2 0 2 2 A N N U A L R E P O R T
SELECTED CONSOLIDATED FINANCIAL DATA
As of and for the years ended December 31,
(dollars in thousands, except per share data)
2022
2021
2020
2019
2018
RESULTS OF OPERATIONS
Net interest income
Provision for credit losses
Non-interest income
Non-interest expenses
Net income
Diluted earnings per share
Cash dividends declared per share
FINANCIAL CONDITION
Total assets
Total loans
Total deposits
Stockholders’ equity
$
$
$
233,383
10,257
89,149
191,791
92,972
3.21
1.14
$
7,496,261
5,205,918
6,391,252
760,432
$
171,074
(753)
65,850
142,280
74,645
2.97
1.10
135,921
18,418
51,899
101,659
58,869
2.59
1.08
$
125,348
1,000
49,428
98,116
66,067
2.89
1.04
6,646,025
4,169,303
5,787,514
675,869
$
4,608,629
3,531,596
3,988,634
440,701
$
3,724,197
2,845,016
3,133,938
406,297
$
$
114,575
2,705
45,066
89,388
55,517
2.42
0.96
3,302,924
2,548,171
2,794,356
366,500
PERFORMANCE MEASURES
Return on average assets
Return on average equity
Net interest margin, FTE
Efficiency ratio, FTE
Non-performing loans to total loans
Non-performing assets to total assets
Allowance for credit losses to total loans
Net (charge-offs) recoveries to avg loans
FTE - Fully Tax Equivalent
%
1.25
12.58
3.35
59.30
0.29
0.21
1.41
0.00
%
1.33
13.02
3.22
59.94
0.18
0.22
1.29
(0.16
)
%
1.40
14.01
3.39
54.06
0.37
0.29
1.47
(0.05)
%
1.90
17.09
3.82
56.07
0.42
0.34
0.94
0.01
%
1.76
16.00
3.83
55.89
0.13
0.13
1.00
(0.08
)
DIVIDENDS PER SHARE
$
13 14 15 16 17 18 19 20 21 22
330
300
275
250
220
190
165
135
110
80
55
25
0
TOTAL REVENUE (FTE)
(dollars in millions)
$
13 14 15 16 17 18 19 20 21 22
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
DILUTED EPS
$
13 14 15 16 17 18 19 20 21 22
1.20
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
PAGE 1
under management – positioning us as the largest
bank-owned Trust company in Kentucky. While the
completion of our second successful acquisition in under
two years provides numerous growth opportunities, our
focus remains on individual customer relationships and
our community banking service model, which have been
the cornerstones of our success and will remain the
central tenets of our operating strategy.
Our loan growth in 2022 was stellar, with ending balanc-
es increasing by $1.0 billion, or 25%, over the past twelve
months. Of this growth, I am most proud of our organic
loan expansion, which totaled $529 million, or 13%, and
was well diversified within all loan categories and across
all markets. However, while we generated the strongest
organic loan growth year in our history, we anticipate
overall growth moderating towards historical averages in
2023, as we expect overall economic activity to slow
given aggressive increases in rates by the Federal
Reserve in 2022 and into 2023. Further, inclusive of the
first quarter acquisition, ending deposit balances grew
by $604 million, or 10%, over the past twelve months.
Non-interest bearing deposits and interest bearing
demand deposits represented $194 million and $410
million of the growth, respectively. However, we have
not been immune to the industry-wide trend of deposit
run-off, as rising interest rates and inflationary pressures
have enticed depositors to move to higher-yielding
alternatives. While I am pleased to say we are not
witnessing fallout within our customer base, we do
anticipate that deposit pricing will impact our net
interest margin in 2023.
The growth of our diversified non-interest revenue
streams continues to distinguish us from our peers and
remains a strategic priority. During the year, we generat-
ed record non-interest revenue and significant organic
growth within all four markets. Solid wealth manage-
ment and trust fees, along with record treasury manage-
ment and card income, headlined our best fee income
year to date. Outstanding net new business growth in
PAGE 2
Ja Hillebrand
Chairman and Chief Executive Officer
To Our Shareholders
2022 was another year of significant growth and excep-
tional performance for Stock Yards Bancorp. Highlighted
by a successful acquisition and the strongest year of
organic loan growth in our history, we produced record
earnings of $93 million, or $3.21 per diluted share
compared to $75 million, or $2.97 per diluted share, in
2021. Fueled by growth across all four of our markets, we
generated record levels of non-interest income while
operational expenses remained well-controlled and
credit quality continued to be strong.
Coming into the year, the integration of acquired
customers and employees to the Stock Yards family was
our top priority. I am pleased to report the integration
exceeded expectations and played a significant role in
our record results. Going into 2023, sitting back and
resting on our laurels is not an option. Our focus will
remain on the execution of our strategic plan that is
centered on organic growth. This past year, we expand-
ed our market presence in Louisville, neighboring Shelby
County and Northern Kentucky and significantly
increased our wealth management and trust assets
“Our focus will remain on the execution of our strategic plan that is centered on organic growth.” It was an honor to welcome Ms. Allison J. Donovan to
our board of directors this past year. Ms. Donovan has
extensive experience in banking and corporate law and
is a great addition to our Board. Ms. Laura L. Wells, a
former Commonwealth director, also joined our Board in
March of this past year. Finally, I would like to express
my gratitude to Mr. J. McCauley Brown for his board
service, as he formally retires from our Board.
Our Board of Directors raised our quarterly cash dividend
once again during 2022, representing the 15th such
increase since 2012 and resulting in a cumulative
increase of 118% over this period. While the dividend
keeps increasing, the payout ratio was lower, as we
continue to focus on growing capital levels after our
recent mergers. In addition, for the 10-year period ended
with 2022, I’m pleased to report the total shareholder
return for Stock Yards Bancorp was 562% compared to a
252% increase for the KBW NASDAQ Bank Index.
I’m very excited to announce that in the fourth quarter we
relocated our operations teams to a centralized back-office
facility, creating tremendous operating efficiencies, career
pathing and expanded camaraderie. In addition, our
top-line revenue expansion will allow for us to continue to
prudently invest in customer facing and back-office
technology in 2023 and well into the future.
While our past performance is no guarantee of future
results, we remain optimistic about the opportunities for
growth in the coming year, particularly with the ground-
work we laid in 2022. For Stock Yards, we know that
getting “bigger” is not the ultimate goal. We want to
continue getting “better.” However, while being “bigger”
allows for us to remain relevant into the distant future,
we know that we cannot continue to return stellar results
without maintaining extraordinary commitments to a
high standard of community bank service.
On behalf of our board and senior management team,
we also want to thank you, our loyal shareholders, as we
could not have achieved this success without your
continued support.
James A. (Ja) Hillebrand
Chairman & CEO of Stock Yards Bancorp, Inc.
“While our past performance is no
guarantee of future results, we remain
optimistic about the opportunities for
growth in the coming year, particularly
with the groundwork we laid in 2022. “
the Wealth Management and Trust area served to
counter fixed income and equity market volatility,
accelerating assets under management to $6.6 billion
and generating $36 million of top line income. Debit and
credit card income and treasury management fees also
established new records, combining to contribute over
$27 million in non-interest revenue, reflecting significant
expansion of our customer base. We managed this
record growth while once again holding operating
expenses under control and in line with expectations.
Despite solid ongoing credit quality statistics, we
recorded credit loss expense of $10 million in 2022,
consistent with strong loan growth and an increase in
the projected future unemployment forecast used in
CECL allowance modeling. Having established credit loss
reserves to total loans of 1.41% at year end, I feel we are
currently well-positioned for a year shrouded with
inflation and recession based uncertainty.
Near the end of the year, we published our inaugural
Environmental, Social and Governance (“ESG”) Corporate
Responsibility Report. We believe it provides important
information on our operations and management
priorities. This report identifies ongoing practices and
recent accomplishments in the areas of environmental
risk and impact management, social responsibility,
including diversity, equity and inclusion, and gover-
nance. We hold a strong commitment to developing and
maintaining a solid ESG program, and this report allows
us to give our stakeholders a transparent look into our
best practices. As a testament to the strong culture and
inclusive environment we strive to cultivate, in Novem-
ber of this year, we were recognized by American Banker
as one of the “Best Banks to Work For,” which evaluates
employee satisfaction, as well as organizational policies
and employee benefits. Based on these metrics, we were
honored to be one of only 90 institutions in the entire
country to make the list.
PAGE 3
STOCK YARDS BANCORP, INC.
BOARD OF DIRECTORS
James A. (Ja) Hillebrand
Chairman and
Chief Executive Officer
Stock Yards Bancorp, Inc. and
Stock Yards Bank & Trust
Stephen M. Priebe
Lead Independent Director
President
Hall Contracting of Kentucky
Shannon B. Arvin
President and
Chief Executive Officer
Keeneland
Paul J. Bickel III
President
U.S. Specialties
J. McCauley Brown
Retired Vice President
Brown-Forman Corporation
Allison J. Donovan
Member Attorney
Stoll Keenon Ogden
David P. Heintzman
Retired Chief Executive Officer,
Stock Yards Bancorp, Inc. and
Stock Yards Bank & Trust
Carl G. Herde
Vice President / Finance
Kentucky Hospital Association
Richard A. Lechleiter
President
Catholic Education
Foundation of Louisville
Philip S. Poindexter
President
Stock Yards Bancorp, Inc. and
Stock Yards Bank & Trust
Edwin S. Saunier
President
Saunier Moving &
Storage, Inc.
John L. Schutte
Chief Executive Officer
GeriMed, Inc.
Kathy C. Thompson
Senior Executive Vice President
Stock Yards Bancorp, Inc. and
Stock Yards Bank & Trust
Laura L. Wells
Freelance Journalist
PAGE 4
STOCK YARDS BANK & TRUST
EXECUTIVE OFFICERS
James A. (Ja) Hillebrand
Chairman and
Chief Executive Officer
Philip S. Poindexter
President
Kathy C. Thompson
Senior Executive Vice President
Wealth Management & Trust
Michael J. Croce
Executive Vice President
Retail Banking Group
William M. Dishman III
Executive Vice President
Chief Risk Officer
Michael V. Rehm
Executive Vice President
Chief Lending Officer
T. Clay Stinnett
Executive Vice President
Chief Financial Officer
SHAREHOLDER INFORMATION
Transfer Agent
The transfer agent for the common stock of Stock Yards Bancorp, Inc. is:
(FIRST CLASS / REGISTERED / CERTIFIED MAIL:)
Computershare Investor Services
P.O. Box 43006
Providence, RI 02940-3006
(800) 368-5948
(COURIER SERVICES:)
Computershare Investor Services
150 Royall Street, Suite 101
Canton, MA 02021
Automatic Dividend Reinvestment Service
The Company’s automatic dividend reinvestment service enables
stockholders to reinvest cash dividends in additional shares of
Stock Yards Bancorp, Inc. stock. For additional information, please
contact the Transfer Agent.
Mailing And Street Addresses
The mailing address for Stock Yards Bancorp, Inc. is:
P.O. Box 32890, Louisville, Kentucky 40232-2890.
The street address is:
1040 East Main Street, Louisville, Kentucky 40206.
Internet Address
The internet address for Stock Yards Bancorp, Inc. is www.syb.com.
Please visit the Investor Relations section of our web site for the
following: Corporate Overview, Stock Information, SEC Filings,
Financial Information and News and Market Data.
Common Stock
Stock Yards Bancorp, Inc.’s common stock trades on the NASDAQ
Global Select Market under the symbol “SYBT.”
Forms 10-K And 10-Q
Stock Yards Bancorp, Inc.’s annual report on Form 10-K and
quarterly reports on Form 10-Q, as filed with the Securities and
Exchange Commission, can be found at www.syb.com (see
“Investor Relations”) or by writing, emailing or calling Customer
Service - OnlineCustomerService@syb.com, (502) 582-2571.
LOUISVILLE - Corporate Center
1040 East Main Street
Louisville, Kentucky 40206
(502) 582-2571
INDIANAPOLIS - Regional Center
201 North Illinois Street, Suite 100
Indianapolis, Indiana 46204
(317) 238-2800
CINCINNATI - Regional Center
101 West Fourth Street
Cincinnati, Ohio 45202
(513) 824-6100
CENTRAL/EASTERN KENTUCKY - Regional Center
401 Main Street
Paris, Kentucky 40361
(859) 349-5341
PAGE 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-13661
STOCK YARDS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of incorporation or organization)
61-1137529
(I.R.S. Employer Identification No.)
1040 East Main Street, Louisville, Kentucky
(Address of principal executive offices)
40206
(Zip Code)
Registrant’s telephone number, including area code: (502) 582-2571
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, no par value
Trading symbol(s)
SYBT
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold as of June 30, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1,670,011,989.
The number of shares of the registrant’s Common Stock, no par value, outstanding as of January 31, 2023, was 29,261,261.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2023 are incorporated by reference into Part III of this
Form 10-K.
TABLE OF CONTENTS
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
PART I:
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II:
Item 5.
Item 6.
[Reserved]
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III:
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV:
Item 15.
Item 16.
Signatures
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
Exhibits and Financial Statement Schedules.
Form 10-K Summary.
3
AC H
AF S
AP IC
AC L
AOC I
AS C
AS U
ATM
AUM
B a nc o rp / the
C o m pa ny
B a nk / S YB
B OLI
B P
C &D
C a ptive
C &I
C B
C D
C DI
C EC L
C EO
C F O
C LI
C R A
C R E
DC F
DTA
DTL
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
The acronyms and abbreviations identified in alphabetical order below are used throughout this Annual Report on Form
10-K:
A c ro n ym o r
T e rm
D e f in it io n
A c ro n ym o r
T e rm
D e f in it io n
A c ro n ym o r
T e rm
D e f in it io n
Auto m a tic C le a ring Ho us e
EVP
Exe c utive Vic e P re s ide nt
Ava ila ble fo r S a le
F AS B
Additio na l pa id-in c a pita l
F DIC
F ina nc ia l Ac c o unting
S ta nda rds B o a rd
F e de ra l De po s it Ins ura nc e
C o rpo ra tio n
Ne t Inte re s t
S pre a d
NIM
NP V
Ne t Inte re s t M a rgin (F TE)
Ne t P re s e nt Va lue
Ne t Inte re s t S pre a d (F TE)
Allo wa nc e fo r C re dit
Lo s s e s
Ac c um ula te d Othe r
C o m pre he ns ive Inc o m e
Ac c o unting S ta nda rds
C o dific a tio n
Ac c o unting S ta nda rds
Upda te
Auto m a te d Te lle r M a c hine
F F P
F F S
F e de ra l F unds P urc ha s e d
NM
No t M e a ningful
F e de ra l F unds S o ld
OAEM
Othe r As s e ts Es pe c ia lly
M e ntio ne d
F F TR
F e de ra l F unds Ta rge t R a te
OR EO
Othe r R e a l Es ta te Owne d
F HA
F HC
F e de ra l Ho us ing Autho rity
P P P
S B A P a yc he c k P ro te c tio n
P ro gra m
F ina nc ia l Ho lding C o m pa ny
P V
P re s e nt Va lue
As s e ts Unde r M a na ge m e nt
F HLB
S to c k Ya rds B a nc o rp, Inc .
F HLM C
S to c k Ya rds B a nk & Trus t
C o m pa ny
F IC A
B a nk Owne d Life Ins ura nc e
F NM A
B a s is P o int - 1/100th o f o ne
pe rc e nt
C o ns truc tio n a nd
De ve lo pm e nt
S YB Ins ura nc e C o m pa ny,
Inc .
F R B
F TE
GAAP
F e de ra l Ho m e Lo a n B a nk
o f C inc inna ti
F e de ra l Ho m e Lo a n
M o rtga ge C o rpo ra tio n
F e de ra l Ins ura nc e
C o ntributio ns Ac t
F e de ra l Na tio na l M o rtga ge
As s o c ia tio n
F e de ra l R e s e rve B a nk
F ully Ta x Equiva le nt
Unite d S ta te s Ge ne ra lly
Ac c e pte d Ac c o unting
P rinc iple s
C o m m e rc ia l a nd Indus tria l
GLB A
Gra m m -Le a c h-B lile y Ac t
C o m m o nwe a lth
B a nc s ha re s , Inc . a nd
C o m m o nwe a lth B a nk &
Trus t C o m pa ny
GNM A
Go ve rnm e nt Na tio na l
M o rtga ge As s o c ia tio n
C e rtific a te o f De po s it
HELOC
Ho m e Equity Line o f C re dit
C o re De po s it Inta ngible
HTM
He ld to M a turity
P C D
P D
P rim e
P urc ha s e d C re dit
De te rio ra te d
P ro ba bility o f De fa ult
The Wa ll S tre e t J o urna l
P rim e Inte re s t R a te
P ro vis io n
P ro vis io n fo r C re dit Lo s s e s
P S U
R OA
R OE
R S A
R S U
S AB
S AR
S B A
S EC
S OF R
P e rfo rm a nc e S to c k Unit
R e turn o n Ave ra ge As s e ts
R e turn o n Ave ra ge Equity
R e s tric te d S to c k Awa rd
R e s tric te d S to c k Unit
S ta ff Ac c o unting B ulle tin
S to c k Appre c ia tio n R ight
S m a ll B us ine s s
Adm inis tra tio n
S e c uritie s a nd Exc ha nge
C o m m is s io n
S e c ure d Ove rnight
F ina nc ing R ight
S e c uritie s S o ld Unde r
Agre e m e nts to R e purc ha s e
S e nio r Vic e P re s ide nt
To B e Anno uc e d
C urre nt Expe c te d C re dit
Lo s s (AS C -326)
C hie f Exe c utive Offic e r
C hie f F ina nc ia l Offic e r
C us to m e r lis t inta ngible
C o m m unity R e inve s tm e nt
Ac t
C o m m e rc ia l R e a l Es ta te
Dis c o unte d C a s h F lo w
De fe rre d Ta x As s e t
De fe rre d Ta x Lia bility
ITM
KB
KS B
LGD
LF A
LIB OR
Lo a ns
M B S
M S A
Inte ra c tive Te lle r M a c hine
Ke ntuc ky B a nc s ha re s , Inc .
a nd Ke ntuc ky B a nk
King B a nc o rp, Inc . a nd King
S o uthe rn B a nk
Lo s s Give n De fa ult
S S UAR
La ndm a rk F ina nc ia l
Advis o rs , LLC
Lo ndo n Inte rba nk Offe re d
R a te
S VP
TB A
Lo a ns a nd Le a s e s
TB OC
The B a nk Oldha m C o unty
M o rtga ge B a c ke d
S e c uritie s
M e tro po lita n S ta tis tic a l
Are a
TC E
TDR
Ta ngible C o m m o n Equity
Tro uble d De bt
R e s truc turing
Do dd-F ra nk Ac t
The Do dd-F ra nk Wa ll S tre e t
R e fo rm a nd C o ns um e r
P ro te c tio n Ac t
M S R s
M o rtga ge S e rvic ing R ights
TP S
Trus t P re fe rre d S e c uritie s
EP S
ETR
Ea rnings P e r S ha re
NAS DAQ
The NAS DAQ S to c k
M a rke t, LLC
VA
Effe c tive Ta x R a te
NC I
No n-c o ntro lling inte re s t
WM &T
U.S . De pa rtm e nt o f
Ve te ra ns Affa irs
We a lth M a na ge m e nt a nd
Trus t
4
PART I
Item 1.
Business.
Stock Yards Bancorp, Inc. (“Bancorp” or “the Company”), is a FHC headquartered in Louisville, Kentucky and 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 markets 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.
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.
On March 7, 2022, Bancorp completed its acquisition of Commonwealth Bancshares, Inc. and its wholly owned
subsidiary, Commonwealth Bank & Trust Company, collectively defined as “CB,” a Louisville, Kentucky-based
commercial bank and trust company, which operated 15 retail branches, including nine in Jefferson County, four in Shelby
County, and two in Northern Kentucky. At the time of acquisition and net of purchase accounting adjustments,
Commonwealth 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 Wealth Management and Trust Department with total assets under management
of approximately $2.65 billion. Bancorp acquired all outstanding common stock of Commonwealth Bancshares, Inc. in a
combined stock and cash transaction that resulted in total consideration paid to Commonwealth Bancshares, Inc.
shareholders of $168 million.
