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the ~~third quarter of 2016. The product provides ancillary services to customers, while carrying a monthly service charge. The income associated with~~future, which could negatively impact the ~~new checking account product was approximately $641 thousand for the first nine months of 2017, as compared to $198 thousand for the same period in 2016.~~contributions made by this, or similar, revenue streams.

~~Bankcard transaction~~Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased ~~$37 thousand~~$823,000, or ~~2.5% for the third quarter of 2017,~~21%, and ~~$214 thousand,~~$4.1 million, or 5.1% for the first nine months of 2017, as compared as compared with the same periods in 2016. Bankcard transaction revenue primarily represents income the Bank derives from customers’ use of debit and credit cards. Bancorp began offering credit cards to business customers late in 2015. Revenue on credit cards totaled $276 thousand and $795 thousand44%, for the three and nine month periods ~~of 2017, respectively,~~ended September 30, 2022, as compared ~~to $206 thousand and $520 thousand for~~with the same periods ~~in 2016. Bancorp expects~~of 2021, as a result of increased transaction volume and continued expansion of the customer bases, both organically and through acquisition-related activity. Total debit card income increased $503,000, or 18%, and $2.9 million, or 43%, and total credit card ~~transactions to increase as this product is expanded within the commercial customer base. Interchange~~ income ~~on debit cards declined $35 thousand~~increased $320,000, or 28%, and ~~$66 thousand in~~$1.3 million, or 45%, for the three and nine month periods ~~of 2017, respectively,~~ended September 30, 2022, compared to the same periods ~~in 2016.~~of the prior year. Bancorp expects ~~future decreases in interchange rates on debit cards as merchants structure their technology and processes~~this revenue stream will continue to ~~take advantage~~grow with the expansion of ~~lower transactional pricing options, which do not favor Bancorp or~~ the ~~banking industry~~customer base.

Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a ~~whole.~~consistent, growing source of revenue for Bancorp and increased $450,000, or 25%, and $1.3 million, or 25%, for the three and nine month periods ended September 30, 2022, as compared with 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 the expansion of online services, reporting, ACH origination, remote deposit and fraud mitigation services over the past twelve months. Bancorp anticipates this income category will continue to increase based on continued customer base growth and the expanding suite of services offered within Bancorp’s treasury management platform.

Table of Contents

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

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~~$212,000, or ~~27.1%~~23%, and ~~$516 thousand,~~$661,000, or ~~17.8%~~18%, for the ~~respective~~ three and nine month periods ended September 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 in the first half of 2017, contributing to this decline.~~

~~Securities brokerage commissions and fees decreased $7 thousand or 1.3% while increasing $45 thousand, or 2.9%, for the respective~~ three and nine month ~~periods ended September 30, 2017 as compared with~~period declines noted above, mortgage banking income has benefitted from the ~~same periods~~addition of the mortgage loan servicing portfolio added through the CB acquisition, which serviced approximately $1.48 billion in ~~2016. Revenue fluctuations correspond primarily to overall brokerage volume. Brokerage~~mortgage loans at the time it was acquired.

Net investment product sales commissions and fees ~~earned consist~~are generated primarily ofon stock, bond and mutual fund sales, as well as wrap fees earned 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 $112,000, or 14%, and $441,000, or 25%, for the ~~third quarter~~three and ~~$964 thousand for the first~~ nine ~~months of 2017,~~month periods ended September 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 associated with general market volatility.

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. During the third quarter of 2022, Bancorp purchased an additional $30 million of BOLI assets in an effort to diversify investment of excess liquidity, bringing total BOLI assets to $84 million as of September 30, 2022. BOLI income increased $241,000, or 88%, and $410,000, or 64%, for the three and nine month periods ending September 30, 2022 compared to the same periods of the prior year, which was attributed mainly to the additional investment noted above and contributions from the BOLI portfolio added as a result of the KB acquisition in May of 2021.

During the third quarter of 2022, Bancorp completed the sale of certain acquired properties that overlapped with existing locations, recording a gain of $3.1 million as a result. No such activity was recorded in 2021.

Other non-interest income ~~decreased $216 thousand~~increased $327,000, or ~~30.3%~~30%, and ~~$193 thousand,~~$1.3 million, or ~~11%~~51%, for the ~~respective~~ three and nine month periods ended September 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 ~~the decline was swap~~2021 and an increase in other miscellaneous fee ~~income, which declined $116 thousand in the third quarter~~income.

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Non-interest Expenses

	Three months ended September 30,										Nine months ended September 30,
(dollars in thousands)	2022		2021		$ Variance			% Variance			2022		2021		$ Variance			% Variance

Compensation	$	23,069	$	17,381	$	5,688			33	%	$	63,242	$	45,888	$	17,354			38	%
Employee benefits		4,179		3,662		517			14			13,147		10,290		2,857			28
Net occupancy and equipment		3,767		2,732		1,035			38			10,455		7,021		3,434			49
Technology and communication		3,747		3,173		574			18			11,150		8,189		2,961			36
Debit and credit card processing		1,437		1,479		(42	)		(3	)		4,439		3,160		1,279			40
Marketing and business development		1,244		1,011		233			23			3,461		2,357		1,104			47
Postage, printing and supplies		903		630		273			43			2,461		1,499		962			64
Legal and professional		774		700		74			11			2,451		1,828		623			34
FDIC insurance		847		387		460			119			2,028		1,141		887			78
Amortization of investments in tax credit partnerships		88		53		35			66			265		315		(50	)		(16	)
Capital and deposit based taxes		722		556		166			30			1,822		1,541		281			18
Merger expenses		-		525		(525	)		(100	)		19,500		19,025		475			2
FHLB early termination penalty		-		-		-			0			-		474		(474	)		(100	)
Intangible amortization		1,610		290		1,320			455			3,934		494		3,440			696
Other		2,486		1,979		507			26			7,490		4,486		3,004			67
Total non-interest expenses	$	44,873	$	34,558	$	10,315			30	%	$	145,845	$	107,708	$	38,137			35	%

Total non-interest expenses increased $10.3 million, or 30%, and ~~$251 thousand~~$38.1 million, or 35%, for the ~~first~~three and nine ~~months~~month periods ended September 30, 2022 compared to the same periods of ~~2017,~~2021, the variances stemming largely from the CB and KB acquisitions. Compensation and employee benefits comprised 60.7% and 52.4% of Bancorp’s total non-interest expenses for the three and nine month periods ended September 30, 2022, compared to 60.9% and 52.2% for the same periods of 2021. Excluding merger expenses, compensation and employee benefits comprised 60.7% and 60.5% for the three and nine month periods ended September 30, 2022, compared to 61.8% and 63.3% for the same periods of 2021.

Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $5.7 million, or 33%, and $17.4 million, or 38%, for the three and nine month periods ended September 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 1,028 at September 30, 2022 compared to 820 at December 31, 2021 and 793 at September 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~~$517,000, or ~~7.8% for the third quarter of 2017,~~14%, and ~~$3.0~~$2.9 million, or ~~8.4%~~28%, for the ~~first~~three and nine ~~months of 2017,~~month periods ended September 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.~~noted above.

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.