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. Effective December 31, 2022, Bancorp’s partial
interest in LFA was sold, resulting in a pre-tax loss of $870,000 recorded in other non-interest expense on the consolidated
income statements for the year ended December 31, 2022. This acquired line of business was not within the Company’s
geographic footprint and ultimately did not align with the Company’s long-term strategic model. Net income related to
LFA and attributable to Bancorp’s 60% interest, excluding the pre-tax loss on disposition noted above, totaled $483,000
for the year ended December 31, 2022.
5
General Business Overview
As is the case with most banks, our 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. New business volume is influenced by
economic factors including market interest rates, business spending, consumer confidence and competitive conditions
within the marketplace, as well as Bancorp’s strong sales focus. Net interest income accounted for 72% of our total
revenues, defined as net interest income plus non-interest income, for the years ended December 31, 2022, 2021 and 2020,
respectively.
Fee income, or non-interest income, is a significant component of our business. Non-interest income represented 28% of
total revenues for the years ended December 31, 2022, 2021 and 2020, respectively, demonstrating the value of the
diversified revenue streams created by our broad product offerings in addition to income provided by the principal banking
activities described above. Our non-interest income is driven by WM&T activities, deposit service charges, debit and
credit card services, treasury management services, mortgage banking services, brokerage services and other ancillary
activities of the Bank. WM&T revenue, which is our largest source of non-interest income, constituted 41%, 42% and
45% of total non-interest income for the years ended December 31, 2022, 2021 and 2020, respectively. Despite continued
growth in WM&T income, the decline in the percentage of non-interest income attributed to WM&T is due to the
significant growth of other non-interest revenue streams through both organic business development and acquisition, as
Bancorp continues to prioritize the pursuit and growth of diversified revenue streams.
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, leasing, 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.
For further discussion regarding our business, see “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
Our Business Strategy
Our strategy focuses on building strong relationships with our customers, employees and communities, while maintaining
disciplined underwriting standards and a commitment to operational efficiency. By leveraging our comprehensive suite of
products and services, we strive to continue expanding our footprint in our home market of Louisville, Kentucky while
also cultivating attractive growth opportunities in our other markets of central, eastern and northern Kentucky,
Indianapolis, Indiana and Cincinnati, Ohio, and opportunistically pursuing acquisitions.
Key components of our strategy include the following:
Continue to focus on customer relationships and our community banking model – We believe that our reputation,
expertise and relationship-based approach to banking enables us to establish long-lasting, full-service customer
relationships. We look to leverage our relationships with existing customers by offering a wide range of products
and services that are tailored to their needs and financial goals. Attracting and retaining high-quality relationship
managers and providing them with the tools necessary for success is crucial to maintaining and strengthening the
relationships we have with both existing and prospective customers.
6
Focusing on these relationships and our community banking model has been essential to the success of our recent
acquisitions. With the completion of the CB acquisition in 2022 and the KB acquisition in 2021, we have been
able to establish ourselves in markets that provide significant opportunities for growth. Our commitment to
fostering both new and existing relationships, along with continued investment in the communities we serve, has
helped us overcome the challenges associated with entering new markets and has allowed us to realize the
significant benefits of strategic acquisitions.
Continue to grow and pursue diversified revenue streams – WM&T revenue distinguishes us from other
community banks of similar asset size and continues to provide us with a strong competitive advantage. We have
also seen significant growth in other non-interest revenue sources in recent years, particularly treasury
management services and debit/credit card services. We believe these services, along with our other non-interest
revenue sources, such as mortgage banking, brokerage services and other ancillary activities, provide the diversity
necessary to weather the ups and downs of business cycles and provide the financial solutions our customers and
communities desire.
Maintain focus on organic growth while capitalizing on strategic acquisitions – Our strategy has been to pursue
attractive, organic growth opportunities within our existing markets and enter new markets that align with our
business model and strategic plans. We believe we can increase our presence in our existing markets and broaden
our footprint in attractive markets adjacent and complementary to our current markets by expansion of our branch
network and opportunistically pursuing acquisitions.
The acquisition of KB during the second quarter of 2021 expanded our footprint into the new markets of central
and eastern Kentucky, providing broader product offerings, increased lending capabilities and a larger branch
delivery system to our customers in these markets. Our expansion into these new markets has provided solid
growth opportunities and a larger platform for future expansion.
Our acquisition of CB in the first quarter of 2022 has helped build upon our market share in our home market of
Louisville, Kentucky, while also expanding our presence in neighboring Shelby County, Kentucky, as well as
northern Kentucky, providing a natural geographic connection between Louisville and the newly entered central
and eastern Kentucky markets noted above. Additionally, the acquisition significantly bolstered our wealth
management capabilities and created the largest bank-owned trust company in the state of Kentucky.
Continue to manage costs and improve efficiency – We believe that conservative cost management and a focus
on operational efficiency is critical to our success. We continuously manage our cost structure and refine our
internal processes and technology to create further efficiencies with the goal of enhancing our earnings.
Our efficiency ratio (FTE) for the years ended December 31, 2022, 2021 and 2020 was 59.30%, 59.94% and
54.06%, respectively, with the elevated ratios in 2022 and 2021 being attributed to merger-related expenses
stemming from the CB and KB acquisitions.
However, Bancorp also considers an adjusted efficiency ratio, which eliminates net gains (losses) on sales and
calls of investment securities, as well as net gains (losses) on sales of acquired premises and equipment and
disposition of any acquired assets, 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 (FTE) for the years ended December 31, 2022, 2021 and 2020 was 53.62%, 51.77% and 52.42%.
See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
7
Human Capital Resources
Attracting and retaining talented employees is key to our ability to execute our strategy and compete effectively. Bancorp
values the unique combination of talents and experiences each employee contributes towards our success and strives to
provide an environment that promotes the personal well-being and career development of our employees. We are proud
to be an Equal Opportunity Employer and enforce those values throughout the organization. We prohibit discrimination
in hiring or advancement against any individual on the basis of race, color, religion, gender, sex, national origin, age,
marital status, pregnancy, mental disability, genetics, veteran status, sexual orientation, or any other characteristic
protected by applicable law.
At December 31, 2022, the Bank had 1,040 full-time equivalent employees. Approximately 67% of Bancorp’s employees
are located in the home market of Louisville, Kentucky, while 22%, 6% and 5% are located the Central Kentucky,
Indianapolis, Indiana and Cincinnati, Ohio markets, respectively. None of Bancorp’s employees are subject to a collective
bargaining agreement and Bancorp has never experienced a work stoppage.
Management of Bancorp strives to be an employer of choice and considers the relationship with employees to be good. In
addition to competitive pay, employees of the Bank have access to a number of employee benefits and career development
opportunities, including:
A defined contribution and stock ownership plan with considerable company match;
medical, dental and vision plans, as well as flexible spending and health savings accounts;
fully-funded wellness programs that reward employees for healthy behaviors in addition to mental health benefits
that allow 24/7 access to counselors for a wide range of needs;
bank-paid life insurance in addition to a variety of other voluntary insurance plans;
short-term and long-term disability plans;
an employee assistance program;
generous paid time-off policies;
guidance for wealth management and estate planning;
employee recognition and reward programs;
a management training program;
access to American Institute of Banking training courses;
access to Bank Administration Institute learning and development content, as well as access to a professional
skills library; and
access to the Kentucky Bankers Association’s and other general banking schools.
merit-based bonus pay;
As a testament to the strong culture, inclusive environment and numerous benefits Bancorp is committed to providing its
employees, in November of 2022, we were recognized by American Banker as one of the “Best Banks to Work For,”
which evaluates employee satisfaction, as well as the policies and employee benefits of each institution. We were honored
to be one of only 90 institutions in the country to make the list for 2022.
Further, during the fourth quarter of 2022, we published our inaugural Environmental, Social and Governance (ESG)
Corporate Responsibility report. We believe it provides important information on our operations and insight to
management’s priorities. The report identifies ongoing practices and recent accomplishments in the areas of environmental
risk and impact management, social responsibility, including diversity, equity and inclusion, and governance. This report
is accessible on Bancorp’s web site at http://www.syb.com.
8
Executive Officers
Name and Age
of Executive Officer
Position and Offices with
Bancorp and/or the Bank
James A. Hillebrand
Chairman and CEO of Bancorp and SYB
Age 54
Philip S. Poindexter
Age 56
T. Clay Stinnett
Age 49
Michael J. Croce
Age 53
President of Bancorp and SYB; Director of
Bancorp and SYB
EVP, Treasurer and CFO of Bancorp and SYB
EVP and Director of Retail Banking of SYB
William M. Dis hman III
EVP and Chief Risk Officer of SYB
Age 59
Michael V. Rehm
Age 58
Kathy C. Thomps on
Age 61
EVP and Chief Lending Officer of SYB
Senior EVP and Director of WM&T Division of
SYB; Director of Bancorp and SYB
See Part III, Item 10. “Directors, Executive Officers and Corporate Governance” for information regarding Bancorp’s
executive officers.
Competition
The Bank encounters competition in its markets in originating loans, attracting deposits, and selling other banking related
financial services. The deregulation of the banking industry, the ability to create financial services holding companies to
engage in a wide range of financial services other than banking and the widespread enactment of state laws that permit
multi-bank holding companies, as well as the availability of nationwide interstate banking, has created a highly
competitive environment for financial institutions. In one or more aspects of the Bank’s business, the Bank competes with
local and regional retail and commercial banks, other savings banks, credit unions, finance companies and mortgage
companies operating in Kentucky, Indiana and Ohio. Some of the Bank’s competitors are not subject to the same degree
of regulatory review and restrictions that apply to Bancorp and the Bank. Many of the Bank’s primary competitors, some
of which are affiliated with large bank holding companies or other larger financial-based institutions, have substantially
greater resources, larger established client bases, higher lending limits, more extensive banking center networks, numerous
ATMs or ITMs, and greater advertising and marketing budgets. They may also offer services that the Bank does not
currently provide. It is anticipated that competition from both bank and non-bank entities will continue to remain strong
in the foreseeable future.
The Bank believes that an emphasis on highly personalized service tailored to individual client needs, together with the
local character of the Bank’s business and its “community bank” management philosophy will continue to enhance the
Bank’s ability to compete successfully in its markets.
9
Supervision and Regulation
Bank holding companies and commercial banks are extensively regulated under both federal and state laws. Changes in
applicable laws or regulations may have a material effect on the business and prospects of Bancorp.
Bancorp, as a registered bank holding company, is subject to the supervision of and regulation by the Federal Reserve
Board under the Bank Holding Company Act of 1956. In addition, Bancorp is subject to the provisions of Kentucky’s
banking laws regulating bank acquisitions and certain activities of controlling bank shareholders.
Kentucky and federal banking statutes delineate permissible activities for Kentucky state-chartered banks. Kentucky’s
statutes, however, contain a super parity provision for Kentucky chartered banks having one of the top two ratings in its
most recent regulatory examination. This provision allows these state banks to engage in any banking activity in which a
national bank, a state bank operating in any other state, or a federally chartered thrift could engage. The bank must first
obtain a legal opinion specifying the statutory or regulatory provisions that permit the activity.
The Bank is subject to the supervision of the Kentucky Department of Financial Institutions and the FDIC. The FDIC
insures the deposits of the Bank to the current maximum of $250,000 per depositor.
The GLB Act allows for affiliations among banks, securities firms and insurance companies by means of FHC. The GLB
Act requires that, at the time of establishment of an FHC, all depository institutions within that corporate group must be
“well-managed” and “well-capitalized” and must have received a rating of “satisfactory” or better under its most recent
CRA examination. Further, non-banking financial firms (for example an insurance company or securities firm) may
establish a FHC and acquire a depository institution. While the distinction between banks and non-banking financial firms
is blurred, the GLB Act makes it less cumbersome for banks to offer services “financial in nature” but beyond traditional
commercial banking activities. Likewise, non-banking financial firms may find it easier to offer services that had,
heretofore, been provided primarily by depository institutions. In 2012, management of Bancorp elected to become and
became a FHC.
The Dodd-Frank Act was signed into law in 2010 and generally was effective the day after it was signed into law, but
different effective dates apply to specific sections of the law. The extensive and complex legislation contained many
provisions affecting the banking industry, including but not limited to:
Creation of a Bureau of Consumer Financial Protection overseeing banks with assets totaling $10 billion or
greater while writing and maintaining several regulations that apply to all banks,
Determination of debit card interchange rates by the Federal Reserve Board,
New regulation over derivative instruments,
Phase outs of certain forms of trust preferred debt and hybrid instruments previously included as bank capital,
and
Increases to FDIC deposit coverage, revised calculations for assessing bank premiums, and numerous other
provisions affecting financial institution regulation, oversight of certain non-banking organizations, and
improved depositor protection.
The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe
and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its
market areas by, among other things, providing credit to low and moderate income individuals and communities.
Depository institutions are periodically examined for compliance with the CRA, and banking regulators take into account
CRA ratings when considering approval of certain applications. An unsatisfactory CRA rating could, among other things,
result in the denial or delay of corporate applications filed by Bancorp or the Bank for proposed activities such as branch
openings or relocations and applications to acquire, merge or consolidate with another banking institution or holding
company.
10
The federal banking regulators have adopted rules limiting the ability of banks and other financial institutions to disclose
non-public information about consumers to unaffiliated third parties. These limitations require disclosure of privacy
policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information
to an unaffiliated third party. These regulations affect how consumer information is conveyed to outside vendors. The
Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These
guidelines describe the federal banking agencies’ expectations for the creation, implementation and maintenance of an
information security program, which would include administrative, technical and physical safeguards appropriate to the
size and complexity of the institution and the nature and scope of its activities.
The Bank is subject to the Bank Secrecy Act and the USA Patriot Act. These statutes and related rules and regulations
impose requirements and limitations on specified financial transactions and accounts and other relationships intended to
guard against money laundering and terrorism financing. Financial institutions must take certain steps to assist government
agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Regulatory
authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial
institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply
with relevant laws or regulations, could have serious legal and reputational consequences for the institution, including
causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval
is required or to prohibit such transactions even if approval is not required.
Bancorp and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking
regulators. Basel III is an internationally agreed upon set of measures that were developed by the Basel Committee on
Banking Supervision that strengthened the regulation, supervision and risk management of banks in response to the
financial crisis of 2007-2009. The FRB and FDIC have substantially similar risk-based and leverage ratio guidelines for
banking organizations, which are intended to ensure that banking organizations have adequate capital related to the risk
levels of assets and off-balance sheet instruments. Under the risk-based guidelines, specific categories of assets are
assigned different risk weights based generally on the perceived credit risk of the asset. These risk weights are multiplied
by corresponding asset balances to determine a risk-weighted asset base. In addition to the risk-based capital guidelines,
the FRB uses a leverage ratio as a tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is
a company’s Tier 1 Capital divided by its average total consolidated assets (less goodwill and certain other intangible
assets).
The federal banking agencies’ risk-based and leverage ratios represent minimum supervisory ratios generally applicable
to banking organizations that meet certain specified criteria, assuming that they have the highest regulatory capital rating.
Banking organizations not meeting these criteria are required to operate with capital positions above the minimum ratios.
FRB guidelines also provide that banking organizations experiencing internal growth or making acquisitions may be
expected to maintain strong capital positions above the minimum supervisory levels, without significant reliance on
intangible assets. The FDIC may establish higher minimum capital adequacy requirements if, for example, a bank proposes
to make an acquisition requiring regulatory approval, has previously warranted special regulatory attention, has
experienced rapid growth that presents supervisory concerns, or, among other factors, has a high susceptibility to interest
rate and other types of risk. The Bank is not subject to any such individual minimum regulatory capital requirements.
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 December 31, 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 of December 31, 2022, Bancorp exceeded the requirements to be considered well-capitalized and those required to
avoid limitations associated with the capital conservation buffer.
11
Under regulatory guidance applicable to all banking organizations, incentive compensation policies must be consistent
with safety and soundness principles. Under this guidance, financial institutions must review their compensation programs
to ensure that they: (i) provide employees with incentives that appropriately balance risk and reward and that do not
encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by
strong corporate governance, including active and effective oversight by the banking organization’s board of directors.
Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity
of the organization and its use of incentive compensation.
The federal banking agencies and state regulators have been increasingly active in implementing privacy and cybersecurity
standards and regulations. In February 2018, the SEC published interpretive guidance to assist public companies in
preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance,
are in addition to notification and disclosure requirements under state and federal banking laws and regulations.
In November 2021, the federal banking agencies adopted a rule regarding notification requirements for banking
organizations related to significant computer security incidents. Under the final rule, a bank holding company and state
member bank are required to notify the Federal Reserve within 36 hours of incidents that have materially disrupted or
degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services
to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact
the stability of the financial sector. The rule was effective April 1, 2022 and Bancorp was in compliance by the required
May 1, 2022 deadline.
We expect federal banking agencies and state regulators to continue focusing on information technology and
cybersecurity. We are continually monitoring regulatory developments and the impact they may have on Bancorp.
Website Access to Reports
Bancorp files reports with the SEC including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
event reports on Form 8-K, and proxy statements, as well as any amendments to those reports. The SEC maintains an
internet site that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov. Bancorp’s Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d)
of the Exchange Act are also accessible at no cost on Bancorp’s web site at http://www.syb.com after they are
electronically filed with, or furnished to, the SEC.
12
Item 1A. Risk Factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in Bancorp’s common stock is subject to risks inherent in its business. Before making an investment
decision, you should carefully consider the risks and uncertainties described below together with all of the other
information included in this filing. In addition to the risks and uncertainties described below, other risks and uncertainties
not currently known to Bancorp or that Bancorp currently deems to be immaterial also may materially and adversely affect
its business, financial condition and results of operations in the future. The value or market price of Bancorp’s common
stock could decline due to any of these identified or other risks, and an investor could lose all or part of their investment.
There are factors, many beyond Bancorp’s control, which may significantly change the results or expectations of Bancorp.
Some of these factors are described below, however, many are described in the other sections of this Annual Report on
Form 10-K.
Economic, Market and Credit Risks
Fluctuations in interest rates could reduce profitability.
Our primary source of income is from net interest spread, the difference between interest earned on loans and investments
and interest paid on deposits and borrowings. We expect to periodically experience gaps in interest rate sensitivities of
assets and liabilities, meaning that either interest-bearing liabilities may be more sensitive to changes in market interest
rates than interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our
position, earnings could be negatively affected.
Many factors affect fluctuation of market interest rates, including, but not limited to the following:
the FRB’s actions to control interest rates
inflation or deflation
recession
changes in unemployment
changes in the money supply
local, regional, national or international disorder and instability in financial markets
The FRB has taken aggressive interest rate actions over the past year, implementing multiple rate hikes in an effort to
tame inflation that has reached its highest levels in decades. Beginning 2022 at a range of 0.00% - 0.25%, the FFTR was
subsequently increased a cumulative 425 bps during the year, bringing it a range of 4.25% - 4.50%, and Prime to 7.50%,
as of December 31, 2022.
The current economic outlook suggests continued interest rate action from the FRB through at least the first quarter of
2023 and prospects of a continuing rising rate environment. While Bancorp expects continued 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 more severely inverted yield curve could continue to place pressure on NIM.
Deposit rates tend to be tied to the short end of the rate curve, while fixed-rate loans are largely priced based upon longer
term rates, typically five-year offerings. A flattened, or inverted, yield curve may increase our funding costs while limiting
rates that can be earned on loans and investments, thereby decreasing our net interest income and earnings. Further,
migration of deposits out of Bancorp, as customers pursue higher rates, could impact liquidity and earnings, as we compete
for deposits. Changes in the mix of deposits could result in increased average rates paid on deposits, and lower earnings.
Our asset-liability management strategy, which is designed to mitigate risk from changes in market interest rates, may not
be able to prevent changes in interest rates from having a material adverse effect on our results of operations and financial
condition.
13
Financial condition and profitability depend significantly on local and national economic conditions.
Our success depends on general economic conditions both locally, regionally and nationally. A portion of our customers’
ability to repay their obligations is directly tied to local, regional, national or global economic activity. Deterioration in
the quality of the credit portfolio could have a material adverse effect on our financial condition, results of operations, and
ultimately capital.
The economic outlook for 2023 suggests sluggish growth, continued monetary tightening to subdue inflation, and the
potential of a recession. While consumer and business balance sheets remain strong by historical standards, excess
liquidity built up during the pandemic, largely through government stimulus, has gradually dissipated over the course of
2022, leaving borrowers with less cushion to withstand economic downturns than may have been available in recent years.
As such, the severity of any potential recession or economic downturn could have a significant impact on borrowers’
ability to perform.
Our allowance for credit losses may not be adequate to cover actual losses, which could negatively impact earnings.
The allowance for credit losses on loans and the liability for unfunded lending commitments reflect management’s
estimate of credit losses expected in the loan portfolio, including unfunded lending commitments, as of the balance sheet
date. These estimates are the result of our continuing evaluation of specific credit risks and loss experience, current loan
portfolio quality, present economic, political and regulatory conditions, industry concentrations, reasonable and
supportable forecasts of future economic conditions, and other factors that may provide an indication of credit losses. The
determination of our allowance for credit losses inherently involves a high degree of subjectivity and requires assumptions
to be made by management. If our assumptions prove to be incorrect or economic problems are worse than projected,
adjustments may be necessary to allow for changing economic conditions or adverse developments in the loan portfolio.
Any material increase to the required level of ACL, or insufficiency of the ACL to cover actual loan losses, could adversely
affect our business, financial condition, and results of operations.
Federal and state regulators annually review our allowance and may require an adjustment in the ACL on loans. If
regulatory agencies require any increase in the allowance for which we had not allocated, it would have a negative effect
on our financial results.
Our credit metrics are currently at historically strong levels and this trend could normalize over time.
Over the past several years, our asset quality metrics have trended within a narrow range, exceeding benchmarks and
reaching historically strong levels. We realize that present asset quality metrics are positive and, recognizing the cyclical
nature of the lending business, we anticipate this trend will likely normalize over time.
Financial condition and profitability depend on real estate values in our market areas.
We offer a variety of secured loans, including C&I lines of credit, C&I term loans, real estate, C&D, HELOCs, consumer
and other loans. Many of our loans are often secured by real estate primarily in our market areas. In instances where
borrowers are unable to repay their loans and there has been deterioration in the value of loan collateral, we could
experience higher loan losses which could have a material adverse effect on financial condition, and results of operations.
Significant stock market volatility could negatively affect our financial results.
Income from WM&T constitutes approximately 41% of non-interest income. Trust AUM are expressed in terms of market
value, and a significant portion of fee income is based upon those values, which generally fluctuate consistent with overall
capital markets.
Capital and credit markets experience volatility and disruption from time to time. These conditions may place downward
pressure on credit availability, credit worthiness and customers’ inclinations to borrow. Prolonged volatility or a significant
disruption could negatively impact customers’ ability to seek new loans or to repay existing loans. Personal wealth of
many borrowers and guarantors has historically added a source of financial strength to certain loans and would be
negatively impacted by severe market declines. Sustained reliance on personal assets to make loan payments would result
in deterioration of their liquidity, and could result in loan defaults.
14
The value of our investment securities may be negatively affected by factors outside of our control and impairment
of these securities could have an adverse impact on our financial condition and results of operations.
Factors beyond our control can significantly influence the fair value of our investment securities. These factors include,
but are not limited to, changes in market interest rates, rating agency actions, defaults by issuers or with respect to
underlying securities, volatility and liquidity within capital markets and changes in local, regional, national or international
economic conditions. Impairment to the fair value of these securities can result in realized and/or unrealized losses in
future periods and declines in other comprehensive income, which could have an adverse effect on our business, financial
condition and results of operations.
Impairment of goodwill, other intangible assets or deferred tax assets could have an adverse impact on our financial
condition and results of operations.
In accordance with GAAP, goodwill is not amortized but, instead, is subject to impairment on at least an annual basis or
more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying
amount. In the event that we conclude that all or a portion of our goodwill may be impaired, a non-cash charge for the
amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital. At
December 31, 2022, Bancorp had goodwill of $194 million.
Bancorp’s intangible assets primarily relate to core deposits and customer relationships. Intangible assets with definite
lives are amortized on an accelerated basis over their estimated life. Intangible assets, premises and equipment and other
long-lived assets are tested for impairment whenever events or changes in circumstances indicated the carrying amount of
the assets may not be recoverable from future undiscounted cash flows. In the event that we conclude that all or a portion
of our intangible assets may be impaired, a non-cash charge for the amount of such impairment would be recorded to
earnings. Such a charge would have no impact on tangible capital. At December 31, 2022, Bancorp had intangible assets
of $25 million.
In assessing the potential for realization of DTAs, management considers whether it is more likely than not that some
portion or all of the DTAs will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires
management to evaluate all available evidence, both negative and positive, including whether future taxable income in
sufficient amounts and character within the carryback and carryforward periods is available under tax law, including the
use of tax planning strategies. We have concluded that, based on the level of positive evidence, it is more likely than not
that at December 31, 2022 all DTAs will be realized. At December 31, 2022, Bancorp had DTAs totaling $54 million.
The impact of each of these impairment matters could have a material adverse effect on our business, results of operations
and financial condition.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness
of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty,
or other relationships. We have exposure to different industries and counterparties and through transactions with
counterparties in the bank and non-bank financial services industries, including broker-dealers, commercial banks,
investment banks and other institutional customers. As a result, defaults by, or even rumors or questions about, one or
more bank or non-bank financial services companies, or bank or non-bank financial services industries in general, could
lead to market-wide liquidity problems and could result in losses or defaults by us or other institutions. These losses or
defaults could have an adverse effect on our business, financial condition and results of operations.
Our mortgage banking line of business is highly dependent upon programs administered by the FNMA and
FHLMC. Changes in existing U.S. government-sponsored mortgage programs or servicing eligibility standards
could materially and adversely affect our business, financial position, results of operations and cash flows.
Our ability to generate revenue through mortgage loan sales to institutional investors depends to a significant degree on
programs administered by the FNMA and FHLMC. These entities play powerful roles in the residential mortgage industry
and as a result, we have significant business relationships with them. Our status as an approved seller and servicer with
both entities is subject to compliance with their selling and servicing guidelines.
15
Any discontinuation of, or significant reduction or material change in, the operation of the FNMA and FHLMC, or any
significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of the
FNMA or FHLMC would likely prevent us from originating and selling most, if not all, of our mortgage loan originations.
Derivatives associated with our mortgage banking line of business subject us to interest rate and counter-party
risks, which could adversely affect our business, financial condition and results of operations.
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 and 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.
We are 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, we enter 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. While 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 depends 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 extent to which these derivatives do not offset each other could adversely affect our financial condition
and results of operations.
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, we
could potentially incur significant additional costs by replacing the positions at then-current market rates, adversely
impacting our financial condition and results of operations.
Changing industry trends related to consumer deposit relationships could have an adverse impact on our financial
condition and results of operations.
Competitive factors surrounding the developing trend of financial institutions reducing or eliminating certain deposit
account fees, particularly overdraft-related fees, presents a significant challenge to maintaining deposit-related non-
interest income in the future and potentially threatens a revenue stream that has been in an industry-wide, regulation-
driven decline for several years. Strategic decisions surrounding this trend may impact not only deposit-related income,
but also deposit relationships in general, particularly for retail customers.
Any elimination of, or reduction or material change to, the fees we charge for certain deposit-related services could result
in a significant decline of non-interest income. Failure to closely monitor, and appropriately adapt to, changes in industry
practices and consumer behavior could have an adverse impact on our performance.
Strategic Risks
Acquisitions could adversely affect our business, financial condition and results of operations.
An institution that we acquire may have asset quality issues or contingent liabilities that we did not discover or fully
recognize in the due diligence process, thereby resulting in unanticipated losses. Acquisitions of other institutions also
typically require integration of different corporate cultures, loan and deposit products, pricing strategies, data processing
systems and other technologies, accounting, compliance, internal audit and financial reporting systems, operating systems
and internal controls, marketing programs and personnel of the acquired institution. The integration process is complicated
and time consuming and could divert our attention from other business concerns and may be disruptive to our customers
and customers of the acquired institution. Our failure to successfully integrate an acquired institution could result in loss
of key customers and employees, and prevent us from achieving expected synergies and cost savings. We may finance
acquisitions with borrowed funds, thereby increasing our leverage and reducing liquidity, or with potentially dilutive
issuances of equity securities.
16
Competition with other financial institutions could adversely affect profitability.
We operate in a highly competitive industry that could become even more so as a result of earnings pressure from peer
organizations, legislative, regulatory and technological changes and continued consolidation. We face vigorous
competition in price and structure of financial products from banks and other financial institutions. In recent years, credit
unions have expanded their lending mix and now compete heavily with banks in the CRE lending market. Non-traditional
providers’ high risk tolerance for fixed rate, long-term loans has adversely affected our net loan growth and results of
operations. We also compete with other non-traditional providers of financial services, such as brokerage firms and
insurance companies. As internet-based financial services continue to grow in acceptance, we must remain relevant as an
institution where consumers and businesses value personal service while other institutions offer these services without
human interaction. The variety of sources of competition may reduce or limit our margins on banking services, increase
operational costs through expanded product offerings, reduce market share and adversely affect our financial condition
and results of operations.
We may not be able to attract and retain skilled people.
Our performance is dependent on our ability to attract and retain qualified employees. Competition for qualified employees
in the industry and markets in which we engage can be intense, and we may not be able to retain or hire the individuals
wanted or needed for certain positions. Changes in the labor market and general employment trends, including elevated
employee attrition, labor availability and wage inflation, also present challenges to our ability to attract and retain qualified
employees.
If we are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain the Company’s
competitive position, our performance, including the Company’s competitive position, could suffer, and, in turn, adversely
affect our business, financial condition or results of operations.
We are subject to liquidity risks.
Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment
and maturity schedules of our loans and investment securities, respectively, to ensure we have adequate liquidity to fund
our operations. An inability to raise funds through deposits, borrowings, sales of investment securities, FHLB advances,
sales of loans and other sources could have a significant negative effect on our liquidity.
We are dependent on large commercial deposit relationships as a primary funding source. Approximately 47% of our total
deposits are centralized in accounts with balances $500,000 or greater. We categorize these deposits as core funds, as they
represent long-standing, full-service relationships and are a testament to our commitment to partner with business
customers by providing exemplary service and competitive products. A sudden shift in customer behavior within these
deposits resulting in balances being reduced or exiting Bancorp altogether could impact our ability to capitalize on growth
opportunities and meet current obligations. We have secondary funding sources to draw upon as needed, but the cost of
those funds would be higher than typical deposit accounts, which would negatively impact our financial condition and
results of operations.
After experiencing record levels of excess liquidity in 2021, liquidity began normalizing in the latter half of 2022, and we
expect continued normalization as we enter 2023. Should loan demand not meet desired levels, excess liquidity must be
invested in an effort to maximize return. The risks associated with such investment include the inability to find alternative
options suitable to our risk profile, investing in alternatives that adversely impact our financial condition and results of
operations, and liquidity risk associated with any specific investment. Further, holding elevated levels of liquidity can
have a significant impact on our NIM and result in additional margin compression.
Operational Risks
Our accounting policies and methods are critical to how we report our financial condition and results of operations.
They require management to make estimates about matters that are uncertain.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. Management must exercise judgment in selecting and applying these accounting policies and methods so they
comply with GAAP.
17
We have identified certain accounting policies as being critical because they require management’s judgment to ascertain
the valuations of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value
that is obtained either when earning income, recognizing an expense, recovering an asset, or reducing a liability. We have
established detailed policies and control procedures intended to ensure these critical accounting estimates and judgments
are well-controlled and applied consistently.
Policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate
manner. Because of the uncertainty surrounding judgments and estimates pertaining to these matters, there can be no
assurances that actual our results will not differ from those estimates. See the section titled “Critical Accounting Policies
and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more
information.
An extended disruption of vital infrastructure could negatively impact our business, results of operations, and
financial condition.
Our operations depend upon, among other things, infrastructure, including equipment and facilities. Extended disruption
of vital infrastructure by fire, power loss, natural disaster, telecommunications failure, information systems breaches,
corporate account take-over, terrorist activity or the domestic and foreign response to such activity, or other events outside
of our control could have a material adverse impact on the financial services industry, the economy as a whole or on our
financial condition and results of operations. Our business continuity plan may not work as intended or may not prevent
significant interruption of operations. Occurrence of any failures or interruptions of information systems could damage
our reputation, result in loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil
litigation and possible financial liability, any of which could have an adverse effect on our financial condition and results
of operations.
Security breaches or incidences of fraud could negatively impact our business, results of operations, and financial
condition.
Our assets, which are at risk for cyber-attacks, include financial assets and non-public information belonging to customers.
Cyber security risks include cyber espionage, blackmail, ransom, theft, and corporate account takeovers. We employ many
preventive and detective controls to protect our assets, and provide mandatory recurring information security training for
all employees. We have invested in multiple preventative tools in an attempt to protect customers from cyber threats and
corporate account takeover and regularly provide educational information regarding cyber threats to customers. We utilize
multiple third-party vendors who have access to ours assets via electronic media. While we require third parties, many of
whom are small companies, to have similar or superior controls in place, there is no guarantee that a breach of information
could not occur. Activities of the Bank that subject Bancorp to risk of fraud by customers, employees, vendors, or members
of the general public include ACH transactions, wire transactions, ATM/ITM transactions, checking transactions, credit
card transactions and loan originations. Repeated incidences of fraud or a single large occurrence could adversely impact
our reputation, financial condition and results of operations.
We are dependent upon outside third parties for processing and handling of the Company’s records and data.
We rely on software developed by third-party vendors to process various transactions. In some cases, we have contracted
with third parties to run their proprietary software on our behalf. While we perform a review of controls instituted by
applicable vendors over these programs in accordance with industry standards and performs testing of user controls, we
rely on continued maintenance of controls by these third-party vendors, including safeguards over security of client data.
We may incur a temporary disruption in our ability to conduct business or process transactions, or incur reputational
damage, if a third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems.
Such a disruption or breach of security could have a material adverse effect on our business. Further, if these third-party
service providers experience difficulties, or should terminate their services, and we are unable to replace them on a timely
basis, our business operations could be interrupted. If an interruption were to continue for a significant period of time, or
if we incurred excessive costs involved with replacing third-party service provider, our business, financial condition and
results of operations could be adversely affected.
18
Our ability to stay current on technological changes in order to compete and meet customer demands is constantly
being challenged.
The financial services industry is constantly undergoing rapid technological changes, with frequent introductions of new
technology-driven products and services. Future success of Bancorp will depend, in part, upon our ability to address the
needs of our customers by utilizing technology to provide products and services that will satisfy customer demands for
convenience, as well as to create additional operational efficiencies and greater privacy and security protection for
customers and their personal information. Many of our competitors have substantially greater resources to invest in
technological improvements. We may not be able to effectively implement new technology-driven products and services
as quickly as competitors or be successful in marketing these products and services to our customers. We rely on third
party providers for many of our technology-driven banking products and services. Some of these companies may be slow
to respond with upgrades or enhancements to their products to keep pace with improvements in technology or the
introduction of competing products. Failure to successfully keep pace with technological change affecting the financial
services industry could impair our ability to effectively compete to retain or acquire new business and could have an
adverse impact on our business, financial position and results of operations.
Changes in customer use of banks could adversely affect our financial condition and results of operations.
The rapid evolution of non-bank alternatives for initiation and completion of financial transactions puts us at risk of losing
sources of revenue and funding. The ability of customers to pay bills, deposit and transfer funds, and purchase assets
without utilizing the banking system could result in loss of fee income, deposits, and loans. If we are unable to continue
timely development of competitive new products and services, our financial condition and results of operations could be
adversely affected.
Regulatory and Legal Risks
We operate in a highly regulated environment and may be adversely affected by changes to or lack of compliance
with federal, state and local laws and regulations.
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change
to, or addition of, applicable regulations or federal or state legislation could have a substantial impact on our financial
condition and results of operations. If our policies, procedures and systems are deemed deficient, we would be subject to
liability, including fines and regulatory actions, which may include restrictions on the ability to pay dividends and the
requirement to obtain regulatory approvals to proceed with certain aspects of our business plan, including branching and
acquisitions.
Changes in tax laws and regulations may have an adverse impact on our financial condition and results of
operations.
Any change or potential enactment of tax legislation, or changes in the interpretation of existing tax law, including
provisions impacting tax rates, apportionment, consolidation or combination, income, expense, credits and exemptions
may have a material adverse effect on our business, financial condition and results of operations.
Transactions between Bancorp and its insurance subsidiary, the Captive, may be subject to certain IRS
responsibilities and penalties.
The 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 Treasury Department of the United
States and the IRS by way of Notice 2016-66 have stated that transactions believed to be similar in nature to transactions
between Bancorp and the Captive may be deemed “transactions of interest” because such transactions may have potential
for tax avoidance or evasion. If the IRS ultimately concludes such transactions do create violations of the tax code, the
Company could be subject to the payment of penalties and interest.
19
We are subject to litigation risk and reputational risk pertaining to fiduciary responsibility.
From time to time, customers may make claims and take legal action pertaining to our fiduciary responsibilities. Whether
customer claims and legal action related to our fiduciary responsibilities are founded or unfounded, if such claims and
legal actions are not resolved in a manner favorable to us they may result in significant financial liability and/or adversely
affect the market perception of us and our products and services, as well as impact customer demand for those products
and services. Any financial liability or reputational damage could have a material adverse effect on our financial condition
and results of operations.
Increasing scrutiny and evolving expectations from regulators, investors and other stakeholders with respect to
our environmental, social and governance practices may impose additional costs on us or expose us to new or
additional risks.
Companies are facing increasing scrutiny from regulators, investors and other stakeholders related to their environmental,
social and governance (ESG) practices and disclosure. Investor advocacy groups, investment funds and influential
investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety,
diversity, labor conditions and human rights. Increased ESG-related compliance costs could result in increases to our
overall operational costs. New government regulations could also result in new or more stringent forms of ESG oversight
and expanding mandatory and voluntary reporting, diligence and disclosure. Additionally, concerns over the long-term
impacts of climate change have led and will continue to lead to governmental efforts to mitigate those impacts. Failure to
adapt or comply with related legislation, regulatory requirements or investor or stakeholder expectations and standards
could negatively impact our reputation, financial condition and results of operations.
Risks Related to Our Common Stock
Our common stock price may fluctuate significantly, which could make it difficult for you to resell our common
stock at times and/or prices acceptable to an investor.
The price of our common stock can fluctuate widely in response to various factors, some of which are beyond our
control, and we expect our stock price will continue to fluctuate in the future. Factors impacting the price of our
common stock include, but are not limited to:
actual or anticipated variations in our quarterly results of operations;
recommendations or research reports about Bancorp, or the financial services industry in general, published by
securities analysts;
the failure of securities analysts to cover, or continue covering, our business;
news reports relating to trends, concerns and other issues in the financial services industry or markets in general;
perceptions in the marketplace regarding the Bancorp, or our reputation, competitors or other financial
institutions;
actual or anticipated sales or issuance of our equity or equity-related securities;
our past and future dividend practices;
departure of our management team or other key personnel;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments
by or involving us or our competitors;
failure to integrate acquisitions or realize the anticipated benefits of acquisitions;
existing or increased regulatory compliance requirements, changes or proposed changes in laws or regulations,
or differing interpretations thereof, affecting our business, or enforcement of laws and regulations; and
litigation and governmental investigations.
General market fluctuations, industry factors, economic and political conditions and events, inflation and economic
slowdowns or recessions, interest rate changes and credit loss trends or fluctuations could also cause our stock price to
decrease, regardless of operating results.
20
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Properties.
The corporate headquarters of Bancorp are located at 1040 East Main Street, Louisville, Kentucky, a complex that also
serves as the Bank’s main branch. Bancorp’s operations center is located at a separate location in Louisville. At December
31, 2022, in addition to the main office complex and the operations center, Bancorp owned 52 branches, seven of which
are located on leased land. At that date, Bancorp also leased 21 branches. Of the 73 banking locations, 42 are located in
our home market of Louisville, while 19, seven and five are located in our Central Kentucky, Cincinnati and Indianapolis
markets, respectively.
Item 3.
Legal Proceedings.
In the ordinary course of operations, Bancorp and the Bank are defendants in various legal proceedings. There is no
proceeding pending or, to the knowledge of management, threatened in which an adverse decision could result in a material
adverse change in the business or consolidated financial position of Bancorp or the Bank.
Item 4. Mine Safety Disclosures.
NA
21
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Bancorp’s common stock is traded on the NASDAQ under the ticker symbol SYBT. On December 31, 2022, Bancorp had
approximately 2,200 shareholders of record, and approximately 12,300 beneficial owners holding shares in nominee or
“street” name.