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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~~ 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 $1.0 million, or ~~32%~~38%, and ~~$319 thousand,~~$3.4 million, or ~~30.7%~~49%, for the ~~respective~~ three and nine month periods of 2017, as compared with the same periods in 2016. The expense assessment is calculated by the FDIC on a quarterly basis. During 2016 the FDIC revised the assessment criteria to more closely align FDIC insurance expense with each financial institution’s risk profile. Bancorp benefited from this change.

~~Amortization of investments in tax credit partnerships~~ ~~decreased $399 thousand for the third quarter of 2017 and $1.2 million for the first nine months of 2017,~~ended September 30, 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. The KB acquisition in May of 2021 resulted in the addition of 19 branch locations in addition to operational buildings. At September 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.

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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 $574,000, or 18%, and $3.0 million, or 36%, for the three and nine month periods ended September 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 typically fluctuate consistent with transaction volumes. Debit and credit card processing expense decreased $42,000, or 3%, and increased $1.3 million, or 40%, for the three and nine month periods ending September 30, 2022 compared to the same periods of last year. The decrease for the three month period stems from expenses incurred in the prior year period associated with the timing of the KB core conversion. The increase for the nine month period correlates in part with the increase in transaction volume and customer base expansion resulting from both organic and acquisition-related growth that served to increase corresponding 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 $233,000, or 23%, and $1.1 million, or 47%, for the three and nine month periods ending September 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 $273,000, or 43%, and $962,000, or 64%, for the three and nine month periods ended September 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 $74,000, or 11%, and $623,000, or 34%, for the three and nine month periods ended September 30, 2022 compared to the same periods of last year, 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 $460,000, or 119%, and $887,000, or 78%, for the three and nine month periods ended September 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, and to a lesser extent, an increased assessment rate.

Tax credit partnerships ~~which~~ generate federal income tax credits, and ~~vary widely depending upon the timing and magnitude of investments and related amortization. For~~for each of Bancorp’s investments in tax credit partnerships, the tax benefit, ~~compared with the amortization~~net of related expenses, results in a positive effect on net income. ~~See~~Amounts of credits and corresponding expenses can vary widely depending upon the ~~Income Taxes section below~~timing and magnitude of the underlying investments. Amortization expense associated with these investments increased $35,000 and decreased $50,000 for ~~details on amortization and income tax impact for these credits.~~

~~Other non-interest expenses increased~~ ~~$190 thousand or 5.5% and $1.3 million or 13.6% in~~ the ~~respective~~ three and nine month periods ending September 30, ~~2017, as~~2022 compared ~~with~~to the same periods ~~in 2016. The quarterly increase was largely due to recording a $266 thousand liability related to an estimated loss from certain administrative proceedings arising in the course~~ of ~~our business. The increase~~last year.

Capital and deposit based taxes, which consist primarily of capital-based local income taxes and franchise taxes, increased $166,000, or 30%, and $281,000, or 18%, for the ~~year~~three and nine month periods ended September 30, 2022 compared to ~~date 2017 period was largely due~~the same periods of 2021, attributed to ~~a combination of numerous items, the largest of which are detailed below:~~

●

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

●

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

●

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

●

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

●

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

●

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

●

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

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~~Stock Yards Bancorp, inc.~~both organic and ~~subsidiary~~acquisition-related growth.

~~Income Taxes~~

~~Bancorp recorded income tax expense~~Merger expenses represent non-recurring expenses associated with completion of ~~$4.1 million~~the CB acquisition and ~~$11.6~~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 nine month periods ended September 30, ~~2017, respectively, as~~2022, compared ~~with $3.9 million~~to $0 and ~~$11.2~~$19.0 million for the same periods of 2021.

During the nine months ended September 30, 2021, an early termination fee of $474,000 was recorded in ~~2016.~~relation to the pre-payment of FHLB advances totaling $14 million prior to their respective contractual maturities. Bancorp chose to payoff these term advances during the second quarter of 2021 due to excess liquidity held on the balance sheet and the near-term outlook for low interest rates at the time of payoff. 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 LFA business lines added through the CB acquisition. The ~~effective rate~~intangibles are generally amortized on an accelerated basis over a period of approximately ten years. Intangible amortization for ~~both~~ the three and nine month periods ended September 30, 2022 was $1.6 million and $3.9 million, respectively, compared to $290,000 and $494,000 for the same periods of the prior year, the significant increase stemming from the CB acquisition.

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Other non-interest expenses increased $507,000 and $3.0 million for the three and nine month periods ended September 30, 2022, as compared 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 May of 2021, increased card reward expense, higher fraud-related expenses and other ancillary expenses tied to Bancorp’s significant growth over the past twelve months.

Bancorp’s efficiency ratio (FTE) for the three month period ended September 30, 2022 was 51.30%, while the ratio for the corresponding nine month period was 62.11%, the latter reflecting one-time merger-related expenses attributed to the CB acquisition, which were all recorded in the first quarter of 2022. Bancorp’s efficiency ratio for the three and nine month periods ended September 30, 2021 was 54.63% and 62.47%. Bancorp also considers an adjusted efficiency ratio, which eliminates net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of acquired premises and equipment, if applicable, and the fluctuation in non-interest expenses related to amortization of investments in tax credit partnerships and non-recurring merger expenses. Bancorp’s adjusted efficiency ratio was 53.06% and 54.41% for the three and nine month periods ended September 30, 2022 compared to 53.72% and 51.25% for three and nine months ended September 30, ~~2017, was 25.9%~~2021. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

Income Tax Expense

A comparison of income tax expense and ETR follows:

	Three months ended September 30,											Nine months ended September 30,
(dollars in thousands)	2022			2021			$ Variance		% Variance			2022			2021			$ Variance		% Variance

Income before income tax expense	$	37,564		$	30,064		$	7,500		25	%	$	81,400		$	63,283		$	18,117		29	%
Income tax expense		9,024			6,902			2,122		31			18,016			13,227			4,789		36
Effective tax rate		24.0	%		23.0	%	100 bps			4			22.1	%		20.9	%	120 bps			6

Fluctuations 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~~ETR are primarily attributed to the ~~consolidated financial statements for a reconciliation of 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 as is reflected in the comparable effect on effective tax rates for those periods. Taken as a whole, the tax benefit of these investments exceeds amortization expense associated with them, resulting in a positive impact on net income.

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

~~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.following:

b)●

The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity. The ETR was reduced 1.3% for the nine month period ended September 30, 2022 compared to a reduction of 1.7% for the same period of 2021, as a result of increased levels of exercise activity.

●

Changes in the cash surrender value of 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 life insurance policies increased the ETR 0.6% for the nine months ended September 30, 2022, compared to a 0.7% decrease for the same period of the prior year.

●

Bancorp invests in certain partnerships that yield federal income tax credits. Taken as a whole, the tax benefit of these investments exceeds amortization expense, resulting in a positive impact on net income. The timing and magnitude of these transactions may vary widely from period to period. The ETR for the three months ended September 30, 2022 and 2021 was reduced by 0.5% and 1.1%, respectively. The ETR for the nine months ended September 30, 2022 and 2021 was reduced by 0.6% and 0.8%, respectively.

●

Tax-exempt interest income earned on loans and investment securities reduced the ETR 0.7% for the nine month period ended September 30, 2022 compared to a reduction of 0.3% for the same period of the prior year, the larger reduction in the current year being attributed to tax-exempt loans and securities added through acquisitions over the past twelve months.

●

Non-deductible merger expenses recorded during the nine month period ended September 30, 2022 served to increase the ETR 0.2%, compared to an increase of 0.5% for the same period of 2021.

●

As a result of the KB acquisition in May of 2021, Bancorp 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 group of third-party insurance captives. The tax advantages of the Captive, including the tax-deductible nature of premiums paid to the Captive as well as the tax-exemption for premiums received by the Captive, serve to reduce income tax expense. Related activity reduced the ETR 0.3% for the nine month period ended September 30, 2022, compared to reduction of 0.2% for the same period of 2021.

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Financial Condition

– September 30, 2022 Compared to December 31, 2021

~~Balance Sheet~~Overview

Total assets increased ~~$116.4~~$908 million, or ~~3.8%~~14%, to ~~$3.2~~$7.55 billion at September 30, ~~2017 as compared to $3.0~~2022 from $6.65 billion at December 31, ~~2016. Loans increased $29.7~~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 $395 million, or ~~1.3%~~10%, ~~period~~between December 31, 2021 and September 30, 2022.

Total liabilities increased $853 million, or 14%, to ~~period, with increases primarily in commercial and industrial loans, commercial real estate, and to~~$6.82 billion at September 30, 2022 from $5.97 billion at December 31, 2021. Total liabilities of $1.24 billion were assumed on March 7, 2022 as 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~~the CB acquisition, including total deposits of $1.12 billion. Further, SSUAR totaling $66 million and subordinated debentures of $26 million were ~~not replaced with permanent financing. Securities available-for-sale~~also assumed as a result of the CB acquisition.

Stockholders’ equity increased $52 million, or 8%, to $728 million at September 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 $63.2 million were offset by ~~$1.4~~a $120 million negative fluctuation in AOCI and dividends declared during the first nine months of ~~2017.~~2022. The ~~majority of this increase~~large decline in AOCI from December 31, 2021 to September 30, 2022 was the result of ~~short-term investments made~~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 $631 million, or 66%, ending at $330 million at September 30, 2022 compared to $961 million at December 31, 2021. The decline stemmed mainly from loan growth, investment in the securities portfolio and seasonal deposit run-off. The average balance of cash and cash equivalents increased $233 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 several quarters. However, excluding acquisition-related activity, period-end deposit balances have declined in 2022, driven largely by seasonal fluctuation in public funds and time deposit attrition.

Investment Securities

Investment securities increased $447 million, or 38%, to $1.63 billion at September 30, 2022 compared to $1.18 billion at December 31, 2021. In addition to $247 million of securities being added as a result of the CB acquisition, Bancorp continued to actively invest in the securities portfolio in an effort to deploy excess liquidity by purchasing $640 million of debt securities during the nine months ended September 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 $158 million stemming from an upward move in the interest rate environment experienced during the first three quarters of 2022.

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

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

U.S. Treasury and other U.S. Government obligations	$	114,426	$	217,684	$	332,110
Government sponsored enterprise obligations		151,299		27,666		178,965
Mortgage backed securities - government agencies		750,589		232,775		983,364
Obligations of states and political subdivisions		127,215		-		127,215
Other		5,644		-		5,644
Total investment securities	$	1,149,173	$	478,125	$	1,627,298

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Premises and Equipment

Premises and equipment are presented on the consolidated balance sheets net of related depreciation on the respective assets, as well as fair value adjustments associated with purchase accounting. Premises and equipment increased $22 million, or 28%, between December 31, 2021 and September 30, 2022, driven by the CB acquisition. As a result of the acquisition, 15 branches were acquired, four of which were closed shortly acquisition as a result of overlapping with existing locations of the Bank. Bancorp’s branch network currently consists of 73 locations throughout Louisville, central, eastern and northern, Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs.

Premises held for sale totaling $10 million are also recorded on Bancorp’s consolidated balance sheets as of September 30, 2022, which consist of five properties, three of which were added through recent acquisitions and two legacy operational buildings. Bancorp expects the sale of these properties to be completed during the fourth quarter of 2022 or the first part of 2023.

Goodwill

At September 30 2022, Bancorp had $203 million in goodwill recorded on its balance sheet, including $67 million recorded with the March 7, 2022 acquisition of CB. 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.

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, 2022, Bancorp elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting units exceeded their carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting units exceeded their fair value.

Core Deposit and 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 September 30, 2022 and December 31, 2021, Bancorp’s CDI assets were $16 million and $6 million, respectively.

CLI assets totaling $14 million were also recorded in association with the CB acquisition. Of this total, $12 million was attributed to CB’s WM&T segment and $2 million attributed to LFA. No similar assets were recorded in relation to the KB acquisition. As of September 30, 2022, Bancorp’s CLI assets totaled $13 million.

Other Assets and Other Liabilities

Other assets increased $50 million, or 58%, to $136 million at September 30, 2022. Other liabilities increased $66 million, or 68%, to $163 million at September 30, 2022.

The increase in other assets stems largely from a $31 million increase in DTAs driven by the significant market depreciation experienced within the AFS debt securities portfolio for the nine months ended September 30, 2022 associated with rising interest rates. The rising interest rate environment also drove an $8 million increase in Bancorp’s interest rate swap assets. Further, $13 million in MSR assets were added during the first quarter in relation to the CB acquisition.

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

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Loans

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

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

Commercial real estate - non-owner occupied	$	1,415,180	$	1,128,244	$	286,936			25	%
Commercial real estate - owner occupied		819,727		678,405		141,322			21	%
Total commercial real estate		2,234,907		1,806,649		428,258			24	%

Commercial and industrial - term		751,193		596,710		154,483			26	%
Commercial and industrial - term - PPP		19,469		140,734		(121,265	)		-86	%
Commercial and industrial - lines of credit		419,048		370,312		48,736			13	%
Total commercial and industrial		1,189,710		1,107,756		81,954			7	%

Residential real estate - owner occupied		557,638		400,695		156,943			39	%
Residential real estate - non-owner occupied		302,936		281,018		21,918			8	%
Total residential real estate		860,574		681,713		178,861			26	%

Construction and land development		414,632		299,206		115,426			39	%
Home equity lines of credit		199,485		138,976		60,509			44	%
Consumer		138,843		104,294		34,549			33	%
Leases		13,959		13,622		337			2	%
Credits cards		20,767		17,087		3,680			22	%
Total loans (1)	$	5,072,877	$	4,169,303	$	903,574			22	%

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

Total loans increased $904 million, or 22%, from December 31, 2021 to September 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 $121 million decline in the PPP loan portfolio.

Excluding the loans acquired through the CB acquisition and the PPP portfolio, loan growth of $395 million, or 10%, was experienced between December 31, 2021 and September 30, 2022, driven by ~~maturities during~~solid organic growth across virtually every loan portfolio segment.

After hitting a pandemic-era low of 36.5% at March 31, 2021, total line of credit utilization has improved significantly, reaching 39.6% at September 30, 2022, led by C&I utilization, which strengthened from 23.9% to 29.5% over the same period, respectively. However, line of credit usage has remained below pre-pandemic levels, with customers continuing to maintain elevated levels of liquidity amidst current economic uncertainty. Further, the addition of new lines, particularly within the C&D and C&I portfolio segments, has increased availability through 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~~2022, but utilization of the new lines has been relatively slow.