The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three
months ended December 31, 2022.
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
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
14,041 $
1,864
510
16,415 $
78.44
75.22
50.57
77.21
— $
—
—
— $
—
—
—
—
741,196
(1) Shares repurchased during the three-month period ended December 31, 2022 represent shares withheld to pay
taxes due.
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 Bancorp’s total common shares outstanding at the time. Stock repurchases
are expected to 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 shares
prior to the plan’s expiration. No shares were repurchased in 2021, nor in 2022. 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.
On February 22, 2023, the Board of Directors declared a quarterly cash dividend of $0.29 per common share.
The following performance graphs and data shall not be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed soliciting material or subject to
Regulation 14A of the Exchange Act or incorporated by reference in any filing under the Exchange Act or the Securities
Act of 1933, except as shall be expressly set forth by specific reference in such filing.
The first graph compares performance of Bancorp’s Common Stock to the Russell 2000 Index, the S&P U.S. BMI Banks
– Midwest Region Index and the KBW NASDAQ Bank Index for the last five fiscal years. The graph assumes the value
of the investment in Bancorp’s Common Stock and in each index was $100 at December 31, 2017 and that all dividends
were reinvested.
In addition to the five-year period presented, the ten-year period is presented because it provides additional perspective,
and Bancorp management believes that longer-term performance is of interest. The ten-year graph assumes the value of
the investment in Bancorp’s Common Stock and in each respective index was $100 at December 31, 2012 and that all
dividends were reinvested.
22
Total Return Performance - Five Years
Stock Yards Bancorp, Inc.
Russell 2000 Index
S&P U.S. BMI Banks - Midwest Region
Index
KBW NASDAQ Bank Index
250
200
150
100
l
e
u
a
V
x
e
d
n
I
50
0
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
Index
Stock Yards Bancorp, Inc.
Russell 2000 Index
S&P U.S. BMI Banks - Midwest Region Index
KBW NASDAQ Bank Index
Period Ending
12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22
$
100.00
$
89.43
$
115.12
$
117.03
$
188.38
$
195.24
100.00
100.00
100.00
88.99
85.39
82.29
111.70
111.10
112.01
134.00
95.52
100.46
153.85
126.19
138.97
122.41
108.91
109.23
Total Return Performance - Ten Years
Stock Yards Bancorp, Inc.
Russell 2000 Index
S&P U.S. BMI Banks -
Midwest Region Index
KBW NASDAQ Bank Index
600
500
l
400
e
u
a
V
300
x
e
d
n
I
200
100
0
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
Index
Stock Yards Bancorp, Inc.
Russell 2000 Index
S&P U.S. BMI Banks - Midwest Region Index
KBW NASDAQ Bank Index
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17 12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
$
100.00
$
146.91
$
157.98
$
183.95
$
350.73
$
287.74
$
257.33
$
331.21
$
336.75
$
542.02
$
561.76
100.00
100.00
100.00
138.82
136.91
137.75
145.62
148.84
150.65
139.19
151.10
151.39
168.85
201.89
194.56
193.58
216.95
230.73
172.26
185.26
189.86
216.23
241.02
258.45
259.39
207.22
231.79
297.83
273.77
320.64
236.96
236.27
252.03
Period Ending
23
Item 6.
[RESERVED]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Stock Yards Bancorp, Inc. (“Bancorp” or “the Company”), is a FHC headquartered in Louisville, Kentucky and 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 markets 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.
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
exchanged 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. Effective December 31, 2022, Bancorp’s partial
interest in LFA was sold, resulting in a pre-tax loss of $870,000 recorded in other non-interest expense on the consolidated
income statements for the year ended December 31, 2022. This acquired line of business was not within the Company’s
geographic footprint and ultimately did not align with the Company’s long-term strategic model. Net income related to
LFA and attributable to Bancorp’s 60% interest, excluding the pre-tax loss on disposition noted above, totaled $483,000
for the year ended December 31, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and accompanying Footnotes presented in Part II Item 8 “Financial Statements
and Supplementary Data.”
24
Cautionary Statement Regarding Forward-Looking Statements
This document contains statements relating to future results of Bancorp that are considered “forward-looking” as defined
by Section 27A of the Securities 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 II Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Part I Item 1A “Risk Factors.”
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that 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.
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 or risk factors is complete. Factors that could cause actual
results to differ materially from those expressed or implied in forward-looking statements include, among other 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;
25
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;
other risks and uncertainties reported from time-to-time in Bancorp’s filings with the SEC, including Part I Item
1A “Risk Factors.”
Acquisition of Commonwealth Bancshares, Inc. and its Subsidiary Commonwealth Bank & Trust Company
On March 7, 2022, Bancorp completed its acquisition of Commonwealth Bancshares, Inc. and its wholly owned
subsidiary, Commonwealth Bank & Trust Company, collectively defined as “CB,” a Louisville, Kentucky-based
commercial bank and trust company, which operated 15 retail branches, including nine in Jefferson County, four in Shelby
County, and two in Northern Kentucky. At the time of acquisition and net of purchase accounting adjustments, CB had
$1.34 billion in assets, $632 million in loans, $247 million in investment securities and $1.12 billion in deposits in addition
to maintaining a WM&T Department with total assets under management of approximately $2.65 billion. CB was also the
holding company for three unconsolidated Delaware trust subsidiaries and 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, the
latter of which was disposed of effective December 31, 2022. Bancorp acquired all outstanding common stock of CB, Inc.
in a combined stock and cash transaction that resulted in total consideration paid to CB shareholders of $168 million.
Bancorp recorded goodwill of approximately $67 million and incurred merger related expenses totaling $19.5 million
during the first quarter of 2022 as a result of the CB acquisition. As a result of Bancorp’s disposition of its partial interest
in LFA, which resulted in a pre-tax loss of $870,000 recorded in other non-interest expense on the consolidated income
statements for the year ended December 31, 2022, goodwill totaling $8.5 million was written off, bringing total goodwill
related to the CB acquisition to $58 million as of December 31, 2022.
The acquisition of CB has had a significant impact on the ACL and credit loss provisioning in 2022. In total, the CB
acquisition served to increase the ACL on loans by $14 million at acquisition date. This increase consisted of $10 million
attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision
for credit loss expense), and $4.4 million of provision for credit loss expense 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 year ended December 31, 2021 as a result of the KB acquisition.
The acquisition of KB had a significant impact on the ACL and credit loss provisioning for the year ended December 31,
2021. In total, the KB acquisition served to increase the ACL by $14 million at acquisition date. This increase consisted
of $7 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed
to provision for credit loss expense), and $7.4 million 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.
26
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 II Item 8 “Financial Statements and Supplementary
Data.”
Critical Accounting Policies and Estimates
Bancorp’s consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP.
The preparation of these financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported periods.
Management continually evaluates its accounting policies and estimates that it uses to prepare the consolidated financial
statements. In general, management’s estimates and assumptions are based on historical experience, accounting and
regulatory guidance, and information obtained from independent third-party professionals. Actual results may differ from
those estimates made by management.
Critical accounting policies are those that management believes are the most important to the portrayal of Bancorp’s
financial condition and operating results and require management to make estimates that are difficult, subjective and
complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors
are considered in determining whether or not a policy is critical in the preparation of the financial statements. These factors
include, among other things, whether the estimates have a significant impact on the financial statements, the nature of the
estimates, the ability to readily validate the estimates with other information including independent third parties or
available pricing, sensitivity of the estimates to changes in economic conditions and whether alternative methods of
accounting may be utilized under GAAP. Management has discussed each critical accounting policy and the methodology
for the identification and determination of critical accounting policies with Bancorp’s Audit Committee. As of December
31, 2022, the significant accounting policies considered the most critical in preparing Bancorp’s consolidated financial
statements are the determination of the ACL on loans and Goodwill.
Allowance for Credit Losses on Loans and Provision for Credit Losses
On January 1, 2020, Bancorp adopted ASC 326 “Financial Instruments – Credit Losses,” which created material changes
to Bancorp’s critical accounting policy that existed at December 31, 2019.
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 on loans consider
available relevant information about the collectability of cash flows, including information about past events, current
conditions, and reasonable and supportable forecasts.
The ACL on 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
reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s
initial effective interest rate, an expected loss ratio based on historical losses adjusted as appropriate for qualitative factors,
or the fair value of the collateral for certain collateral-dependent loans.
Provision for credit losses can be subject to volatility as ACL calculations and the resulting expense are significantly
impacted by changes in CECL model assumptions such as macroeconomic factors and conditions, credit quality and loan
composition. Forecasted economic conditions have been generally volatile since Bancorp’s adoption of CECL, as the
pandemic, related government stimulus efforts, the Federal Reserve’s efforts to combat inflation, and recession-based
fears have driven constantly changing estimates of the economy over the past several years.
27
Goodwill
Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net
assets of businesses acquired. Goodwill resulting from business combinations is generally determined as the excess of the
fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquire, over the fair
value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired
in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for
impairment at least annually. 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.
Bancorp has selected September 30 as the date to perform the annual impairment test. Goodwill is the only intangible
asset with an indefinite life on Bancorp’s consolidated balance sheets. No impairment to Goodwill was indicated based
on Bancorp’s annual testing for 2022.
At December 31, 2022, Bancorp had $194 million in goodwill recorded on its balance sheet. Goodwill totaling $67 million
was recorded in association with the acquisition of CB in 2022, $8.5 million of which was subsequently written off as a
result of the disposition of Bancorp’s partial interest in LFA. Goodwill totaling $123 million was recorded in association
with the acquisition of KB in 2021. Effective December 31, 2022, management finalized the fair values of the acquired
assets and assumed liabilities associated with the CB acquisition in advance of the 12 month post-acquisition date, as
allowed by GAAP.
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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, leasing, 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 Bancorp’s financial performance for the years ended December 31, 2022, 2021
and 2020:
Years Ended December 31,
(dollars in thousands, except per share data)
Net income available to stockholders
Diluted earnings per share
ROA
ROE
2022
2021
2020
2022 / 2021
2021 / 2020
$ 92,972
$ 3.21
1.25%
12.58%
$ 74,645
$ 2.97
1.33%
13.02%
$ 58,869
$ 2.59
1.40%
14.01%
%
%
bps
bps
25
8
(8)
(44)
27
15
(7)
(99)
%
%
bps
bps
Variance
Additional discussion follows under the section titled “Results of Operations.”
General highlights for the year ended December 31, 2022 compared to December 31, 2021:
Bancorp completed its acquisition of CB on March 7, 2022. At the time of acquisition and net of purchase accounting
adjustments, CB had approximately $1.34 billion in assets, $632 million in loans, $247 million in investment
securities and $1.12 billion in deposits.
o The year ended December 31, 2022 included approximately ten months of activity associated with the CB
acquisition, which contributed meaningfully to results for the year. In addition, one-time merger-related
expenses totaling $19.5 million and credit loss expense on the acquired loan portfolio of $4.4 million were
recorded for the year ended December 31, 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 investments
securities and $1.04 billion in deposits.
o The year ended December 31, 2021 included approximately seven months of activity associated with the KB
acquisition, which had a meaningful impact on results for 2021 and 2022. In addition, one-time merger-
related expenses totaling $19.0 million and credit loss expense on the acquired loan portfolio of $7.4 million
were recorded for the year ended December 31, 2021.
In 2022, Bancorp set the following financial records:
o Total revenue, comprising net interest income FTE and non-interest income, of $323.4 million, surpassing
the previous record of $237.4 million in 2021.
o Net income of $93.0 million, and as a result, diluted EPS of $3.21, besting the previous records of $74.6
million and diluted EPS of $2.97 from 2021.
o Record loan production, which drove $529 million of legacy portfolio growth (excluding PPP) and,
combined with the acquisition of CB, led to record total loans of $5.21 billion at December 31, 2022.
o WM&T AUM totaled $6.59 billion at December 31, 2022, an increase of $1.78 billion compared to prior
year. While approximately $2.65 billion of AUM were added through the CB acquisition, significant market
declines during the year ended December 31, 2022 partially offset organic and acquisition-related growth.
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o WM&T services income of $36.1 million, which was driven by both organic and acquisition-related growth
despite significant market downturns during the year.
o Debit and credit card income of $18.6 million, supported by organic and acquisition-related growth in
transaction volume and customer base.
o Treasury Management fee income of $8.6 million, led by increased transaction volume, new product sales
and both organic and acquisition-related expansion of the customer base.
NIM increased 13 bps to 3.35% for the year ended December 31, 2022 compared to 3.22% for the prior year consistent
the average balance sheet expansion and upward movement in interest rates experienced over the year. Net interest
income FTE totaled $234.3 million for the year ended December 31, 2022, representing an increase of $62.8 million,
or 37%, over the prior year.
o This increase was driven by both organic and acquisition-related growth and the aforementioned rise in
interest rates, which more than offset the increase in interest-bearing deposit costs and the substantial decline
in PPP-related interest income.
Total loans increased $1.04 billion, or 25%, for the year ended December 31, 2022 as compared to December 31,
2021, driven by the addition of $632 million in loans from the CB acquisition and strong organic loan portfolio
growth.
Total provision for credit losses totaled $10.3 million for the year ended December 31, 2022, compared to negative
provision of $753,000 for the year ended December 31, 2021.
o Provision for credit loss expense of $4.4 million was recorded in relation to the loan portfolio added through
the CB acquisition for the year ended December 31, 2022. In addition, increasing unemployment forecasts
driven by inflation and recession-based concerns, coupled with strong organic loan growth, served to
increase expense for 2022.
o While provision of $7.4 million was recorded in relation to the loan portfolio added through the KB
acquisition for the year ended December 31, 2021, it was offset by a cumulative net benefit of $8.2 million
recorded for credit losses on loans and credit losses on off balance sheet exposures, which was driven by
stabilizing unemployment forecasts, generally improving CECL model loss factors and line of credit
utilization.
Bancorp’s ACL on loans to total loans was 1.41% at December 31, 2022, compared to 1.29% at December 31, 2021,
the increase stemming mainly from acquisition-related activity within the ACL on loans, strong organic growth and
to a lesser extent, the aforementioned increase in projected unemployment forecasts.
Total deposits increased $604 million, or 10%, at December 31, 2022 compared to December 31, 2021.
Approximately $1.12 billion of deposits were added as a result of the CB acquisition. Excluding acquisition-related
activity, period-end deposit balances declined in 2022, as the elevated customer balances experienced toward the end
of 2021 have moderated, primarily due to contraction in non-interest bearing demand deposits. While Bancorp has
not experienced fallout within the customer base, we anticipate deposit pricing will be a challenge to future NIM
expansion.
Non-interest income increased $23.3 million, or 35%, for the year ended December 31, 2022 compared to the prior
year, as 2022 benefitted from both significant contributions stemming from acquisition-related activity and organic
growth. All non-interest income revenue streams experienced significant increases over 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 that benefitted much of 2021. In addition, non-recurring gains totaling $4.4 million were
recorded during the year as a result of selling overlapping acquired properties.
Non-interest expenses increased $49.5 million, or 35%, for the year ended December 31, 2022 compared to the same
period of 2021. While both years experienced elevated non-interest expense as a result of merger-related expenses,
most non-interest expense categories experienced significant increases over the prior year as a result of anticipated
acquisition-related expansion. In addition, Bancorp’s partial interest in LFA, which was acquired as part of the CB
acquisition was sold effective December 31, 2022, resulting in a pre-tax loss of $870,000. Non-interest expenses in
general remained well-controlled and consistent with expansion, strong performance and continued investment in
technology.
30
Bancorp’s efficiency ratio (FTE) for the year ended December 31, 2022 was 59.30% compared to 59.94% for the year
ended December 31, 2021, the elevated ratios being the result of one-time merger-related expenses recorded in
relation to the respective acquisitions in both years. Bancorp also considers an adjusted efficiency ratio, which
eliminates net gains (losses) on sales and calls of investment securities, as well as net gains (losses) on sales of
acquired premises and equipment and disposition of any acquired assets, 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 year ended December 31, 2022 was 53.62% compared to 51.77% for the
year ended December 31, 2021. See the section titled “Non-GAAP Financial Measures” for a reconcilement of non-
GAAP to GAAP measures.
Total stockholder’s equity to total assets was 10.14% as of December 31, 2022 compared to 10.17% at December 31,
2021. Total equity increased to $760 million in 2022, driven by the issuance of $134 million in stock for the acquisition
of CB and net income of $93.0 million, which were partially offset by a $108 million negative change in AOCI and $33
million of dividends declared. The large decline in AOCI from December 31, 2021 to December 31, 2022 was the result
of the rising interest rate environment and its corresponding impact on the valuation of the AFS debt securities portfolio.
TCE is a measure of a company’s capital, which is useful in evaluating the quality and adequacy of capital. Bancorp’s
ratio of TCE to total tangible assets was 7.44% as of December 31, 2022, compared with 8.22% at December 31, 2021,
the decline driven by both the large interest-rate driven changes in AOCI noted above and acquisition-related growth. See
the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
General highlights for the year ended December 31, 2021 compared to December 31, 2020:
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.
o The year ended December 31, 2021 included approximately seven months of activity associated with the KB
acquisition, which had a meaningful impact on results for 2021. In addition, one-time merger-related
expenses totaling $18.1 million and credit loss expense on the acquired loan portfolio of $7.4 million were
recorded for the year ended December 31, 2021.
Net income totaled $74.6 million for the year ended December 31, 2021, resulting in diluted EPS of $2.97, a 15%
increase from the prior year. Operating results of the year ended December 31, 2021 were significantly impacted by
the acquisition of KB, PPP forgiveness activity, negative provision expense and strong organic growth. Operating
results for the year ended December 31, 2020 were lower compared to the prior year, primarily due to increased credit
loss provisioning and reserves for off-balance sheet credit exposures associated with the then uncertain pandemic-
related economic conditions and a substantially lower interest rate environment.
NIM decreased 17 bps to 3.22% for the year ended December 31, 2021 compared to 3.39% for the prior year,
consistent with the sustained low interest rate environment and elevated levels of excess liquidity, which created
significant NIM compression. Despite the decrease in NIM, organic loan growth, the KB acquisition, fee income
associated with PPP loans and deposit rate cuts resulted in a $35.2 million, or 26%, increase in net interest income
compared to the prior year.
Total loans (excluding PPP loans) increased $1.05 billion, or 35%, for the year ended December 31, 2021, as
compared to December 31, 2020. While approximately $755 million of this growth was attributed to the KB
acquisition, the remaining $291 million was attributed to strong organic growth.
Total provision for credit losses was a net benefit of $753,000 for the year ended December 31, 2021. While provision
expense of $7.4 million was recorded in relation to the acquired KB loan portfolio, it was more than offset by an $8.2
million net benefit driven by stabilized unemployment forecasts, generally improving CECL model factors and
stronger line of credit utilization. By comparison, $18.4 million of provision for credit loss expense was recorded for
the year ended December 31, 2020, which was impacted by the adoption of CECL effective January 1, 2020, and
subsequent pandemic-related developments, such as elevated unemployment and historic declines in line of credit
utilization.
C&I line of credit utilization improved to 32% at December 31, 2021, up from 26% at December 31, 2020. The onset
of the pandemic in 2020 and the resulting excess liquidity stemming from the PPP resulted in gradually declining
levels of utilization that bottomed out in March of 2021, improving thereafter in each of the final three quarters of
2021. Despite this improvement, utilization remained well below pre-pandemic levels throughout 2021.
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Total deposits increased $1.80 billion, or 45%, at December 31, 2021 compared to December 31, 2020.
Approximately $1.04 billion of this growth was attributed to the KB acquisition, while significant organic growth
was also experienced during the year, stemming mainly from PPP funding and significant federal stimulus.
Non-interest income increased $14.0 million, or 27%, for the year ended December 31, 2021 compared to the prior
year. While the KB acquisition drove a substantial contribution to non-interest income, significant organic growth
was also experienced across all non-interest revenue streams, with the exception of mortgage banking.
Non-interest expenses increased $40.6 million, or 40%, for the year ended December 31, 2021 compared to the same
period of 2020, $19.0 million of which related to one-time merger related expenses (including expenses related to the
CB acquisition). While recurring expenses attributed to the KB acquisition comprised the majority of the remaining
increase, non-interest expenses in general remained well-controlled and consistent with expansion, strong
performance and a continued investment in technology.