PPP loans of $19 million were outstanding at September 30, ~~2017 and $100 million at December 31, 2016, normally have a maturity~~2022. Bancorp has $380,000 in net unrecognized fees related to the PPP as 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~~2022, which will be recognized immediately once the loans are paid off or forgiven by the SBA. The timing of forgiveness activity and the related fee recognition has become less significant, as ~~compared to unrealized losses~~the balance 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.~~

~~Table of Contents~~

~~Stock Yards Bancorp, inc. and subsidiary~~the overall portfolio has shrunk.

~~Total liabilities~~ ~~increased $96.0 million, December 31, 2016~~Bancorp’s credit exposure is diversified with secured and unsecured loans to ~~September 30, 2017, from $2.7 billion~~individuals and businesses. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s ability to ~~$2.8 billion, respectively. Federal funds purchased~~honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and ~~other short-term borrowing increased $114.6 million, period to period,~~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 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 million or 1.5%, period to period. Interest bearing demand deposits accounts decreased, $42.7 million, or 5.6%; time deposits, $17.8 million, or 7.1%;Indianapolis, Indiana 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~~

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

(in thousands)

Loans by Type

September 30, 2017

December 31, 2016

Commercial and industrial
$ 750,728 $ 736,841
Construction and development, excluding undeveloped land
174,310 192,348
Undeveloped land (1)
20,989 21,496
Real estate mortgage:

Commercial investment
576,810 538,886
Owner occupied commercial
397,804 408,292
1-4 family residential
261,707 249,498
Home equity - first lien
51,925 55,325
Home equity - junior lien
63,416 67,519
Subtotal: real estate mortgage
1,351,662 1,319,520
Consumer
37,431 35,170

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

~~(1)~~

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

~~Table of Contents~~

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

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

~~The allowance methodology is driven by risk ratings, historical losses, and qualitative factors.~~ The provision for the first nine months of 2017, and the resulting allowance level, reflected a number of factors, including a slight elevation in classified loans and an expansion of the historical look-back period from 24 quarters to 28 quarters. This expansion of the look-back period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss rates used in the quantitative allocation caused management to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation. Management believes the extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. Key indicators of loan quality continued to show improvement during 2017, with levels of non-performing loans continuing a five year downward trend. During its review of qualitative factors in the first nine months of 2017, Bancorp noted a potential exposure for one pool of classified loans. Due to this potential exposure, Bancorp increased its qualitative allocation for the allowance for the nine month period.

~~Additional information regarding Bancorp’s methodology for evaluating the adequacy of the allowance for loan loss can be read in the Company’s annual 10K.~~

~~As of~~ ~~September 30, 2017 the allowance for loan loss was $24.9 million, a $900 thousand increase over the December 31, 2016 balance of $24.0~~totaled $5 million. For the comparative periods, the allowance as a percent of average loans was 1.09% and 1.11%, respectively. The allowance as a percent of period end loans, as of each period end, was 1.07% and 1.04%, respectively.

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~~Stock Yards~~The following table presents the maturity distribution and rate sensitivity of the total loan portfolio as of September 30, 2022:

	Maturity
September 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
Fixed rate	$	153,563	$	1,452,152	$	1,135,996	$	767,099	$	3,508,810		69	%
Variable rate		540,558		552,963		421,562		48,984		1,564,067		31	%
Total loans	$	694,121	$	2,005,115	$	1,557,558	$	816,083	$	5,072,877		100	%

In the event where Bancorp ~~inc. and subsidiary~~structures a loan with a maturity exceeding five years (typically CRE loans), 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)	September 30, 2022			December 31, 2021

Non-accrual loans	$	10,580		$	6,712
Troubled debt restructurings		-			12
Loans past due 90 days or more and still accruing		32			684
Total non-performing loans		10,612			7,408

Other real estate owned		996			7,212
Total non-performing assets	$	11,608		$	14,620

Non-performing loans to total loans		0.21	%		0.18	%
Non-performing assets to total assets		0.15	%		0.22	%
ACL for loans to total non-performing loans		660	%		728	%

Non-performing assets as of September 30, ~~2017 were comprised~~2022 consisted of ~~33 non-accrual~~158 loans, ranging in ~~amount from $1~~individual amounts up to ~~$907 thousand, five accruing TDRs,~~$1.5 million, and ~~foreclosed~~OREO. At September 30, 2022, OREO included two CRE properties, one C&D property and one residential real estate ~~held for sale. Foreclosed real estate held~~property.

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

(in thousands)	September 30, 2022		December 31, 2021
Commercial real estate - non-owner occupied	$	620	$	720
Commercial real estate - owner occupied		3,227		1,748
Total commercial real estate		3,847		2,468

Commercial and industrial - term		1,474		670
Commercial and industrial - PPP		42		—
Commercial and industrial - lines of credit		1,620		228
Total commercial and industrial		3,136		898

Residential real estate - owner occupied		2,468		1,997
Residential real estate - non-owner occupied		227		293
Total residential real estate		2,695		2,290

Construction and land development		—		—
Home equity lines of credit		524		646
Consumer		366		410
Leases		—		—
Credit cards		12		—
Total non-accrual loans	$	10,580	$	6,712

As of September 30, 2022, non-accrual loans totaled $11 million. The increase in total non-accrual loans between December 31, 2021 and September 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 $13 million and $11 million at September 30, ~~2017 included properties of three former lending relationships, with a combined value of $2.6 million. At~~2022 and December 31, 2021. The increase between December 31, 2021 and September 30, ~~2017 there~~2022 was driven mainly by two large C&I relationships that became delinquent. Delinquent loans to total loans were ~~two properties,~~0.26% at both September 30, 2022 and December 31, 2021, respectively.

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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 ~~combined recorded investment~~portion of ~~$75 thousand,~~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 nine months ended September 30, 2022:

~~(1)~~
(in thousands)
Three Months Ended September 30, 2022

Beginning
Balance

Initial
Allowance
on PCD
Loans

Provision for
Credit Losses
on Loans

Charge-offs

Recoveries

Ending
Balance

Commercial real estate - non-owner occupied
$ 20,723 $ - $ 502 $ (37 ) $ - $ 21,188
Commercial real estate - owner occupied
9,842 - (227 ) - 153 9,768
Total commercial real estate
30,565 - 275 (37 ) 153 30,956

Commercial and industrial - term
12,342 - 2,055 (466 ) 232 14,163
Commercial and industrial - lines of credit
5,000 - 203 (99 ) - 5,104
Total commercial and industrial
17,342 - 2,258 (565 ) 232 19,267

Residential real estate - owner occupied
5,988 - 423 (17 ) 2 6,396
Residential real estate - non-owner occupied
3,190 - 146 - 9 3,345
Total residential real estate
9,178 - 569 (17 ) 11 9,741

Construction and land development
6,214 - 731 - - 6,945
Home equity lines of credit
1,521 - 105 - - 1,626
Consumer
1,113 - 162 (307 ) 148 1,116
Leases
221 - (10 ) - - 211
Credit cards
208 - 13 - - 221
Total
$ 66,362 $ - $ 4,103 $ (926 ) $ 544 $ 70,083

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

Commercial real estate - non-owner occupied	$	15,960	$	3,508	$	1,744		$	(37	)	$	13	$	21,188
Commercial real estate - owner occupied		9,595		2,121		(2,103	)		(41	)		196		9,768
Total commercial real estate		25,555		5,629		(359	)		(78	)		209		30,956