Bancorp’s efficiency ratio (FTE) for the year ended December 31, 2021 increased to 59.94% from 54.06% for the
prior year due to one-time merger-related expenses incurred as a result of the KB acquisition. Bancorp also considers
an adjusted efficiency ratio, which eliminates net gains (losses) on sales and calls 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 year ended December 31, 2021 was 51.77% compared to 52.42% for the
same period of 2020. See the section titled “Non-GAAP Financial Measures” for a reconcilement of non-GAAP to
GAAP measures.
The ETR increased to 21.75% for the year ended December 31, 2021 from 13.10% for the prior year. The increase
was driven by the combination of Bancorp’s transition from a capital-based franchise tax to the Kentucky corporate
income tax effective January 1, 2021 and a large historic tax credit project that provided significant benefit in the
prior year.
Total stockholder’s equity to total assets was 10.17% as of December 31, 2021 compared to 9.56% at December 31, 2020.
Total equity increased $235 million in 2021, driven by the issuance of $205 million in stock for the acquisition of KB and
net income of $74.6 million, which were partially offset by $28 million of dividends declared, changes in AOCI and stock-
based compensation activity.
Bancorp’s ratio of TCE to total tangible assets was 8.22% as of December 31, 2021, compared with 9.28% at December
31, 2020, the decline driven by acquisition-related growth. See the section titled “Non-GAAP Financial Measures” for
reconcilement of non-GAAP to GAAP measures.
32
Challenges for 2023:
Bancorp has identified the following challenges for fiscal year 2023:
The FRB’s efforts to control inflation, which has reached its highest levels in decades, and its corresponding impact
on local, national and global economic conditions will present numerous challenges in 2023. The possibility of
recession, given an already-inverted yield curve and a forecast for continued rate increases, could threaten loan
demand, subdue business and consumer spending, and create significant volatility for the markets in general. Further,
the severity of a potential recession and its effect on the unemployment forecast, the primary loss driver within
Bancorp’s ACL model, could result in substantially higher ACL provisioning.
The prospects of further interest rate increases in 2023 also present interest rate risk management challenges. Pricing
pressure/competition for both loans and deposits, changing levels of liquidity within the banking system and an
inverted yield curve could place pressure on NIM. Further rate increases could also serve to hamper loan demand
and/or drive up the low cost of funds that Bancorp derives from its deposit base.
Migration of deposits out of Bancorp, as customers pursue higher deposit rates or alternative investments, could
impact liquidity and earnings as Bancorp competes for deposits. Changes in the mix of deposits could also result in
increased average rates paid on deposits, and lower earnings to Bancorp, should non-interest deposits shift into
interest-bearing products.
Net loan growth is a major focus for Bancorp in 2023. This will be impacted by competition, prevailing interest rates,
economic conditions, line of credit utilization and loan prepayments. Bancorp believes there is continued opportunity
for loan growth in all of its markets. Bancorp’s ability to deliver attractive loan growth over the long-term is linked
to Bancorp’s overall success.
The continued development of the relationships and opportunities presented by the CB and KB acquisitions remains
a priority for 2023. The Company’s growing footprint has allowed Bancorp to provide broader product offerings,
increased lending capabilities and an expanded branch delivery system to existing and prospective customers alike,
creating solid growth opportunities and a larger platform for future expansion. Prioritizing the development of the
opportunities afforded by the CB and KB acquisitions will play a major role in delivering strong operating results in
the coming year.
Bancorp derives significant non-interest income from WM&T services. Most of these fees are based upon the market
value of AUM at respective period ends. Absent fixed income and equity market movements, to grow this revenue
stream, Bancorp must attract new customers and retain existing customers. Bancorp believes there is opportunity for
growth of the WM&T business in all of its markets. Growth in market values of AUM and fees is dependent upon
positive returns in the overall capital markets, which could be threatened should economic conditions worsen.
Bancorp has no control over market volatility.
Competitive factors surrounding the developing trend of financial institutions reducing or eliminating certain deposit
account fees, particularly overdraft-related fees, presents a significant challenge to growing deposit-related non-
interest income in the future and potentially threatens a revenue stream that has been in an industry-wide, regulation-
driven decline for several years. Strategic decisions surrounding this trend may impact not only deposit-related
income, but also deposit relationships in general, particularly for retail customers, as consumer use of these bank
deposit services continues to evolve. Continuous monitoring of these trends and evaluation of any potential changes
to our deposit service fee structure will play a key role in the growth of Bancorp’s deposit service charge income.
Technological advances are consistently providing opportunities for Bancorp to consider potential new products and
delivery channels. Bancorp’s customers’ demand for innovative and relevant products and services is expected to
trend along with changing technology. Bancorp will need to continue to make prudent investments in technology
while managing associated risks so as to remain competitive with other financial service providers, especially as
Bancorp’s continued expansion raises the level of expectation from customers.
Over the past several years, Bancorp’s asset quality metrics have trended within a low range, exceeding benchmarks
and reaching historically strong levels. Bancorp realizes that present asset quality metrics are positive and, recognizing
the cyclical nature of the lending business and current economic conditions, Bancorp anticipates this trend will likely
normalize over time.
33
Results of Operations
Net Interest Income - Overview
As is the case with most banks, Bancorp’s primary revenue sources are net interest income and fee income from various
financial services provided to customers. Net interest income is the difference between interest income earned on loans,
investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing
liabilities. Loan volume and interest rates earned on those loans are critical to overall profitability. Similarly, deposit
volume is crucial to funding loans and rates paid on deposits directly impact profitability. New business volume is
influenced by numerous economic factors including market interest rates, business spending, liquidity, consumer
confidence and various competitive conditions within the marketplace. The discussion that follows is based on FTE net
interest income data.
Comparative information regarding net interest income follows:
As of and for the Years Ended December 31,
(dollars in thousands)
Net interest income
Net interest income (FTE)*
Net interest spread (FTE)*
Net interest margin (FTE)*
Average interest earning assets
Average interest bearing liabilities
Five year Treasury note rate at year end
Average five year Treasury note rate
Prime rate at year end
Average Prime rate
One month term SOFR at year end
Average one month term SOFR
One month term LIBOR at year end
Average one month term LIBOR
Variance
2022
2021
2020
2022 / 2021
2021 / 2020
$ 233,383
234,267
3.21%
3.35%
$ 6,987,365
$ 4,538,911
3.99%
3.00%
7.50%
4.85%
4.36%
1.99%
4.39%
1.92%
$ 171,074
171,508
3.16%
3.22%
$ 5,318,968
$ 3,391,709
1.26%
0.86%
3.25%
3.25%
0.06%
0.04%
0.10%
0.10%
$ 135,921
136,133
36 %
37 %
3.22% 5 bps
3.39% 13 bps
$ 4,019,336
$ 2,618,848
31 %
34 %
0.36% 273 bps
0.53% 214 bps
3.25% 425 bps
3.53% 160 bps
0.07% 430 bps
0.35% 195 bps
0.14% 429 bps
0.52% 182 bps
26 %
26 %
(6) bps
(17) bps
32 %
30 %
90 bps
33 bps
- bps
(28) bps
(1) bps
(31) bps
(4) bps
(42) bps
*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, $5 million and $8 million for the years ended December 31, 2022, 2021 and 2020, respectively. 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, because Bancorp believes it provides a more accurate depiction of loan portfolio performance.
At December 31, 2022, Bancorp’s loan portfolio consisted of approximately 71% fixed and 29% variable rate loans. At
inception, most of Bancorp’s fixed rate loans are priced in relation to the five year treasury. Bancorp’s variable rate loans
are indexed to either Prime, LIBOR or SOFR, generally repricing as those rates change.
Prime rate, the five year Treasury note rate, one month term LIBOR and one month term SOFR are included in the table
above to provide a general indication of the interest rate environment in which Bancorp has operated during the past three
years, a period that experienced significant interest rate volatility, denoted by the FRB’s dramatic pandemic-driven rate
cuts of March 2020 that were sustained until the inflation-driven rate increases of 2022.
The FRB has taken aggressive interest rate action over the past year, implementing multiple rate hikes in an effort to tame
inflation that has reached its highest levels in decades. The FFTR was increased a total of 425 bps in 2022, beginning the
year at a range of 0.00% - 0.25% and ending the year at a range of 4.25% - 4.50%. As a result, Prime increased from
3.25% at the beginning of 2022 to 7.50% as of December 31, 2022, ending the year at its highest level since 2007. Bancorp
has experienced significant benefit from the rate increases enacted in 2022, particularly since the mid-June rate hike that
lifted Prime to 4.75% and in effect, took the majority of Bancorp’s variable rate loans off of their 4.00% floors. Subsequent
rate increases have continued to provide meaningful benefit, offset partially by Bancorp’s election to raise deposit rates.
34
The current economic outlook suggests continued interest rate increases from the FRB through the first half of 2023, albeit
at a reduced pace compared to 2022. Pricing pressure/competition for both loans and deposits, changing levels of liquidity
within the banking system and an inverted yield curve could continue to place pressure on NIM.
Discussion of 2022 vs 2021:
Net interest spread (FTE) and NIM (FTE) were 3.21% and 3.35%, for the year ended December 31, 2022 compared to
3.16% and 3.22% for the same period in 2021, respectively. NIM during the year ended December 31, 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 mid-March 2022. The FFTR stood at a range of 4.25% - 4.50%, and
Prime at 7.50%, as of December 31, 2022.
Bancorp’s first deposit rate increases in nearly two years, stemming from the aforementioned rising rate
environment, which drove a $10.8 million increase in interest expense on deposits for the year ended December
31, 2022 compared to the same period of 2021.
Substantial balance sheet expansion stemming from both acquisition-related activity and organic growth, which
resulted in total average earning asset growth of $1.67 billion, or 31%, and average interest-bearing liability
growth of $1.15 billion, or 34%, for the year ended December 31, 2022 compared to the same period of 2021.
Overall excess balance sheet liquidity, which placed pressure on NIM 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 moderated through
December 31, 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 $345 million, or 87%, and related income decreased $17.3 million, or 78%, for the
year ended December 31, 2022 compared to the same period of 2021.
The addition of $26 million of subordinated debt in association with the CB acquisition, which contributed
interest expense of $1.1 million for the year ended December 31, 2022, $331,000 of which was attributed to
purchase accounting-related mark-to-market amortization. No such activity was recorded for the year ended
December 31, 2021.
Net interest income (FTE) increased $62.8 million, or 37%, for the year ended December 31, 2022 compared to the same
period of 2021, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth,
substantial deployment of excess liquidity into the investment securities portfolio and the continued benefit of a rising
interest rate environment. Partially offsetting this increase was the rising cost of interest bearing deposits and the addition
of subordinated debt through the CB acquisition.
Total average interest earning assets increased $1.67 billion, or 31%, to $6.99 billion for the year ended December 31,
2022, as compared to the same period of 2021, with the average rate earned on total interest earning assets increasing from
3.34% to 3.61%.
Average total loan balances increased $868 million, or 22%, for the year ended December 31, 2022 compared to
the same period of 2021. Average non-PPP loan growth of $1.21 billion, or 34%, was driven by acquisition-
related expansion and strong organic growth, which was partially offset by a $345 million, or 87%, decline in
average PPP loan balances, as a result of forgiveness activity.
Average investment securities grew $771 million, or 86%, for the year ended December 31, 2022 compared to
the same period of 2021, attributed to a combination of strategically deploying excess liquidity through further
investment and acquisition-related activity.
35
Average FFS and interest bearing due from bank balances increased $31 million, or 7%, for the year ended
December 31, 2022 due to on-going excess balance sheet liquidity. While average balances reflect excess balance
sheet liquidity, actual excess balance sheet liquidity has continued to decline through December 31, 2022,
reaching more normalized levels by year-end.
Total interest income (FTE) increased $75.0 million, or 42%, to $252.5 million for the year ended December 31, 2022, as
compared to the same period of 2021.
Interest and fee income (FTE) on loans increased $52.2 million, or 32%, to $216.7 million for the year ended
December 31, 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 $17.3 million, or 78%, decline
in PPP-related income. The yield on the overall loan portfolio climbed to 4.50% for the year ended December
31, 2022, compared to 4.16% for the same period of 2021.
Significant growth in average investment securities led to a $17.2 million increase interest income (FTE) on the
portfolio for the year ended December 31, 2022 compared to the same period of 2021, driving a 42 bps, or 32%,
increase in the corresponding yield on the portfolio. Substantial deployment of excess liquidity benefitted the
investment portfolio as the yields earned on recent purchases have improved dramatically in tandem with rising
rates.
Interest income on FFS and interest bearing due from bank balances increased $5.4 million for the year ended
December 31, 2022, as a result of average balance growth stemming from excess balance sheet liquidity and
rising interest rates. The yield on these assets increased 112 bps to 1.26% for the year ended December 31, 2022
compared to the same period of 2021, stemming from the dramatic increase in the FFTR over the past year.
Total average interest bearing liabilities increased $1.15 billion, or 34%, to $4.54 billion for the year ended December 31,
2022 compared with the same period in 2021, with the total average cost increasing 22 bps to 0.40%.
Average interest bearing deposits increased $1.08 billion, or 33%, for the year ended December 31, 2022
compared to the same period in 2021, with interest-bearing demand deposits accounting for $585 million of the
increase. The significant growth was attributed to both acquisition-related activity and organic growth stemming
from the industry-wide trend of customers maintaining higher levels of liquidity, which was experienced for
several quarters. However, excluding acquisition-related activity, period-end deposit balances have declined in
2022, as the elevated customer balances noted above have moderated.
Consistent with the average interest bearing deposit growth noted above, average SSUAR balances increased $60
million for the year ended December 31, 2022 compared to the same period of 2021.
Average FHLB advances decreased $16 million for the year ended December 31, 2022 compared to the same
period of the prior year, as all outstanding term FHLB advances either matured or were paid off by the end of
2021. The minimal average balance of FHLB advances for the year ended December 31, 2022 stems from a one-
week cash management advance that was utilized by Bancorp at year-end for short-term liquidity purposes, which
represented the only FHLB advance used during 2022, and matured in early January 2023.
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 year ended December 31, 2022 totaled $22 million.
Total interest expense increased $12.3 million for the year ended December 31, 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 cost of interest bearing liabilities increased 22 bps to 0.40% for
the year ended December 31, 2022 compared to the same period of 2021.
Total interest bearing deposit expense increased $10.8 million as a result of acquisition-related activity and the
aforementioned deposit rate increases, resulting in a 20 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.
36
Interest expense totaling $1.1 million was recorded for the year ended December 31, 2022 as a result of the
subordinated debentures assumed through the CB acquisition, approximately $331,000 of which stems from
purchase accounting-related mark-to-market amortization.
Interest expense on FHLB advances was recorded for the year ended December 31, 2022 was a minimal $12,000,
as all FHLB advances either matured or paid off by the end of 2021, resulting in a decline of $325,000 compared
to the same period of the prior year.
Discussion of 2021 vs 2020:
Net interest spread and NIM were 3.16% and 3.22% for the year ended December 31, 2021 compared to 3.22% and 3.39%
for the year ended December 31, 2020. NIM was significantly impacted in 2021 by the following:
A sustained low interest rate environment, driven by the lowering of the FFTR in March 2020 to a range of 0%
- 0.25%, which resulted in Prime dropping to 3.25%, where it remained through 2021.
Substantial balance sheet growth, both organic and acquisition-related, which resulted in total average earning
asset growth of $1.30 billion, or 32%, and average interest-bearing liability growth of $773 million, or 30%, for
the year ended December 31, 2021 compared to the same period of 2020.
PPP originations, which began in the second quarter of 2020 and continued through expiration of the program on
May 31, 2021, as well as the related forgiveness activity, which accelerated the recognition of fee income on
these loans and had significant effect on NIM. The PPP portfolio contributed an 18 bps benefit to NIM for the
year ended December 31, 2021 as a result of forgiveness activity, which drove the recognition of $18.1 million
in PPP-related fee income. In comparison, the PPP portfolio had a negative impact of 3 bps on NIM for the year
end December 31, 2020 due to the large amount of originations that occurred in 2020 and the effect that the low-
yielding, 1% stated rate of these notes had on NIM for the period.
Overall, excess balance sheet liquidity contributed approximately 25 bps of NIM compression for the year ended
December 31, 2021 and approximately 13 bps of NIM compression for the same period of 2020. In general,
excess liquidity within the banking system led to a highly competitive loan rate environment over the past two
years.
The lowering of deposit rates in tandem with FRB interest rate actions and the benefit of paying off all FHLB
advances during 2021.
Net interest income (FTE) increased $35.4 million, or 26%, for the year ended December 31, 2021 compared to the same
period of 2020, due to interest and fee income associated with the PPP portfolio, substantial growth in the non-PPP loan
portfolio and investment securities portfolio, and the aforementioned lowering of deposit rates.
Total average interest earning assets increased $1.30 billion, or 32%, to $5.32 billion for the year ended December 31,
2021, as compared to the same period of 2020, with the average rate earned on total interest earning assets contracting 34
bps to 3.34%.
Average total loans increased $646 million, or 20%, for the year ended December 31, 2021 compared to the same
period of 2020. Average non-PPP loan balances grew $692 million, or 24%, for the year ended December 31,
2021 compared to the same period of 2020, attributed to both the acquisition and strong organic growth. Average
PPP loan balances decreased $45 million, or 10%, for the year ended December 31, 2021 compared to the same
period of 2020, consistent with forgiveness activity throughout 2021.
Average investment securities grew $446 million, or 98%, for the year ended December 31, 2021 compared to
the same period of 2020, which was attributed to a combination of strategically deploying excess liquidity through
further investment and the KB acquisition.
Average FFS and interest bearing due from balances increased $217 million, or 94%, for the year ended
December 31, 2021, consistent with the elevated level of deposits.
37
Total interest income (FTE) increased $29.4 million, or 20%, to $177.5 million for the year ended December 31, 2021 as
compared to the same period of 2020.
Interest and fee income on loans (FTE) increased $26.6 million, or 19%, to $164.4 million for the year ended
December 31, 2021 compared to the same period of 2020, driven by accelerated recognition of PPP fee income
consistent with forgiveness activity, organic loan growth and the contribution attributed to the KB acquisition.
Significant growth in average investment securities drove an increase of $3.2 million, or 37%, for interest income
(FTE) on the portfolio for the year ended December 31, 2021 compared to the same period of 2020. However,
the lower interest rate environment experienced over the previous 12 months weighed heavily on fixed income
security yields, which contracted 59 bps, or 31%.
Despite the substantial increase experienced for average FFS and interest bearing due from balances,
corresponding interest income decreased $93,000, or 13%, for the year ended December 31, 2021 compared to
the same period of 2020 as a result of the FRB lowering the FFTR 150 bps in March 2020 to a range of 0-0.25%,
where it remained for the final three quarters of 2020 and the entirety of 2021.
Total average interest bearing liabilities increased $773 million, or 30%, to $3.39 billion for the year ended December 31,
2021 compared with the same period in 2020, with the total average cost declining 28 bps to 0.18%.
Average interest bearing deposits increased $795 million, or 32%, for the year ended December 31, 2021
compared to the same period in 2020, with interest-bearing demand deposits accounting for $500 million of the
increase. Interest bearing deposits added as a result of the KB acquisition along with significant federal stimulus
action, such as PPP funding, propelled deposit balances to record levels at December 31, 2021. Further, general
economic uncertainty surrounding the on-going pandemic resulted in the customer base maintaining higher levels
of liquidity, similar to customer behavior seen during the Great Recession.
Consistent with the higher interest bearing deposit balances noted above, as well as the KB acquisition, average
SSUAR balances increased $22 million, or 55%, for the year ended December 31, 2021 compared to the same
period of 2020.
Average FHLB advances decreased $45 million, or 73%, for the year ended December 31, 2021 compared to the
same period of 2020, as advances matured and were not replaced. In addition, Bancorp elected to pay down
certain advances prior to their maturity during the first and second quarters of 2021, the latter of which resulted
in an early-termination fee of $474,000, recorded as a component non-interest expense during the second quarter
of 2021.
Total interest expense decreased $5.9 million, or 50%, for the year ended December 31, 2021 compared to the same period
of 2020, a direct result of deposit rate reductions implemented in response to the falling interest rate environment and to
a lesser extent, the reduction in interest expense on FHLB advances.