Commercial and industrial - term (1)		8,577		1,358		3,796			(594	)		1,026		14,163
Commercial and industrial - lines of credit		4,802		1,874		(1,437	)		(135	)		-		5,104
Total commercial and industrial		13,379		3,232		2,359			(729	)		1,026		19,267

Residential real estate - owner occupied		4,316		590		1,458			(30	)		62		6,396
Residential real estate - non-owner occupied		3,677		-		(349	)		-			17		3,345
Total residential real estate		7,993		590		1,109			(30	)		79		9,741

Construction and land development		4,789		419		1,809			(72	)		-		6,945
Home equity lines of credit		1,044		2		580			-			-		1,626
Consumer		772		78		565			(796	)		497		1,116
Leases		204		-		7			-			-		211
Credit cards		162		-		12			-			47		221
Total	$	53,898	$	9,950	$	6,082		$	(1,705	)	$	1,858	$	70,083

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Bancorp’s ACL for loans was $70 million as of September 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 $16 million, or 30%, increase experienced for the first nine months of 2022. Acquisition-related activity was responsible for a total increase to the ACL for loans of $14 million in 2022, 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.

Provision for credit loss expense on loans (excluding acquisition-related activity) of $2 million was recorded for the first nine months of 2022, further increasing the ACL for loans. Increased expense within the CECL model was driven primarily by significant organic loan growth and increase of the projected unemployment rate forecast, which is the primary loss driver with Bancorp’s CECL model, which has been driven by inflation and recession-based concerns. Partially offsetting the increased expense noted above was 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.

In addition, net recovery activity of $153,000 was recorded for the nine months ended September 30, 2022, as charge off and recovery activity for the year has been largely offsetting, 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:

Non-accrual loans by type

(in thousands)

September 30, 2017

December 31, 2016

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

Real estate mortgage

Real estate mortgage - commercial investment
55 107
Real estate mortgage - owner occupied commercial
1,470 1,042
Real estate mortgage - 1-4 family residential
785 984
Home equity
81 383
Subtotal: Real estate mortgage
2,391 2,516
Home equity and consumer loans
- -
Total loans
$ 4,858 $ 5,295

	September 30, 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	$	21,188		30	%		1.50	%	$	15,960		30	%		1.41	%
Commercial real estate - owner occupied		9,768		14	%		1.19	%		9,595		18	%		1.41	%
Total commercial real estate		30,956		44	%		1.39	%		25,555		48	%		1.41	%

Commercial and industrial - term (1)		14,163		20	%		1.89	%		8,577		16	%		1.44	%
Commercial and industrial - lines of credit		5,104		8	%		1.22	%		4,802		9	%		1.30	%
Total commercial and industrial		19,267		28	%		1.65	%		13,379		25	%		1.38	%

Residential real estate - owner occupied		6,396		9	%		1.15	%		4,316		8	%		1.08	%
Residential real estate - non-owner occupied		3,345		5	%		1.10	%		3,677		7	%		1.31	%
Total residential real estate		9,741		14	%		1.13	%		7,993		15	%		1.17	%

Construction and land development		6,945		10	%		1.67	%		4,789		9	%		1.60	%
Home equity lines of credit		1,626		2	%		0.82	%		1,044		2	%		0.75	%
Consumer		1,116		2	%		0.80	%		772		1	%		0.74	%
Leases		211		0	%		1.51	%		204		0	%		1.50	%
Credit cards		221		0	%		1.06	%		162		0	%		0.95	%
Total	$	70,083		100	%		1.39	%	$	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 Bancorp, inc.~~The table below details net charge-offs to average loans outstanding by category of loan for the three and ~~subsidiary~~nine month periods ended September 30, 2022 and 2021, respectively.

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

Commercial real estate - non-owner occupied	$	(37	)	$	1,398,849		0.00	%	$	6		$	1,149,807		0.00	%
Commercial real estate - owner occupied		153			799,410		0.02	%		(1,361	)		624,709		-0.22	%
Total commercial real estate		116			2,198,259		0.01	%		(1,355	)		1,774,516		-0.08	%

Commercial and industrial - term		(234	)		710,563		-0.03	%		(235	)		580,757		-0.04	%
Commercial and industrial - term - PPP		-			22,939		0.00	%		-			281,420		0.00	%
Commercial and industrial - lines of credit		(99	)		418,839		-0.02	%		-			326,637		0.00	%
Total commercial and industrial		(333	)		1,152,341		-0.03	%		(235	)		1,188,814		-0.02	%

Residential real estate - owner occupied		(15	)		542,734		0.00	%		(313	)		385,662		-0.08	%
Residential real estate - non-owner occupied		9			296,822		0.00	%		2			273,806		0.00	%
Total residential real estate		(6	)		839,556		0.00	%		(311	)		659,468		-0.05	%

Construction and land development		-			391,342		0.00	%		-			290,689		0.00	%
Home equity lines of credit		-			194,762		0.00	%		-			140,423		0.00	%
Consumer		(159	)		137,333		-0.12	%		10			90,867		0.01	%
Leases		-			14,210		0.00	%		-			13,182		0.00	%
Credit cards		-			21,095		0.00	%		-			15,301		0.00	%
Total	$	(382	)	$	4,948,898		-0.01	%	$	(1,891	)	$	4,173,260		-0.05	%

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

Commercial real estate - non-owner occupied	$	(24	)	$	1,330,254		0.00	%	$	(3,024	)	$	1,002,176		-0.30	%
Commercial real estate - owner occupied		155			769,706		0.02	%		(806	)		571,133		-0.14	%
Total commercial real estate		131			2,099,960		0.01	%		(3,830	)		1,573,309		-0.24	%

Commercial and industrial - term		432			672,869		0.06	%		(382	)		506,519		-0.08	%
Commercial and industrial - term - PPP		-			62,933		0.00	%		-			473,185		0.00	%
Commercial and industrial - lines of credit		(135	)		405,468		-0.03	%		-			270,251		0.00	%
Total commercial and industrial		297			1,141,270		0.03	%		(382	)		1,249,955		-0.03	%

Residential real estate - owner occupied		32			494,395		0.01	%		(353	)		318,246		-0.11	%
Residential real estate - non-owner occupied		17			292,778		0.01	%		4			206,293		0.00	%
Total residential real estate		49			787,173		0.01	%		(349	)		524,539		-0.07	%

Construction and land development		(72	)		356,937		-0.02	%		3			288,556		0.00	%
Home equity lines of credit		-			178,564		0.00	%		1			116,854		0.00	%
Consumer		(299	)		128,484		-0.23	%		(84	)		96,537		-0.09	%
Leases		-			13,990		0.00	%		-			13,805		0.00	%
Credit cards		47			19,993		0.24	%		-			13,084		0.00	%
Total	$	153		$	4,726,371		0.00	%	$	(4,641	)	$	3,876,639		-0.12	%

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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 September 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 $800,000 was also recorded for the nine month period ended September 30, 2022, driven largely by the addition of new construction loans. ACL for off balance sheet credit exposures stood at $4.8 million as of September 30, 2022 compared to $3.5 million as of December 31, 2021.

Deposits

(dollars in thousands)

September 30, 2022

December 31, 2021

$ Variance

% Variance

Non-interest bearing demand deposits
$ 2,200,041 $ 1,755,754 $ 444,287 25 %

Interest bearing deposits:

Interest bearing demand
2,106,267 2,131,928 (25,661 ) -1 %
Savings
555,928 415,258 140,670 34 %
Money market
1,163,563 1,050,352 113,211 11 %

Time deposits of $250 thousand or more
92,529 89,745 2,784 3 %
Other time deposits
382,445 344,477 37,968 11 %
Total time deposits
474,974 434,222 40,752 9 %

Total interest bearing deposits
4,300,732 4,031,760 268,972 7 %

Total deposits (1)
$ 6,500,773 $ 5,787,514 $ 713,259 12 %
(1) Includes $1 million and $5 million in brokered deposits as of September 30, 2022 and December 31, 2021, respectively.
Total deposits increased $713 million, or 12%, from December 31, 2021 to September 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 $407 million, or 7%, during the first nine months of 2022, attributed mainly to seasonal deposit run-off and time deposit attrition.
Securities Sold Under Agreements to Repurchase
SSUAR represent a funding source of Bancorp and 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 September 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)

September 30, 2022

December 31, 2021

Outstanding balance at end of period
$ 124,567 $ 75,466
Weighted average interest rate at end of period
0.64
%
0.04
%

Three months ended

Nine months ended

September 30,

September 30,

(dollars in thousands)

2022

2021

2022

2021

Average outstanding balance during the period
$ 139,749 $ 71,065 $ 123,845 $ 57,980
Average interest rate during the period
0.50
%
0.03
%
0.27
%
0.04
%
Maximum outstanding at any month end during the period
$ 139,825 $ 81,964 $ 149,179 $ 81,964
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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.
SSUARs increased $49 million, or 65%, between December 31, 2021 and September 30, 2022, as SSUAR totaling $66 million were assumed as part of the CB acquisition. The remaining fluctuation in SSUAR is consistent with the decrease in deposit balances previously noted (excluding acquisition-related activity).
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 September 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~~$236 million and $899 million at September 30, ~~2017. These investments~~2022 and December 31, 2021, respectively. The decrease experienced for the first nine months of 2022 is attributed to significant investment in the securities portfolio, strong organic loan growth and a general decline in deposits. FFS normally have overnight maturities ~~and~~while interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity purposes.

The fair value of the ~~available-for-sale investment~~AFS debt security portfolio was ~~$571.5 million~~$1.15 billion and $1.18 billion at September 30, ~~2017.~~2022 and December 31, 2021 respectively. The lack of growth in AFS debt security portfolio for the first nine 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 (HTM and AFS) includes scheduled maturities of $44 million and cash flows on amortizing debt securities of approximately ~~$216.7~~$223 million (based on assumed prepayment speeds as of September 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 30, ~~2017,~~2022, total investment securities pledged for these purposes comprised ~~58%~~60% of the ~~available-for-sale investment~~debt securities portfolio, leaving ~~$241.8~~approximately $656 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 30, ~~2017,~~2022, such deposits totaled ~~$2.4~~$5.88 billion and represented ~~99%~~90% 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 generally high balances. These excess balances ~~are historically high.~~may be more sensitive to market rates, with potential decreases possibly straining Bancorp’s liquidity position.

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As of September 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 $1 million and $5 million, respectively, all of which is attributed to deposits added through acquisition-related activity over the past twelve months.

Included in ~~the~~ total deposit balances at September 30, ~~2017 is $122.4~~2022 are $530 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 decrease experienced during the first nine months of 2022 is attributed to anticipated seasonal deposit run-off.

~~Other sources~~Bancorp is a member of ~~funds available to meet daily needs include~~the FHLB ~~advances.~~of Cincinnati. As a member of the FHLB, ~~of Cincinnati,~~ Bancorp has access to credit products ~~offered by~~of the FHLB. Bancorp views these borrowings as a potential low cost alternative to ~~other time~~brokered deposits. At September 30, ~~2017,~~2022 and December 31, 2021, available credit from the FHLB totaled ~~$367.3 million. Additionally,~~$1.36 billion and $1.00 billion, respectively. Bancorp also had ~~available federal funds purchased~~unsecured FFP lines with correspondent banks totaling ~~$105~~$90 million and $80 million at September 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 as of September 30, 2022.

~~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 September 30, 2022, the Bank could pay an amount equal to $63 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 $457 million, or 27%, as of September 30, 2022 compared to December 31, 2021, the increase being driven by both the CB acquisition and the addition of new lines of credit. Total average line of credit utilization declined to 39.6% as of September 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 29.5% at September 30, 2022 compared to 31.8% at December 31, 2021 and 28.8% at September 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 $4.8 million and $3.5 million as of September 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, $800,000 of provision expense was recorded for the nine month period ended September 30, 2022, driven largely by the addition of new lines, and thus increased availability, mainly 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 30, ~~2017,~~2022, stockholders’ equity totaled ~~$334.3~~$728 million, representing an increase of ~~$20.4~~$52 million, ~~since~~or 8%, compared to December 31, ~~2016. See~~2021. The increase for the ~~Consolidated Statement~~first nine 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 $63.2 million was offset by a $120 million negative change in AOCI and dividends declared during the ~~changes in equity since the end~~first nine months of ~~2015. One component of equity is accumulated other comprehensive income which, for Bancorp,~~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~~The large decline in AOCI from December 31, 2021 to September 30, 2022 was ~~$531 thousand~~the result of the rising interest rate environment and its corresponding impact on the valuation of 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 history of no credit losses. See the “Consolidated Statement of Changes in Stockholders’ Equity”for further detail of changes in equity.

As a result of the large interest-rate driven changes in AOCI noted above, as well as acquisition-related growth, Bancorp’s TCE ratio and tangible book value per share, both non-GAAP disclosures, experienced declines between December 31, 2021 and September 30, 2022. TCE was 6.78% at September 30, ~~2017~~2022 compared ~~with a loss of $1.5 million on~~to 8.22% at December 31, ~~2016.~~2021, while tangible book value per share was $16.94 at September 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.

In May 2021, Bancorp’s Board of Directors extended its share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4% of Bancorp’s total common shares outstanding at the time. The ~~$968 thousand positive difference is primarily a reflection~~plan, which will expire in May 2023 unless otherwise extended or completed at an earlier date, does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the ~~effect~~plan’s expiration. Based on economic developments over the past year and the increased importance of ~~the changing interest rate environment during~~capital preservation, no shares were repurchased in 2021, nor the first nine months of ~~2017 as short term rates increased slightly, while long term rates decreased, which decreased Bancorp’s unrealized loss on securities available~~2022. Approximately 741,000 shares remain eligible for ~~sale.~~

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

e)	~~Non-GAAP Financial Measures~~

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

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

	September 30, 2022			December 31, 2021

Total risk-based capital(1)
Consolidated		12.16	%		12.79	%
Bank		11.67			12.42

Common equity tier 1 risk-based capital(1)
Consolidated		10.69			11.94
Bank		10.64			11.56

Tier 1 risk-based capital(1)
Consolidated		11.13			11.94
Bank		10.64			11.56

Leverage(2)
Consolidated		8.85			8.86
Bank		8.45			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 September 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 September 30, 2022, the adequately-capitalized minimums, including the capital conservation buffer, were a 7.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio.