Total interest bearing deposit expense decreased $4.9 million, or 46%, driving a 25 bps decline in the cost of
average total interest bearing deposits.
Interest expense on FHLB advances declined $1.1 million, or 76%, as a result of the substantial reduction in
average FHLB advances outstanding. As noted above, Bancorp had no outstanding FHLB advances as of
December 31, 2021.
38
Average Balance Sheets and Interest Rates (FTE)
Years ended December 31, (dollars in thousands)
Average
Balance
2022
Interest
Average
Rate
Average
Balance
2021
Interest
Average
Rate
Average
Balance
2020
Interest
Average
Rate
$
477,341
8,835
$
6,018
190
1.26 %
2.15
$
446,783
11,170
$
645
249
0.14 %
2.23
$
229,905
20,156
$
738
533
0.32 %
2.64
Interest earning assets:
Federal funds sold and interest bearing
due from banks
Mortgage loans held for sale
Investment securities:
Taxable
Tax-exempt
Total securities
1,594,942
75,382
1,670,324
27,302
1,851
29,153
Federal Home Loan Bank stock
11,741
505
SBA Paycheck Protection Program (PPP) loans
Non-PPP loans
Total loans
52,704
4,766,420
4,819,124
4,798
211,872
216,670
Total interest earning assets
6,987,365
252,536
Less allowance for credit losses on loans
65,672
Non-interest earning assets:
Cash and due from banks
Premises and equipment, net
Bank owned life insurance
Goodwill
Accrued interest receivable and other
Total assets
90,481
106,631
68,325
188,949
62,801
$
7,438,880
1.71
2.46
1.75
4.30
9.10
4.45
4.50
3.61
879,298
19,636
898,934
11,575
340
11,915
10,824
262
397,282
3,553,975
3,951,257
22,044
142,395
164,439
5,318,968
177,510
1.32
1.73
1.33
2.42
5.55
4.01
4.16
3.34
443,035
10,047
453,082
11,284
8,432
265
8,697
253
442,510
2,862,399
3,304,909
13,636
124,226
137,862
4,019,336
148,083
1.90
2.64
1.92
2.24
3.08
4.34
4.17
3.68
57,696
63,477
69,483
44,720
84,853
103,081
45,008
46,277
57,474
32,899
12,513
94,102
$
5,626,886
$
4,217,593
Interest bearing liabilities:
Deposits:
Interest bearing demand
Savings
Money market
Time
Total interest bearing deposits
$
2,218,416
538,971
1,140,025
487,981
4,385,393
$
9,186
638
5,284
1,304
16,412
0.41 %
0.12
0.46
0.27
0.37
$
1,633,606
328,570
919,778
420,308
3,302,262
$
1,771
93
589
3,174
5,627
0.11 %
0.03
0.06
0.76
0.17
$
1,133,308
190,368
771,363
412,506
2,507,545
$
1,776
36
1,482
7,184
10,478
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank advances
Subordinated debentures
122,154
9,357
274
21,733
567
154
12
1,124
0.46
1.65
4.38
5.17
62,534
10,596
16,317
—
24
14
337
—
0.04
0.13
2.07
—
40,363
9,457
61,483
—
37
35
1,400
—
0.16 %
0.02
0.19
1.74
0.42
0.09
0.37
2.28
—
Total interest bearing liabilities
4,538,911
18,269
0.40
3,391,709
6,002
0.18
2,618,848
11,950
0.46
Non-interest bearing liabilities:
Non-interest bearing demand deposits
Accrued interest payable and other
Total liabilities
2,053,213
107,958
6,700,082
Stockholders’ equity
Total liabilities and stockholder's equity
738,798
7,438,880
$
Net interest income
Net interest spread
Net interest margin
1,578,795
83,121
5,053,625
573,261
5,626,886
$
1,100,942
77,684
3,797,474
420,119
4,217,593
$
$
234,267
$
171,508
$
136,133
3.21 %
3.35 %
39
3.16 %
3.22 %
3.22 %
3.39 %
Supplemental Information - Total Company 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, $5 million and $8 million for the years ended December 31, 2022, 2021
and 2020, respectively.
Interest income on a FTE basis includes additional amounts 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 FTE basis using a federal income tax rate of 21%. Approximate tax equivalent adjustments to interest income
were $884,000, $434,000 and $212,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
Interest income includes loan fees of $10.3 million ($4.2 million associated with the PPP), $20.5 million ($18.1
million associated with the PPP) and $10.6 million ($9.1 million associated with the PPP) for the years ended
December 31, 2022, 2021 and 2020, respectively. Interest income on loans may be impacted by the level of
prepayment fees collected and accretion related to loans purchased.
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 average interest earning assets.
Net interest spread (FTE) is the difference between taxable equivalent rates earned on 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.
40
The following table illustrates the extent to which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities impacted Bancorp’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and
(iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately
to the changes due to volume and the changes due to rate. Tax-equivalent adjustments are based on a federal income tax
rate of 21%. The change in interest due to both rate and volume has been allocated to the change due to rate and the change
due to volume in proportion to the relationship of the absolute dollar amounts of the change in each.
Rate/Volume Analysis (FTE)
Ye ar e n de d De cembe r 31, 2022
Ye ar e nde d De ce mbe r 31, 2021
C ompare d to
C ompare d to
Ye ar e n de d De cembe r 31, 2021
Ye ar e nde d De ce mbe r 31, 2020
Total Ne t
C hange
In cre ase (De cre ase ) Du e to
Rate
Vol ume
Total Ne t
C hange
Incre ase (De cre ase ) Due to
Rate
Volume
$ 5,373
(59)
$ 5,326
(9)
$ 47
(50)
$ (93)
(284)
$ (547)
(74)
$ 454
(210)
15,727
1,511
243
4,239
194
219
11,488
1,317
24
3,143
75
9
(3,210)
(114)
20
6,353
189
(11)
(17,246)
69,477
8,919
16,874
(26,165)
52,603
8,408
18,169
9,928
(10,096)
(1,520)
28,265
(in tho us ands )
Inte re st i ncome :
Federal funds sold and int erest
bearing due from banks
Mortgage loans held for sale
Investment securit ies:
T axable
T ax-exempt
Federal Home Loan Bank stock
SBA Paycheck Prot ect ion P rogram
(PPP) loans
Non-P PP Loans
Total i nte re st i ncome
75,026
35,762
39,264
29,427
(4,093)
33,520
Inte re st e xpe nse :
Deposit s:
Interest bearing demand
Savings
Money market
T ime
T ot al int erest bearing deposit s
Securit ies sold under agreement s
t o repurchase
Federal funds purchased
Federal Home Loan Bank advances
Subordinat ed debt
7,415
545
4,695
(1,870)
10,785
6,580
454
4,521
(2,315)
9,240
835
91
174
445
1,545
(5)
57
(893)
(4,010)
(4,851)
(647)
23
(1,136)
(4,143)
(5,903)
642
34
243
133
1,052
543
140
(325)
1,124
500
142
(158)
43
(2)
(167)
— 1,124
(13)
(21)
(1,063)
—
(28)
(25)
(119)
15
4
(944)
—
—
Total i nte re st e xpe nse
12,267
9,724
2,543
(5,948)
(6,075)
127
Ne t i nte re st i ncome
$ 62,759
$ 26,038
$ 36,721
$ 35,375
$ 1,982
$ 33,393
41
Asset/Liability Management and Interest Rate Risk
Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk
management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet
financial instruments, management evaluates interest rate sensitivity with the goal of optimizing net interest income within
the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.
Interest Rate Simulation Sensitivity Analysis
Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates
on earnings in a one-year forecast. The simulation model is designed to reflect dynamics of interest earning assets and
interest bearing liabilities. By estimating effects of interest rate fluctuations, the model can 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 results of the interest rate sensitivity analysis performed as of December 31, 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 60%, which
approximates Bancorp’s long-term average. While the beta’s experienced in 2022 were significantly below this level, the
Company anticipates the future betas will be closer to, or even exceed, historic averages.
Bancorp’s interest rate simulation sensitivity analysis details that increases in interest rates of 100, 200 and 300 bps would
have a negative effect on net interest income, respectively, while decreases of 100 and 200 bps in interest rates would have
a positive effect on net interest income. These results depict a slightly liability sensitive interest rate risk profile. The
decrease in net interest income in the rising rate scenarios is primarily due to variable rate loans and short-term investments
repricing slower than deposits and short-term borrowings.
% Change from base net interest income at December 31, 2022
-200
Basis Points
0.58%
-100
Basis Points
Change in Rates
+100
Basis Points
+200
Basis Points
+300
Basis Points
0.34%
-1.71%
-3.44%
-5.17%
Bancorp’s loan portfolio is currently composed of approximately 71% fixed and 29% variable rate loans, with the fixed
rate portion pricing generally based on a spread to the five year treasury curve at the time of origination and the variable
portion pricing based on an on-going spread to Prime (approximately 65%) or 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.
42
As of December 31, 2022, the Company had approximately $477 million in loans and interest rate derivative contracts of
$120 million (notional amount) 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 $206 million in loans that were indexed to SOFR at December
31, 2022.
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 and are recognized on the
balance sheet at fair value, with changes in fair value recorded in other non-interest 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.”
In addition, Bancorp periodically uses derivative financial instruments as part of its interest rate risk management,
including interest rate swaps. These interest rate swaps are designated as cash flow hedges as described in the Footnote
titled “Interest Rate Swaps.” For these derivatives, the effective portion of gains or losses is reported as a component of
OCI, and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged
forecasted transaction affects earnings. As of December 31, 2022, Bancorp had no outstanding interest rate swaps
designated as cash flow hedges.
43
Provision for Credit Losses
Provision for credit losses on loans at December 31, 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 involves a high degree of judgment and subjectivity. See the footnote
titled “Summary of Significant Accounting Policies” for detailed discussion regarding Bancorp’s ACL methodology by
loan segment.
An analysis of the changes in the ACL on loans, including provision, and selected ratios follow:
As of and for the years ended December 31, (dollars in thousands)
2022
2021
2020
Beginning balance
Acquired PCD loans (goodwill adjustment)
CECL - cumulative adjustment
Adjusted beginning balance
Provision for credit losses on loans
Provision for credit losses on loans - acquired loans
Total provision for credit losses on loans
Total charge-offs
Total recoveries
Net loan (charge-offs) recoveries
Ending balance
Average total loans
Provision for credit losses on loans to average total loans
Net loan (charge-offs) recoveries to average total loans
ACL for loans to total loans
ACL for loans to total loans (excluding PPP) (1)
ACL for loans to average total loans
$
53,898
9,950
—
63,848
$
51,920
6,757
—
58,677
$
26,791
—
9,856
36,647
5,253
4,429
9,682
(2,307)
2,308
1
(6,000)
7,397
1,397
(7,681)
1,505
(6,176)
16,918
—
16,918
(2,101)
456
(1,645)
$
73,531
$
53,898
$
51,920
$
4,819,124
$
3,951,257
$
3,304,909
0.20%
0.00%
1.41%
1.42%
1.53%
0.04%
-0.16%
1.29%
1.34%
1.36%
0.51%
-0.05%
1.47%
1.74%
1.57%
(1) See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
Discussion of 2022 vs 2021:
The ACL for loans totaled $74 million as of December 31, 2022 compared to $54 million at December 31, 2021,
representing an ACL to total loans ratio of 1.41% and 1.29% for those periods, respectively. The ACL to loans (excluding
PPP loans) was 1.42% at December 31, 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 December 31, 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 expense for credit losses on loans (excluding acquisition-related activity) of $5.3 million was recorded for the
year ended December 31, 2022. Significant organic loan growth, inflation and recession-based increases in the projected
unemployment rate forecast, along with qualitative factor updates related to the potential impact of rising rates on the C&I
portfolio, were the main drivers of expense within the CECL model for 2022. Further, net charge off/recovery activity for
the year ended December 31, 2022 was minimal.
Credit loss expense recorded for the acquired CB loan portfolio totaled $4.4 million and was recorded in the first quarter
of 2022, bringing total provision for credit losses on loans to $9.7 million for the year ended December 31, 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).
44
Total provision expense for credit losses on loans of $1.4 million was recorded for the year ended December 31, 2021, as
acquisition-related expense competed with a number of improving factors within the CECL model. Expense totaling $7.4
million was recorded in association with the non-PCD loan portfolio added through the KB acquisition during the second
quarter of 2021, which was partially offset by a net benefit of $6.0 million recorded for the year ended December 31,
2021, and was driven by a then-improving unemployment forecast, updates to Bancorp’s CECL modeling and strong
historic credit metrics. Further, the ACL for loans was also increased $6.8 million as a result of the PCD loan portfolio
added through the KB acquisition during the second quarter of 2021, with the corresponding offset recorded to goodwill
(as opposed to provision for credit loss expense).
The ACL for off balance sheet credit exposures, while separate from the ACL for loans and recorded in other liabilities
on the consolidated balance sheets, also experienced an increase between December 31, 2021 and December 31, 2022.
The CB acquisition resulted in a $500,000 increase to the ACL for off balance sheet credit exposures during the first
quarter of 2022, 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 $575,000 was also recorded for the year ended
December 31, 2022, driven mainly by the addition of new lines of credit, and thus increased availability, largely within
the C&D portfolio. ACL for off balance sheet credit exposures stood at $4.5 million as of December 31, 2022 compared
to $3.5 million as of December 31, 2021.
While the year ended December 31, 2021 experienced a similar $250,000 increase to the ACL for off balance sheet credit
exposures as a result of the KB acquisition, negative provision for credit loss expense for off balance sheet credit exposures
totaling $2.2 million was recorded for the year ended December 31, 2021. This large benefit was the result of general
declines in reserve loss percentages consistent with then-improving CECL model factors and improvement in line of credit
utilization.
Bancorp’s loan portfolio is well-diversified with no significant concentrations of credit. Geographically, most loans are
extended to borrowers in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and
Cincinnati, Ohio metropolitan markets. The adequacy of the ACL is monitored on an ongoing basis and it is the opinion
of management that the balance of the ACL at December 31, 2022 is adequate to absorb probable losses inherent in the
loan portfolio as of the financial statement date.
Discussion of 2021 vs 2020:
The ACL on loans totaled $54 million as of December 31, 2021 compared to $52 million at December 31, 2020,
representing an ACL to total loans ratio of 1.29% and 1.47% for those periods, respectively. The ACL to total loans
(excluding PPP loans) was 1.34% at December 31, 2021 compared to 1.74% at December 31, 2020, the decrease stemming
from loan growth and a lower ACL. Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled $141
million (net of unamortized deferred fees) at December 31, 2021 and $550 million at December 31, 2020, Bancorp did
not record a general reserve for potential losses for these loans within the ACL. See the section titled “Non-GAAP
Financial Measures” for reconcilement of non-GAAP to GAAP measures.
Upon adoption of ASC 326 effective January 1, 2020, Bancorp recorded an increase of $8.2 million to the ACL on loans
and a corresponding decrease to retained earnings, net of the DTA impact. In addition, non-accretable yield marks of $1.6
million related to formerly classified PCI loans were reclassed between the amortized cost basis of loans and corresponding
ACL on loans, which were subsequently charged-off in the third quarter of 2020 with no resulting impact to provision for
credit loss expense. The adjustment upon adoption of ASC 326 raised the beginning balance of the ACL on loans to $37
million on January 1, 2020.
In total, provision for credit losses on loans decreased $15.5 million, or 92%, for the year ended December 31, 2021
compared to the same period of 2020. The significantly higher expense recorded for the year ended December 31, 2020
was the result of CECL adoption and the subsequent pandemic-related developments experienced shortly thereafter,
particularly elevated future unemployment forecasts.
Due to continued improvement in the unemployment forecast, updates to Bancorp’s CECL modeling and strong historic
credit metrics, a net benefit (excluding acquisition-related activity) of $6.0 million was recorded for the year ended
December 31, 2021, which was offset by credit loss expense on loans associated with the non-PCD loan portfolio added
as a result of the KB acquisition, which was recorded during the second quarter of 2021 and totaled $7.4 million.
45
Further, the ACL on loans was also increased $6.8 million as a result of the PCD loan portfolio added through the KB
acquisition during the second quarter, with the corresponding offset recorded to goodwill. Partially offsetting this increase
was net charge off activity of $6.2 million for the year ended December 31, 2021, serving to reduce the ACL on loans.
Net charge off activity for 2021 was driven by the charge off of two CRE relationships totaling $4.4 million. These charged
off amounts were fully reserved and had no income statement impact for the year ended December 31, 2021. In addition,
there was a $555,000 recovery of a note that was fully charged off in 2020.
While separate from the ACL on loans and recorded in other liabilities on the consolidated balance sheets, the ACL for
off balance sheet credit exposures also experienced a decrease between December 31, 2020 and December 31, 2021. A
net benefit of $2.2 million was recorded for the year ended December 31, 2021, as nearly all applicable loan segments
experienced declines in their reserve loss percentages consistent with generally improving model factors and improvement
in line of credit utilization, most notably within the C&I portfolio. In addition, the ACL for off balance sheet credit
exposures was increased $250,000 as a result of available credit added through the KB acquisition during the second
quarter, with the corresponding offset recorded to goodwill. The ACL for off balance sheet credit exposures stood at $3.5
million as of December 31, 2021 compared to $5.4 million as of December 31, 2020.
Non-Interest Income
(dollars in thousands)
Years Ended December 31,
2022
2021
2020
$
%
$
Variance
2022 / 2021
2021 / 2020
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income
Net investment products sales
commissions and fees
Bank owned life insurance
Gain (loss) on sale of premises and equipment
Other
Total non-interest income
$ 36,111
8,286
18,623
8,590
3,210
3,063
1,597
4,369
5,300
$ 89,149
$ 27,613
5,852
13,456
6,912
4,724
2,553
914
(78)
3,904
$ 65,850
$ 23,406
4,161
8,480
5,407
6,155
1,775
693
150
1,672
$ 51,899
$ 8,498
2,434
5,167
1,678
(1,514)
510
683
4,447
1,396
$ 23,299
31 %
42
38
24
(32)
20
75
NM
36
35 %
$ 4,207
1,691
4,976
1,505
(1,431)
778
221
(228)
2,232
$ 13,951
%
18 %
41
59
28
(23)
44
32
(152)
133
27 %
NM - Not Meaningful
Discussion of 2022 vs 2021:
Total non-interest income increased $23.3 million, or 35%, for the year ended December 31, 2022 compared to the same
period of 2021. Non-interest income comprised 28% of total revenue, defined as net interest income and non-interest
income, for the years ended December 31, 2022 and 2021, respectively. WM&T services comprised 41% of total non-
interest income for the year ended December 31, 2022 compared to 42% for the same period of 2021, respectively.
Acquisition-related activity drove a significant portion of the non-interest income increase for the year ended December
31, 2022 compared to the same period of 2021.
46
WM&T Services:
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T
revenue increased $8.5 million, or 31%, for the year ended December 31, 2022 as compared with the same period
of 2021. Significant growth in AUM drove the increase over prior year, consistent with acquisition-related activity
and organic new business development. However, significant declines in both fixed income and equity markets
weighed heavily on WM&T revenue in 2022, as inflation and recession-based fears, coupled with geopolitical
tensions, have resulted in continued volatility.
Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically
assessed on a monthly basis. Recurring fees, which generally comprise the vast majority of WM&T revenue,
increased $8.7 million, or 32%, for the year ended December 31, 2022, as compared with the same period of 2021,
as a result of the aforementioned acquisition-related and organic business development.
A portion of WM&T revenue, most notably executor and certain employee benefit plan-related fees, are non-
recurring in nature and the timing of these revenues typically correspond with the related administrative activities.
For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees decreased
$194,000, or 32%, for the year ended December 31, 2022, as compared with the same period of 2021, consistent
with lower estate fee revenue.
AUM, stated at market value, totaled $6.59 billion at December 31, 2022 compared to $4.80 billion at December 31,
2021. The large increase is attributed mainly to AUM of $2.65 billion added through the first quarter CB acquisition,
as well as organic net new business growth over the past year, which were partially offset by significant declines in
both fixed income and equity markets during 2022, as previously noted.
Contracts between WM&T and their customers do not permit performance-based fees and accordingly, none of the
WM&T 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.
Detail of WM&T Service Income by Account Type:
(in thousands)
Years Ended December 31,
Investment advisory
Personal trust
Personal investment retirement
Company retirement
Foundation and endowment
Custody and safekeeping
Brokerage and insurance services
Other
Total WM&T services income
2022
2021
2020
$
$
$
13,697
13,213
6,186
1,520
1,051
310
67
67
36,111
12,003
7,569
5,168
1,798
797
146
78
54
27,613
9,747
7,027
4,319
1,457
589
129
45
93
23,406
$
$
$
The preceding table demonstrates that WM&T fee revenue is concentrated within investment advisory and personal
trust accounts. WM&T fees are predominantly based on AUM and tailored for individual/company accounts and/or
relationships with fee structures customized based on account type and other 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 and revocable trusts, personal investment retirement accounts and accounts holding only
fixed income securities. Company retirement plan services can consist of a one-time conversion fee with recurring
AUM fees to follow. While there are also fee structures for estate settlements, income received is often non-
recurring in nature. Fee structures are agreed upon at the time of account opening and any subsequent revisions are
communicated in writing to the customer. WM&T fees earned are not performance-based nor are they based on
investment strategy or transactions. Bancorp also earns management fees on in-house investments funds acquired
from CB.
47
Assets Under Management by Account Type:
Total AUM (not included on balance sheet) increased from $4.80 billion at December 31, 2021 to $6.59 billion at
December 31, 2022 as follows:
(in thousands)
Investment advisory
Personal trust
Personal investment retirement
Company retirement
Foundation and endowment
Managed
$
2,249,017
1,744,522
756,126
52,891
428,018
December 31, 2022
Non-managed (1)
63,691
$
474,373
27,065
524,568
8,219
$
Total
2,312,708
2,218,895
783,191
577,459
436,237
Managed
$
1,919,593
939,703
620,312
35,234
368,572
December 31, 2021
Non-managed (1)
34,879
$
150,221
3,478
599,129
1,532
$
Total
1,954,472
1,089,924
623,790
634,363
370,104
Subtotal
Custody and safekeeping
$
5,230,574
—
$
1,097,916
256,791
$
6,328,490
256,791
$
3,883,414
—
$
789,239
128,178
$
4,672,653
128,178
Total
$
5,230,574
$
1,354,707
$
6,585,281
$
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 December 31, 2022 and 2021, approximately 79% and 81%, respectively, of total AUM were actively
managed. Company retirement plan accounts primarily consist of participant-directed assets. The amount of
custody and safekeeping accounts are insignificant.
Managed Trust AUM by Class of Investment:
(in thousands)
December 31, 2022
December 31, 2021
Interest bearing deposits
Treasury and government agency obligations
State, county and municipal obligations
Money market mutual funds
Equity mutual funds
Other mutual funds - fixed, balanced and municipal
Other notes and bonds
Common and preferred stocks
Common trust funds and collective investment funds
Real estate mortgages
Real estate
Other miscellaneous assets (1)
$
185,080
176,917
201,038
108,751
1,125,540
583,713
209,178
2,180,390
114,458
774
57,297
287,438
$
173,603
39,736
110,795
7,299
944,500
612,913
171,087
1,681,006
-
-
58,344
84,131
Total managed assets
$
5,230,574
$
3,883,414
(1) Includes client directed instruments including rights, warrants, annuities, insurance policies, unit investment trusts,
and oil and gas rights.
Managed assets are invested in instruments for which market values can be readily determined, the majority of
which are sensitive to market fluctuations and consist of approximately 63% in equities and 37% in fixed income
securities as of December 31, 2022 compared to 68% and 32% as of December 31, 2021. This composition has
been relatively consistent from period to period. Common trust funds and collective investment funds were added
as a result of the CB acquisition in 2022. However, these investments are immaterial to WM&T revenue, AUM and
the overall strategy of our WM&T business.
48
Additional Sources of Non-interest income:
Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges,
increased $2.4 million, or 42%, for the year ended December 31, 2022, as compared with the prior year, mainly as a result
of the contribution associated with acquisition-related activity over the past 12 months. Outside of acquisition-related
growth, an industry-wide decline in the volume of fees earned on overdrawn checking accounts has been experienced over
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 revenue stream could be
significantly impacted by changing industry practices. Bancorp could be faced with strategic decisions surrounding
deposit-related service charges in the future, which could negatively impact the contributions made by this, or similar,
revenue streams.
Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors.
Debit and credit card revenue increased $5.2 million, or 38%, for the year ended December 31, 2022, as compared with
the same period 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 $3.8 million, or 40%, and total
credit card income increased $1.4 million, or 35%, for the year ended December 31, 2022 compared the year ended
December 31, 2021. Bancorp expects this revenue stream will continue to increase with expansion of the customer base
and further expansion of the debit and credit card programs.
Treasury management fees primarily consist of fees earned for cash management services provided to commercial
customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp and increased $1.7
million, or 24%, for the year ended December 31, 2022 compared to the prior year, 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, ACH origination, remote deposit and fraud mitigation services over the past year. 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.
Mortgage banking income primarily includes gains on sales of mortgage loans 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, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA
financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans
directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue
decreased $1.5 million, or 32%, for the year ended December 31, 2022, as compared with the same period of 2021. Overall
volume declined in 2022 compared to the prior year as a result of rising interest rates and low housing inventory. While
this has in turn led to the year-over-year decline noted above, mortgage banking income has benefitted from the addition
of the mortgage loan servicing portfolio added through the CB acquisition, comprising approximately $1.43 billion in
mortgage loans at December 31, 2022.
Net investment product sales commissions and fees are generated primarily on stock, bond and mutual fund sales, as well
as wrap fees earned on brokerage accounts. Wrap fees represent quarterly 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 financial advisors primarily through its branch network via an arrangement with a
third party broker-dealer, while larger managed accounts are serviced by Bancorp’s WM&T Department. Net investment
product sales commissions and fees increased $510,000, or 20%, for the year ended December 31, 2022, as compared
with the same period of 2021, driven by acquisition-related growth, which included the addition of financial advisors, and
increased trading activity associated with general market volatility.
BOLI assets represent the cash surrender value of life insurance policies on certain active and non-active employees who
have provided consent for Bancorp to be the beneficiary for a portion of such policies. The related change in cash surrender
value and any death benefits received under the policies are recorded as non-interest income. This income 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 $85 million as of
December 31, 2022. BOLI income increased $683,000, or 75%, for the year ended December 31, 2022 compared to the
same period 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.
49
During the third and fourth quarters of 2022, Bancorp completed the sale of certain acquired properties that overlapped
with existing locations, recording a pre-tax gain of $4.4 million as a result.
Other non-interest income increased $1.4 million, or 36%, for the year ended December 31, 2022 compared with the same
period of 2021. The increase was driven largely by the contribution from LFA, a financial advising firm added through
the CB acquisition, and an increase in other miscellaneous fee income. As previously noted, Bancorp’s partial interest in
LFA was sold effective December 31, 2022. Other non-interest income attributed to Bancorp’s partial interest in LFA
totaled $1.3 million for the year ended December 31, 2022.
Discussion of 2021 vs 2020:
Total non-interest income increased $14.0 million, or 27%, for the year ended December 31, 2021 compared to the same
period in 2020. Non-interest income comprised 28% of total revenue for both the year ended December 31, 2021 and
2020, respectively. WM&T services comprised 42% of Bancorp’s total non-interest income for the year ended December
31, 2021 compared to 45% for the same period of 2020.
WM&T revenue increased $4.2 million, or 18%, for the year ended December 31, 2021, as compared with the same period
of 2020. Stock market appreciation, coupled with then-record net new business development and to a lesser extent, the
KB acquisition, drove the substantial increase for 2021 as compared to 2020.
Deposit service charges increased $1.7 million, or 41%, for the year ended December 31, 2021, as compared with the
same period in 2020. The increase resulted from the combination of a meaningful contribution associated with the KB
acquisition and a recovery from the subdued activity experienced in 2020, as customer behavior and transaction volume
was significantly impacted by pandemic-related developments.
Debit and credit card revenue increased $5.0 million, or 59%, for the year ended December 31, 2021, as compared with
the same period in 2020, 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 $3.6 million, or 61%, while total
credit card income increased $1.4 million, or 54%. Similar to deposit service charges above, debit and credit card revenue
volume benefitted from both acquisition-related activity and a recovery from the pandemic-related slowdowns of 2020.
Treasury management fees increased $1.5 million, or 28%, for the year ended December 31, 2021 compared to 2020, as
a result of strong new product sales and customer base expansion. The demand for Bancorp’s treasury products increased
during the pandemic, as these products allowed customers to operate more efficiently in a decentralized environment.
Mortgage banking revenue decreased $1.4 million, or 23%, for the year ended December 31, 2021 as compared with the
same period of 2020. The sustained low long-term interest rate environment that incentivized refinancing and purchasing
activity resulted in elevated mortgage banking income in 2020. Over the course of 2021, volume began normalizing as
the pool of potential customers who had yet to refinance shrank, general housing inventory remained limited and interest
rates began to rise above the absolute low levels experienced in 2020, resulting in lower mortgage banking income.
Net investment product sales commissions and fees increased $778,000, or 44%, for the year December 31, 2021, as
compared with the same period of 2020, due to the KB acquisition and increased trading activity.
BOLI income increased $221,000, or 32% for the year ended December 31, 2021 compared to the same period of 2020,
attributed in large part to BOLI assets added through the KB acquisition.
Other non-interest income increased $2.2 million, for the year ended December 31, 2021 as compared with the same
period of 2020. This increase was driven by a plethora of activity, most notably a death benefit of $523,000 on an insurance
policy outside of traditional BOLI, stronger market returns on such insurance policies, the addition of the Captive through
the KB acquisition and gains on OREO sold.
50
Non-interest expenses
Years Ended December 31, (dollars in thousands)
2022
2021
2020
Variance
2022 / 2021
$
%
2021 / 2020
%
$
Compensation
Employee benefits
Net occupancy and equipment
Technology and communication
Debit and credit card processing
Marketing and business development
Postage, printing and supplies
Legal and professional
FDIC insurance
Amortization of investments in tax credit
partnerships
Capital and deposit based taxes
Merger expenses
Federal Home Loan Bank early termination penalty
Intangible amortization
Loss on sale of interest in LFA
Other
Total non-interest expenses
$ 86,640
16,568
14,298
14,897
5,909
5,005
3,354
2,943
2,758
353
2,621
19,500
—
5,544
870
10,531
$ 191,791
$ 63,034
13,479
9,688
11,145
4,494
4,150
2,213
2,583
1,847
367
2,090
19,025
474
770
—
6,921
$ 142,280
$ 51,368
11,064
8,182
8,732
2,606
2,383
1,778
2,392
1,217
3,096
4,386
—
—
323
—
4,132
$ 101,659
$ 23,606
3,089
4,610
3,752
1,415
855
1,141
360
911
(14)
531
475
(474)
4,774
870
3,610
$ 49,511
37 % $ 11,666
2,415
23
1,506
48
2,413
34
1,888
31
1,767
21
435
52
191
14
630
49
(2,729)
(4)
(2,296)
25
19,025
2
474
(100)
447
620
—
100
52
2,789
35 % $ 40,621
23 %
22
18
28
72
74
24
8
52
(88)
(52)
100
100
138
—
67
40 %
Discussion of 2022 vs 2021:
Total non-interest expenses increased $49.5 million, or 35%, for the year ended December 31, 2022 compared to the prior
year. Compensation and employee benefits comprised 54% of total non-interest expenses for the years ended December
31, 2022 and 2021, respectively. Excluding merger expenses, compensation and employee benefits comprised 60% of
total non-interest expenses for the year ended December 31, 2022, compared to 62% for the year ended December 31,
2021.
Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $23.6 million, or
37%, for the year ended December 31, 2022 compared to the prior year. The increase was attributed to growth in full time
equivalent employees, annual merit-based salary increases and higher incentive compensation expense. Net full time
equivalent employees totaled 1,040 at December 31, 2022 compared to 820 at December 31, 2021. The acquisitions of
CB in March of 2022 and KB in May of 2021 resulted in the combined addition of 372 full time equivalent employees
over the past two years.
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 $3.1
million, or 23%, for the year ended December 31, 2022 compared to the prior year, consistent with the overall increase in
full time equivalent employees noted previously.
Net occupancy and equipment expenses primarily include depreciation, rent, property taxes, utilities and maintenance.
Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation
expense. Net occupancy increased $4.6 million, or 48%, for the year ended December 31, 2022 compared to the prior
year. 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 December 31, 2022, Bancorp’s branch network
consisted of 73 locations throughout Louisville, central, eastern and Northern Kentucky, as well as the markets of
Indianapolis, Indiana and Cincinnati, Ohio.
51
Technology and communication expenses include computer software amortization, equipment depreciation and
expenditures related to investments in technology needed to maintain and improve the quality of customer delivery
channels, information security and internal resources. Technology expense increased $3.8 million, or 34%, for the year
ended December 31, 2022 compared to the prior year, consistent with acquisition-related activity, customer expansion and
core system upgrades.
Bancorp outsources processing for debit and commercial credit card operations, which generate significant revenue for
the Company. These expenses fluctuate consistent with transaction volumes. Debit and credit card processing expense
increased $1.4 million, or 31%, for the year ended December 31, 2022, correlating in part with the increase in transaction
volume and customer base expansion resulting from both organic and acquisition-related growth that served to increase
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
$855,000, or 21%, for the year ended December 31, 2022 compared to the prior year. The increase corresponds with
strategic decisions to advertise and promote in Bancorp’s new markets, as well as 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 $1.1 million, or 52%, for the year ended December 31, 2022 compared
to the prior year, consistent with increased customer communication and Bancorp’s expansion tied to acquisition-related
activity.
Legal and professional fees increased $360,000, or 14%, for the year ended December 31, 2022 compared to the prior
year. The increase over prior year was driven by 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 $911,000, or 49%, for the year ended December 31, 2022 compared to the prior year, consistent
with organic and acquisition-related balance sheet growth for which the insurance is assessed on.
Tax credit partnerships generate federal income tax credits, and for each of Bancorp’s investments in tax credit
partnerships, the tax benefit, net of related expenses, results in a positive effect upon net income. Amounts of credits and
corresponding expenses can vary widely depending upon the timing and magnitude of the underlying investments.
Amortization expense associated with these investments decreased $14,000 for the year ended December 31, 2022
compared to the prior year.
Capital and deposit based taxes, which consist primarily of deposit-based taxes and state of Ohio franchise taxes, increased
$531,000, or 25%, for the year ended December 31, 2022 compared to the prior year, as a result of both organic and
acquisition-related growth.
Merger expenses represent non-recurring expenses associated with completion of acquisitions and consist primarily of
investment banker fees, legal fees, various compensation-related expenses, early termination fees relating to various
contracts and system conversion expenses. Merger expenses totaled $19.5 million for the year ended December 31, 2022
and were attributed to the completion of the CB acquisition. By comparison, merger expensed for the year ended December
31, 2021 totaled $19.0 million, of which all but $525,000 was associated with the completion of the KB acquisition.
An early termination fee of $474,000 was recorded for the year ended December 31, 2021 in relation to the pre-payment
of $14 million in FHLB advances prior to 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. No such activity was recorded for the year ended December 31, 2022.
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
intangibles are generally amortized on an accelerated basis over a period of approximately ten years. Intangible
amortization for the year ended December 31, 2022 totaled $5.5 million compared to $770,000 for the same period of the
prior year, the significant increase stemming from the CB acquisition. As previously noted, Bancorp’s partial interest in
LFA was sold effective December 31, 2022. Amortization expense associated with the CLI of the LFA business totaled
$357,000 for the year ended December 31, 2022.
52
As noted previously, Bancorp’s partial interest in LFA was sold effective December 31, 2022. The sale resulted in a pre-
tax loss of $870,000, which was recorded as non-interest expense for the year ended December 31, 2022.
Other non-interest expenses increased $3.6 million, or 52%, for the year ended December 31, 2022. The most notable
drivers of the increase 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 last 12 months.
Bancorp’s efficiency ratio (FTE) for the year ended December 31, 2022 was 59.30%, as compared to 59.94% for the same
period of 2021. The efficiency ratio (FTE) for both years was significantly impacted by the acquisitions of CB and KB in
2022 and 2021, respectively. Bancorp also considers an adjusted efficiency ratio, which eliminates net gains (losses) on
sales and calls of investment securities, as well as net gains (losses) on sales of acquired premises and equipment and
disposition of any acquired assets, 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 year
ended December 31, 2022 was 53.62%, compared to 51.77% for the year ended December 31, 2021. See the section titled
“Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
Discussion of 2021 vs 2020:
Total non-interest expenses increased $40.6 million, or 40%, for the year ended December 31, 2021 compared to 2020.
Compensation and employee benefits comprised 54% and 61% of Bancorp’s total non-interest expenses for the years
ended December 31, 2021 and 2020, respectively. Excluding merger expenses, compensation and employee benefits
comprised 62% of total non-interest expenses for the year ended December 31, 2021.
Compensation increased $11.7 million, or 23%, for 2021 compared to 2020. The increase was attributed to growth in full
time equivalent employees driven by the KB acquisition, annual merit-based salary increases and higher incentive
compensation expense. Net full time equivalent employees totaled 820 at December 31, 2021 compared to 641 at
December 31, 2020.
Employee benefits increased $2.4 million, or 22%, in 2021 compared with 2020, attributed to acquisition-related growth
in FTEs.
Net occupancy increased $1.5 million, or 18% for 2021 compared with 2020. The KB acquisition resulted in the addition
of 19 branches and was the primary driver of the increase over 2020.
Technology expense increased $2.4 million, or 28%, in 2021 compared to 2020, consistent with acquisition-related growth
and continued investment in technology needed to maintain and improve the quality of customer delivery channels,
information security and internal resources.
Debit and credit card processing expense increased $1.9 million, or 72%, for 2021 as compared with 2020, consistent with
the correlated increase experienced for card income that was driven by both organic and acquisition-related growth.
Marketing and business development expenses increased $1.8 million, or 74%, for the year ended December 31, 2021, as
compared to the same period of 2020. The increase was the result of strategic plans to invest in the advertisement and
promotion of the Bank in the newly entered central and eastern Kentucky markets and contributions to the Bank’s
foundation that supports various community initiatives. Further, marketing and business development activities,
particularly travel and entertainment, were significantly muted during 2020 as a result of pandemic.
Postage, printing and supply expenses increased $435,000, or 24%, in 2021 compared to 2020, driven by the KB
acquisition and increased customer communication.
Legal and professional fees increased $191,000, or 8%, for 2021 compared to 2020. The increase over 2020 was largely
attributed to increased loan collection-related activity.
FDIC insurance increased $630,000, or 52%, for the year ended December 31, 2021 compared to 2020. The increase was
related to the acquisition and PPP-driven growth of the balance sheet. Further, the first quarter of 2020 benefitted from
the last portion of small institution credits first issued by the FDIC in 2019.
53
Amortization of investments in tax credit partnership decreased $2.7 million from 2021 to 2020 as a result of a large tax
credit deal completed in the fourth quarter of 2020.
Capital and deposit based taxes decreased $2.3 million, or 52%, in 2021 compared to 2020, consistent with the state of
Kentucky transitioning financial institutions from a capital-based franchise tax to the Kentucky corporate income tax
effective January 1, 2021.
Merger expenses recorded for the year ended December 31, 2021 primarily represent non-recurring expenses associated
with completion of the KB acquisition. No such expense was recorded for the year ended December 31, 2020.
An early termination fee of $474,000 was incurred during the second quarter of 2021 in relation to the pre-payment of $14
million in FHLB advances prior to contractual maturities. Bancorp chose to pay off these advances due to excess liquidity
and the near-term outlook for low interest rates at the time of pay off.
Intangible amortization expense for the years ended December 31, 2021 and 2020 consisted of amortization associated
with the CDI of acquired deposit portfolios. Such expense totaled $770,000 for 2021, representing a $447,000 increase
over 2020, which was driven by CDI added as a result of the KB acquisition.
Other non-interest expenses increased $2.8 million, or 67%, for 2021 compared to 2020, stemming largely from the
addition of the insurance captive through the KB acquisition, increased card reward expense, and higher debit and credit
card losses. Further, 2020 benefitted from larger credits to expense associated with a gain on a bank-owned property sold
and the reversal of an accrual related to a potential IRS penalty that was dismissed.