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 September 30, 2022, subordinated notes added through the CB acquisition totaled $26 million. Further, Bancorp had borrowing capacity of $20 million available through an unsecured borrowing line of the holding company as of September 30, 2022, which was added during the first quarter to allow capital flexibility at the Bank level.

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)	September 30, 2022			December 31, 2021

Total stockholders' equity - GAAP (a)	$	727,754		$	675,869
Less: Goodwill		(202,524	)		(135,830	)
Less: Core deposit and other intangibles		(28,747	)		(5,596	)
Tangible common equity - Non-GAAP (c)	$	496,483		$	534,443

Total assets - GAAP (b)	$	7,554,210		$	6,646,025
Less: Goodwill		(202,524	)		(135,830	)
Less: Core deposit and other intangibles		(28,747	)		(5,596	)
Tangible assets - Non-GAAP (d)	$	7,322,939		$	6,504,599

Total stockholders' equity to total assets - GAAP (a/b)		9.63	%		10.17	%
Tangible common equity to tangible assets - Non-GAAP (c/d)		6.78	%		8.22	%

Total shares outstanding (e)		29,242			26,596

Book value per share - GAAP (a/e)	$	24.89		$	25.41
Tangible common equity per share - Non-GAAP (c/e)		16.98			20.09

The general decline between December 31, 2021 and September 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 nine months of 2022, which drove a $120 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)	September 30, 2022			December 31, 2021

Total loans - GAAP (a)	$	5,072,877		$	4,169,303
Less: PPP loans		(19,469	)		(140,734	)
Total non-PPP loans - Non-GAAP (b)	$	5,053,408		$	4,028,569

ACL for loans (c)	$	70,083		$	53,898
Non-performing loans (d)		10,612			7,408
Delinquent loans (e)		13,083			11,036

ACL for loans to total loans - GAAP (c/a)		1.38	%		1.29	%
ACL for loans to total loans - Non-GAAP (c/b)		1.39	%		1.34	%

Non-performing loans to total loans - GAAP (d/a)		0.21	%		0.18	%
Non-performing loans to total loans - Non-GAAP (d/b)		0.21	%		0.18	%

Delinquent loans to total loans - GAAP (e/a)		0.26	%		0.26	%
Delinquent loans to total loans - Non-GAAP (e/b)		0.26	%		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. 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 net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of acquired premises and equipment, if applicable, and 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 September 30,						Nine months ended September 30,
(dollars in thousands)	2022			2021			2022			2021

Total non-interest expenses (a)	$	44,873		$	34,558		$	145,845		$	107,708
Less: Non-recurring merger expenses		—			(525	)		(19,500	)		(19,025	)
Less: Amortization of investments in tax credit partnerships		(88	)		(53	)		(265	)		(315	)
Total non-interest expenses - Non-GAAP (c)	$	44,785		$	33,980		$	126,080		$	88,368

Total net interest income, FTE	$	62,608		$	45,643		$	168,797		$	125,178
Total non-interest income		24,864			17,614			66,007			47,246
Total revenue - Non-GAAP (b)		87,472			63,257			234,804			172,424
Less: Gain/loss on sale of premises and equipment		(3,074	)		—			(3,074	)		—
Less: Gain/loss on sale of securities		—			—			—			—
Total adjusted revenue - Non-GAAP (d)	$	84,398		$	63,257		$	231,730		$	172,424

Efficiency ratio - Non-GAAP (a/b)		51.30	%		54.63	%		62.11	%		62.47	%
Adjusted efficiency ratio - Non-GAAP (c/d)		53.06	%		53.72	%		54.41	%		51.25	%

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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~~

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~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.

~~Table of Contents~~

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

~~Item 2.Unregistered Sales~~

Bancorp and the Bank are defendants in various legal proceedings that arise in the ordinary course of ~~Equity Securities and Use~~business. There is no such proceeding pending or, to the knowledge of ~~Proceeds~~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.

113

Table of Contents

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended September 30, ~~2017.~~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		Total number of shares purchased(1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Average price paid per share		Maximum number of shares that may yet be purchased under the plans or programs

July 1 - July 31		-	$	-		-		-		1,041	$	52.65		—	$	—
August 1 - August 31		2,280	$	35.62		-		-		515		52.84		—		—
Sep 1 - Sep 30		2,306	$	37.52		-		-
September 1 - September 30										1,336		46.79		—		—

Total		4,586	$	36.58		-		-		2,892	$	49.98		—	$	—		741,196

(1)

Shares repurchased during the three-month period ended September 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 nine 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~~

Item 6.

Exhibits.

The following exhibits are filed or furnished as a part of this report:

Exhibit Number		Description of exhibit
31.1		~~Certifications~~Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act ~~by David P. Heintzman~~

31.2		~~Certifications~~Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act ~~by Nancy B. Davis~~

32		~~Certifications~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 902 of the Sarbanes-Oxley Act

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

70114

Table of Contents

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

~~Signatures~~SIGNATURES

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

	STOCK YARDS BANCORP,, INC.
	(Registrant)


~~Date:~~ ~~November 3, 2017~~	~~By:~~ ~~/s/ David P. Heintzman~~ ~~David P. Heintzman, Chairman~~ ~~and~~ ~~Chief Executive Officer~~

Date: November ~~3, 2017~~ 4, 2022	By:	/s/ ~~Nancy B. Davis~~ ~~Nancy B.~~ ~~Davis,~~James A. Hillebrand
		James A. Hillebrand
		Chairman and CEO (Principal Executive ~~Vice President,~~ Officer)



Date: November 4, 2022		/s/ T. Clay Stinnett
		T. Clay Stinnett
		EVP, Treasurer and ~~Chief~~CFO (Principal Financial ~~Officer~~
		Officer)

115

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

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

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

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

~~Item~~	~~Page~~

PART I – FINANCIAL INFORMATION		4


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.	4372

Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk~~Risk.	68113

Item 4.	Controls and ~~Procedures~~Procedures.	69113


PART II – OTHER INFORMATION	113

Item 1. Legal Proceedings.	113

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.	69114

Item 6. Exhibits.	114

~~Item 6.~~
~~Exhibits~~Signatures	70115

Acronym or Term		Definition		Acronym or Term		Definition		Acronym or Term	Definition
ACH		Automatic Clearing House		ETR		Effective Tax Rate		NIM	Net Interest Margin (FTE)
AFS		Available for Sale		EVP		Executive Vice President		NPV	Net Present Value
APIC		Additional paid-in capital		FASB		Financial Accounting Standards Board		Net Interest Spread	Net Interest Spread (FTE)
ACL		Allowance for Credit Losses		FDIC		Federal Deposit Insurance Corporation		NM	Not Meaningful
AOCI		Accumulated Other Comprehensive Income		FFP		Federal Funds Purchased		OAEM	Other Assets Especially Mentioned
ASC		Accounting Standards Codification		FFS		Federal Funds Sold		OREO	Other Real Estate Owned
ASU		Accounting Standards Update		FFTR		Federal Funds Target Rate		PPP	SBA Paycheck Protection Program
ATM		Automated Teller Machine		FHA		Federal Housing Authority		PV	Present Value
AUM		Assets Under Management		FHC		Financial Holding Company		PCD	Purchased Credit Deteriorated
Bancorp / the Company		Stock Yards Bancorp, Inc.		FHLB		Federal Home Loan Bank of Cincinnati		Prime	The Wall Street Journal Prime Interest Rate
Bank / SYB		Stock Yards Bank & Trust Company		FHLMC		Federal Home Loan Mortgage Corporation		Provision	Provision for Credit Losses
BOLI		Bank Owned Life Insurance		FICA		Federal Insurance Contributions Act		PSU	Performance Stock Unit
BP		Basis Point =- 1/~~100~~^th100th of one percent		FNMA		Federal National Mortgage Association		ROA	Return on Average Assets
~~COSO~~C&D		~~Committee~~Construction and Development		FRB		Federal Reserve Bank		ROE	Return on Average Equity
Captive		SYB Insurance Company, Inc.		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
CLI		Customer list intangible		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
EPS		Earnings Per Share		NCI		Non-controlling interest

~~STOCK YARDS BANCORP, INC. AND SUBSIDIARY~~ CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) **For the three and nine months ended September 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~~ (continued)
~~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	$	63,384		$	50,056
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		6,882			1,147
Depreciation, amortization and accretion, net		15,729			7,925
Deferred income tax expense		3,303			3,837
Gain on sale of mortgage loans held for sale		(670	)		(2,708	)
Origination of mortgage loans held for sale		(111,026	)		(169,542	)
Proceeds from sale of mortgage loans held for sale		118,639			187,667
Bank owned life insurance income		(1,052	)		(642	)
(Gain) loss on the disposal of premises and equipment		(3,074	)		41
(Gain) loss on the sale of other real estate owned		5			(180	)
Stock compensation expense		3,285			3,428
Excess tax benefit from share-based compensation arrangements		(1,142	)		(1,152	)
Net change in accrued interest receivable and other assets		(8,607	)		1,656
Net change in accrued interest payable and other liabilities		(14,539	)		(18,401	)
Net cash provided by operating activities		71,117			63,132
Cash flows from investing activities:
Purchases of available for sale debt securities		(180,902	)		(325,073	)
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		112,078			131,936
Purchases of held to maturity debt securities		(459,183	)		—
Proceeds from maturities and paydowns of held to maturity debt securities		164,512			—
Purchase of bank owned life insurance		(30,000	)		—
Proceeds from redemption of Federal Home Loan Bank stock		2,883			8,980
Net change in non-PPP loans		(332,133	)		(232,636	)
Net change in PPP loans		121,265			318,851
Purchases of premises and equipment		(15,294	)		(3,243	)
Proceeds from sale or disposal of premises and equipment		13,517			—
Other investment activities		—			(3,975	)
Proceeds from sales of other real estate owned		6,656			919
Cash from acquisition, net of cash paid		349,456			24,981
Net cash (used in) provided by investing activities		(245,034	)		11,834
Cash flows from financing activities:
Net change in deposits		(406,883	)		314,218
Net change in securities sold under agreements to repurchase and federal funds purchased		(18,524	)		14,511
Proceeds from Federal Home Loan Bank advances		—			30,000
Repayments of Federal Home Loan Bank advances		—			(142,745	)
Repayment of acquired line of credit		(3,200	)		—
Share repurchases related to compensation plans		(3,574	)		(3,177	)
Cash disbursements to non-controlling interest		(328	)		—
Cash dividends paid		(24,845	)		(20,777	)
Net cash (used in) provided by financing activities		(457,354	)		192,030
Net change in cash and cash equivalents		(631,271	)		266,996
Beginning cash and cash equivalents		961,192			317,945
Ending cash and cash equivalents	$	329,921		$	584,941

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		$	—			$	—	$	380,450
Mortgage loans held for sale		3,559			—				—		3,559
Available for sale debt securities (2)		247,209			(416	)	a		—		246,793
Federal Home Loan Bank stock, at cost		4,436			—				—		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			—				—		1,973
Goodwill		5,412			(5,412	)	e		—		—
Core deposit intangible		—			12,724		f		—		12,724
Customer list intangibles		—			14,360		g		—		14,360
Mortgage servicing rights		9,387			3,289		h		—		12,676
Deferred income taxes, net		—			(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		$	—			$	—	$	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			—				—		66,220
Subordinated debentures		26,806			(794	)	l		—		26,012
Line of credit		3,200			—				—		3,200
Accrued interest payable		243			—				—		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 September 30, 2022		Three months ended September 30, 2021

Net interest income	$	62,376	$	53,473
Provision for credit losses (1)		4,803		(1,525	)
Non-interest income		24,864		38,094
Non-interest expense (2)		44,873		50,414
Income before taxes		37,564		42,678
Income tax expense		9,024		9,803
Net income		28,540		32,875
Less net income attributed to noncontrolling interest		85		90
Net income available to stockholders	$	28,455	$	32,785

Earnings per share
Basic	$	0.98	$	1.13
Diluted		0.97		1.13

Basic weighted average shares outstanding		29,144		29,049
Diluted weighted average shares outstanding		29,404		29,031

(in thousands)	Nine months ended September 30, 2022		Nine months ended September 30, 2021

Net interest income	$	173,153	$	164,579
Provision for credit losses (1)		2,453		(5,767	)
Non-interest income		68,947		97,524
Non-interest expense (2)		136,837		153,407
Income before taxes		102,810		114,463
Income tax expense		23,038		23,380
Net income		79,772		91,083
Less net income attributed to noncontrolling interest		244		264
Net income available to stockholders	$	79,528	$	90,819

Earnings per share
Basic	$	2.73	$	3.10
Diluted		2.71		3.10

Basic weighted average shares outstanding		29,110		29,291
Diluted weighted average shares outstanding		29,371		29,272

(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
September 30, 2022	value		Gains		Losses			Fair value

U.S. Treasury and other U.S. Government obligations	$	217,684	$	-	$	(9,673	)	$	208,011
Government sponsored enterprise obligations		27,666		2		(2,498	)		25,170
Mortgage backed securities - government agencies		232,775		-		(32,585	)		200,190
Total available for sale debt securities	$	478,125	$	2	$	(44,756	)	$	433,371

(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	$	34,464	$	34,211	$	14,078	$	13,804
Due after one year but within five years		157,245		147,011		203,124		193,712
Due after five years but within 10 years		69,127		59,766		26,333		23,887
Due after 10 years		172,941		157,596		1,815		1,778
Mortgage backed securities - government agencies		883,386		750,589		232,775		200,190
Total available for sale debt securities	$	1,317,163	$	1,149,173	$	478,125	$	433,371

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

U.S. Treasury and other U.S. Government obligations	$	21,554	$	(1,391	)	$	92,872	$	(6,988	)	$	114,426	$	(8,379	)
Government sponsored enterprise obligations		96,995		(4,999	)		16,589		(1,670	)		113,584		(6,669	)
Mortgage-backed securities - government agencies		288,778		(33,664	)		461,306		(99,135	)		750,084		(132,799	)
Obligations of states and political subdivisions		98,599		(14,002	)		25,924		(6,169	)		124,523		(20,171	)
Other		4,880		(205	)		764		(140	)		5,644		(345	)

Total AFS debt securities	$	510,806	$	(54,261	)	$	597,455	$	(114,102	)	$	1,108,261	$	(168,363	)

December 31, 2021

U.S. Treasury and other U.S. Government obligations	$	122,501	$	(1,252	)	$	-	$	-		$	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	)		-		-			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

(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)	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

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

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

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

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

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

(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

	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

	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

	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

														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