Bancorp’s efficiency ratio (FTE) of 59.94% for 2021 increased from 54.06% in 2020 due to one-time merger-related
expenses associated with the KB acquisition. Bancorp’s adjusted efficiency ratio was 51.77% and 52.42% for 2021 and
2020. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
Income Taxes
A comparison of income tax expense and ETR follows:
Years Ended December 31, (dollars in thousands)
2022
2021
2020
Income before income tax expense
Income tax exp ense
Effective tax rate
Discussion of 2022 vs 2021:
$ 120,484
27,190
22.57 % 21.75 % 13.10 %
$ 67,743
8,874
$ 95,397
20,752
Fluctuations in the ETR were primarily attributed to the following:
The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise
activity. The ETR was reduced 1.0% for the year ended December 31, 2022 compared to a reduction of 1.1% for
the same period of 2021, consistent with 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 0.2% for the year ended December 31, 2022, compared to a
0.8% 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 years ended December
31, 2022 and 2021 was reduced by 0.1% and 0.2%, respectively, by tax credit activity.
Tax-exempt interest income earned on loans and investment securities reduced the ETR by 0.6% for the year
ended December 31, 2022 compared to a reduction of 0.4% 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 acquisition-related
activity.
54
Non-deductible merger expenses recorded during the year ended December 31, 2022 served to increase the ETR
0.1%, compared to an increase of 0.4% for the same period of 2021.
As a result of the KB acquisition in May of 2021, Bancorp acquired an insurance captive. The insurance 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 year ended December 31, 2022, compared to reduction of 0.2% for the same period of 2021.
Discussion of 2021 vs 2020:
Fluctuations in the ETR were primarily attributed to the following:
The ETR for 2020 included the full year benefit of a large historic tax credit project that was completed in the
fourth quarter of last year, serving to reduce the ETR by 4.5% for the year. No comparable activity was recorded
in 2021.
The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital
based franchise tax to the Kentucky corporate income tax effective January 1, 2021 and allows entities filing a
combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards.
These changes served to increase the ETR by 3.5% for the year ended December 31, 2021.
An insurance captive was acquired as a result of the KB acquisition. For the year ended December 31, 2021, the
addition of the Captive reduced the ETR by 0.2%.
The ETR was reduced by 1.1% and 0.7% for the years ended December 31, 2021 and 2020, respectively, as a
result of SAR exercise activity for each year.
The CARES Act included several significant provisions for corporations including increasing the amount of deductible
interest under section 163(j), allowing companies to carryback certain net operating losses, and increasing the amount of
net operating loss that corporations can use to offset income. These changes did not have a significant impact on Bancorp’s
income taxes for the years ended December 31, 2022, 2021 and 2020.
55
Financial Condition – December 31, 2022 Compared to December 31, 2021
Overview
Total assets increased $850 million, or 13%, to $7.50 billion at December 31, 2022 from $6.65 billion at December 31,
2021. Total assets of $1.34 billion were added on March 7, 2022 as a result of the CB acquisition, including loans of $632
million and total investment securities of $247 million. Goodwill of $67 million was initially recorded in relation to the
transaction, $8.5 million of which was subsequently written off as a result of the previously noted sale of Bancorp’s partial
interest in LFA. Total loans (excluding loans added through the CB acquisition and the PPP portfolio) grew $529 million,
or 13%, between December 31, 2021 and December 31, 2022. However, the acquisition-related and organic growth
experienced in 2022 was partially offset by a $794 million reduction in cash and cash equivalents stemming largely from
a decline in deposits experienced in the latter part of the year.
Total liabilities increased $766 million, or 13%, to $6.74 billion at December 31, 2022 from $5.97 billion at December
31, 2021. Total liabilities of $1.24 billion were assumed on March 7, 2022 as a result of the CB acquisition, including total
deposits of $1.12 billion. Further, SSUAR totaling $66 million and subordinated debentures of $26 million were also
assumed in the acquisition. However, the aforementioned decline in deposits experienced in the latter part of the year
served to partially offset the acquisition-related growth noted above.
Stockholders’ equity increased $85 million, or 13%, to $760 million at December 31, 2022 from $676 million at December
31, 2021. Stock issued in relation to the CB acquisition, which totaled $134 million, and net income of $93.0 million were
offset by a $108 million negative fluctuation in AOCI and dividends declared during 2022. The large decline in AOCI
from December 31, 2021 to December 31, 2022 was the result of the rising interest rate environment and its corresponding
impact on the valuation of the AFS debt securities portfolio.
Cash and Cash Equivalents
Cash and cash equivalents declined $794 million, or 83%, ending at $167 million at December 31, 2022 compared to $961
million at December 31, 2021. The decline stemmed from loan growth and investment in the securities portfolio in addition
to deposit run-off, as the elevated deposit balances generally maintained by the customer base over the past several quarters
have gradually dissipated. While the average balance of cash and cash equivalents increased $58 million, or 7%, over the
past 12 months on the heels of PPP activity and deposit growth stemming from both acquisition-related activity and the
aforementioned higher deposit levels maintained by the customer base in general, Bancorp has seen liquidity retreat from
the record levels experienced at the end of 2021.
Investment Securities
The primary purpose of the investment securities portfolio is to provide another source of interest income, as well as a
tool for liquidity management. In managing the composition of the balance sheet, Bancorp seeks a balance between
earnings sources, credit and liquidity considerations.
Investment securities increased $438 million, or 37%, to $1.62 billion at December 31, 2022 compared to $1.18 billion at
December 31, 2021. In addition to $247 million of securities 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 $653 million of debt
securities during the year ended December 31, 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 $143 million stemming from an upward move in the interest rate environment experienced during the
year ended December 31, 2022.
56
A portion of the securities added during the first quarter of 2022, through both acquisition and normal investment activity,
were classified 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 classified as HTM at December 31, 2021. As of December 31, 2022 and 2021, Bancorp’s investment
securities portfolio consisted of AFS and HTM securities as detailed below:
(in thousands)
December 31, 2022
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
MBS - government agencies
Obligations of states and political subdivisions
Other
Total investment securities
December 31, 2021
AFS
Fair Value
HTM
Carrying
Value
Total
Investment
Securities
$ 115,039
143,626
752,738
127,599
5,615
$ 217,794
27,507
227,916
-
-
$ 332,833
171,133
980,654
127,599
5,615
$ 1,144,617
$ 473,217
$ 1,617,834
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
MBS - government agencies
Obligations of states and political subdivisions
Other
$ 122,501
135,021
846,624
75,075
1,077
$ -
-
-
-
-
$ 122,501
135,021
846,624
75,075
1,077
Total investment securities
$ 1,180,298
$ -
$ 1,180,298
The maturity distribution (based on contractual maturity) and weighted average yields of the AFS and HTM investment
security portfolios follow:
December 31, 2022
(dollars in thousands)
U.S. Treasury and other U.S.
Due after one but
Due after five but
AFS
Due within one year
within five years
within ten years
Due after ten years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Government obligations
3,025
2.30 %
112,014
0.50 % $ —
— % $ —
— %
Government sp onsored
enterp rise obligations
M BS - government agencies
Obligations of states and
p olitical subdivisions
Other
December 31, 2022
(dollars in thousands)
U.S. Treasury and other U.S.
30,197
152
6,103
1,995
2.35
1.73
2.00
1.97
6,380
21,405
25,749
980
1.21
1.81
2.00
2.29
8,493
78,655
46,316
2,640
1.72
1.92
1.94
3.23
98,556
652,526
3.31
1.93
49,431
1.97
—
$
41,472
2.27 %
$
166,528
0.94 %
$
136,104
1.94 %
$
800,513
2.10 %
Due after one but
Due after five but
HTM
Due within one year
within five years
within ten years
Due after ten years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Government obligations
15,013
1.30 %
202,781
2.07 % $ —
— % $ —
— %
Government sp onsored
enterp rise obligations
M BS - government agencies
—
20
0.97
604
26,616
2.42
2.01
26,293
3,316
2.64
2.00
610
197,964
3.57
2.30
$
15,033
1.30 %
$
230,001
2.06 %
$
29,609
2.57 %
$
198,574
2.30 %
Actual maturities for mortgage-backed securities may differ from contractual maturities due to prepayments on underlying
collateral.
57
Loans
Composition of loans by primary loan portfolio class follows:
December 31, (dollars in thousands)
2022
2021
$ Change
% Change
Variance
Commercial real estate - non-owner occupied
$ 1,397,346
$ 1,128,244
$ 269,102
Commercial real estate - owner occupied
834,629
678,405
Total commercial real estate
2,231,975
1,806,649
Commercial and industrial - term
Commercial and industrial - term - PPP
Commercial and industrial - lines of credit
765,163
18,593
465,813
596,710
140,734
370,312
Total commercial and industrial
1,249,569
1,107,756
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land develop ment
Home equity lines of credit
Consumer
Leases
Credit cards
Total Loans (1)
591,515
313,248
904,763
445,690
200,725
139,461
13,322
20,413
400,695
281,018
681,713
299,206
138,976
104,294
13,622
17,087
156,224
425,326
168,453
(122,141)
95,501
141,813
190,820
32,230
223,050
146,484
61,749
35,167
(300)
3,326
$ 5,205,918
$ 4,169,303
$ 1,036,615
24%
23%
24%
28%
-87%
26%
13%
48%
11%
33%
49%
44%
34%
-2%
19%
25%
(1) Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.
Total loans increased $1.04 billion, or 25%, from December 31, 2021 to December 31, 2022, driven by the addition of
$632 million in loans related to the CB acquisition and strong organic loan growth, which more than offset a $122 million
decline in the PPP loan portfolio.
Excluding the loans acquired through the CB acquisition and the PPP portfolio, loan growth of $529 million, or 13%, was
experienced between December 31, 2021 and December 31, 2022, driven by 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 42.3% at December 31, 2022, led by C&I utilization, which increased from 23.9% to 33.1% over the same period,
respectively. However, line of credit usage has remained below pre-pandemic levels, with customers continuing to utilize
excess cash for financing needs as opposed to drawing on available lines. Further, the addition of new lines, particularly
within the C&D and C&I portfolio segments, increased availability for the year ended December 31, 2022, but utilization
of the new lines has remained relatively slow.
PPP loans of $19 million were outstanding at December 31, 2022, including approximately $312,000 in related net
unrecognized fees, 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 on the remaining outstanding PPP portfolio has become less
significant, as over 98% of the original portfolio has been forgiven.
58
Bancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific
industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s
ability to honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does
business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current
market areas, which encompass Louisville, Kentucky, central and eastern Kentucky, Indianapolis, Indiana and Cincinnati,
Ohio.
Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain
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. GAAP requires
the participated portion of these loans to be recorded as secured borrowings. These participated loans are included in the
C&I and CRE loan portfolio segments with a corresponding liability recorded in other liabilities. At both December 31,
2022 and December 31, 2021, the total participated portion of loans of this nature totaled approximately $5 million,
respectively.
59
The following table presents the maturity distribution and rate sensitivity of the loan portfolio at December 31, 2022:
De ce mbe r 31, 2022 (in thousands)
Commercial real estate - non-owner occup ied
Maturity
Within one
year
After one
but within
five years
After five
but within
fifteen
After
fifteen
years
Total
% of Total
Fixed rate
Variable rate
Total
$ 73,967
$ 581,769
$ 346,920
$ 141,768
$1,144,424
60,075
87,546
104,108
1,193
252,922
$ 134,042
$ 669,315
$ 451,028
$ 142,961
$1,397,346
Commercial real estate - owner-occupied
Fixed rate
Variable rate
Total
Commercial and industrial - term
Fixed rate
Variable rate
Total
Commercial and industrial - term - PPP
Fixed rate
Variable rate
Total
Commercial and industrial - lines of credit
Fixed rate
Variable rate
Total
Residential real estate - owner occupied
Fixed rate
Variable rate
Total
Residential real estate - non-owner occup ied
Fixed rate
Variable rate
Total
Construction and land development
Fixed rate
Variable rate
Total
Home equity lines of credit
Fixed rate
Variable rate
Total
(continued)
$ 34,861
$ 346,059
$ 303,376
$ 62,920
$ 747,216
9,372
15,391
49,347
13,303
87,413
$ 44,233
$ 361,450
$ 352,723
$ 76,223
$ 834,629
$ 15,288
$ 286,652
$ 179,956
$ 3,530
$ 485,426
50,328
141,770
87,639
-
279,737
$ 65,616
$ 428,422
$ 267,595
$ 3,530
$ 765,163
$ 313
$ 18,280
$
-
$
-
$ 18,593
-
-
-
-
-
$ 313
$ 18,280
$
-
$
-
$ 18,593
$ 6,122
$ 47,160
$ 48,534
$
-
$ 101,816
288,422
71,717
1,942
1,916
363,997
$ 294,544
$ 118,877
$ 50,476
$ 1,916
$ 465,813
$ 5,264
$ 22,649
$ 82,430
$ 471,815
$ 582,158
372
1,221
1,269
6,495
9,357
$ 5,636
$ 23,870
$ 83,699
$ 478,310
$ 591,515
$ 8,332
$ 101,032
$ 88,021
$ 107,426
$ 304,811
3,687
1,926
2,724
100
8,437
$ 12,019
$ 102,958
$ 90,745
$ 107,526
$ 313,248
$ 9,558
$ 49,338
$ 136,025
$ 12,435
$ 207,356
60,232
150,264
26,445
1,393
238,334
$ 69,790
$ 199,602
$ 162,470
$ 13,828
$ 445,690
$ -
$ -
$ -
$ -
$ -
14,308
45,764
118,969
21,684
200,725
$ 14,308
$ 45,764
$ 118,969
$ 21,684
$ 200,725
82%
18%
100%
90%
10%
100%
63%
37%
100%
100%
0%
100%
22%
78%
100%
98%
2%
100%
97%
3%
100%
47%
53%
100%
0%
100%
100%
60
(continued)
De ce m be r 31, 2022 (in thousands)
Maturity
Within one
year
After one
but within
five years
After five
but within
fifteen
After
fifteen
years
Total
% of Total
Consumer
Fixed rate
Variable rate
Total
Leases
Fixed rate
Variable rate
Total
Credit Cards
Fixed rate
Variable rate
Total
Total Loans
Fixed rate
Variable rate
Total
$ 3,464
$ 35,997
$ 20,059
$ 837
$ 60,357
58,965
19,713
426
-
79,104
$ 62,429
$ 55,710
$ 20,485
$ 837
$ 139,461
$ 1,053
$ 10,483
$ 1,786
$
-
$ 13,322
-
-
-
-
-
$ 1,053
$ 10,483
$ 1,786
$
-
$ 13,322
$ -
$
-
$
-
$
-
$ -
20,413
-
-
-
20,413
$ 20,413
$
-
$
-
$
-
$ 20,413
$ 158,222
$1,499,419
$1,207,107
$ 800,731
$3,665,479
566,174
535,312
392,869
46,084
1,540,439
$ 724,396
$2,034,731
$1,599,976
$ 846,815
$5,205,918
43%
57%
100%
100%
0%
100%
0%
100%
100%
71%
29%
100%
In the event Bancorp 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 overall interest rate sensitivity.
Non-performing Loans and Assets
Information summarizing non-performing loans and assets follows:
December 31, (dollars in thousands)
2022
2021
2020
2019
2018
Non-accrual loans
Troubled debt restructurings
Loans past due 90 days or more and still accruing
Total non-performing loans
Other real estate owned
Total non-performing assets
$ 14,242
$ 6,712
$ 12,514
$ 11,494
$ 2,611
-
892
15,134
677
12
684
7,408
7,212
16
649
13,179
281
34
535
12,063
493
42
745
3,398
1,018
$ 15,811
$ 14,620
$ 13,460
$ 12,556
$ 4,416
Non-performing loans to total loans
Non-peforming loans to total loans (excluding PPP) (1)
Non-performing assets as to total assets
ACL for loans to non-performing loans
0.29%
0.29%
0.21%
486%
0.18%
0.18%
0.22%
728%
0.37%
0.44%
0.29%
394%
0.42%
N/A
0.34%
222%
0.13%
N/A
0.13%
751%
(1) See the section titled “Non-GAAP Financial Measures” for reconcilem ent of non-GAAP to GAAP m easures.
Non-performing loans to total loans were 0.29% at December 31, 2022 compared to 0.18% at December 31, 2021, the
increase being attributed largely to one CRE relationship that was put on non-accrual status.
Non-performing assets totaled $16 million at December 31, 2022 compared to $15 million at December 31, 2021.
61
In total, non-performing assets as of December 31, 2022 were comprised of 111 loans ranging in individual amounts up
to $7 million and OREO. At December 31, 2022, OREO included two CRE properties and one residential real estate
property.
The following table presents the major classifications of non-accrual loans by primary portfolio:
December 31, (in thousands)
2022
2021
Commercial real estate - non-owner occupied
$ 7,707
$ 720
Commercial real estate - owner occupied
2,525
1,748
Total commercial real estate
10,232
2,468
Commercial and industrial - term
Commercial and industrial - PPP
1,182
670
21
—
Commercial and industrial - lines of credit
348
228
Total commercial and industrial
1,551
898
Residential real estate - owner occupied
1,801
1,997
Residential real estate - non-owner occupied
219
293
Total residential real estate
2,020
2,290
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
—
—
205
646
234
410
—
—
—
—
Total non-accrual loans
$ 14,242
$ 6,712
Loans are placed in a non-accrual income 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, unless such a loan is well-
secured and in the process of collection or renewal. Interest income recorded on non-accrual loans as principal payments
was $160,000, $312,000, and $350,000 for 2022, 2021, and 2020. Interest income that would have been recorded if non-
accrual loans were on a current basis in accordance with their original terms was $1.1 million, $359,000, and $457,000
for 2022, 2021, and 2020.
In addition to non-performing loans discussed above, there were loans, which are accruing interest, for which payments
were current or less than 90 days past due where borrowers are experiencing elevated financial difficulties. These
substandard loans totaled approximately $40 million at both December 31, 2022 and 2021. These relationships are
monitored closely for possible future inclusion in non-performing loans. Management believes it has adequately reflected
credit exposure in these loans in its determination of the allowance.
Loans accounted for as TDRs include modifications from original terms such as those due to bankruptcy proceedings,
certain changes to amortization periods or extended suspension of principal payments due to customer financial
difficulties. To the extent that Bancorp chooses to work with borrowers by providing reasonable concessions rather than
initiating collection, this would result in an increase in loans accounted for as TDRs. TDRs that are in non-accrual status
are reported as non-accrual loans. Loans accounted for as TDRs are individually evaluated for impairment and are reported
as non-performing loans.
During the year ended December 31, 2022, there were no loans modified as TDRs and there were no payment defaults of
existing TDRs within 12 months following modification. At December 31, 2022, Bancorp had one loan classified as a
TDR, the balance of which was $850,000. Bancorp had two loans classified as TDR at December 31, 2021, the balances
of which were $950,000 and $12,000, respectively, the latter of which was paid off during the year ended December 31,
2022.
62
Delinquent Loans
Delinquent loans (consisting of all loans 30 days or more past due) totaled $17 million at December 31, 2022 compared
to $11 million at December 31, 2021. Delinquent loans total loans were 0.32% and 0.26% at December 31, 2022 and
December 31, 2021. The increase in delinquent loans between December 31, 2022 and 2021 stems mainly from loans
added through acquisitions over the past two years.
Allowance for Credit Losses on Loans
The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP.
When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is
reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See the Footnote
titled “Summary of Significant Accounting Policies” for discussion of Bancorp’s ACL methodology on loans. Allocations
of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp’s
judgment, should be charged-off.
The following table reflects activity in the ACL for loans for the years ended December 31, 2022, 2021 and 2020:
(in thousands)
Year ended December 31, 2022
Beginning
Balance
Initial ACL
on PCD
Loans
Provision for
Credit Losses
on Loans
Charge-offs
Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
15,960
9,595
25,555
$
3,508
2,121
5,629
$
3,173
(1,061)
2,112
$
(37)
(41)
(78)
$
37
213
250
$
22,641
10,827
33,468
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
8,577
4,802
13,379
4,316
3,677
7,993
1,358
1,874
3,232
590
-
590
2,497
(87)
2,410
1,777
(75)
1,702
(724)
(200)
(924)
(30)
(27)
(57)
1,283
-
1,283
64
22
86
12,991
6,389
19,380
6,717
3,597
10,314
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
4,789
1,044
772
204
162
53,898
$
419
2
78
-
-
9,950
$
2,050
567
750
(3)
94
9,682
$
(72)
-
(1,080)
-
(96)
(2,307)
$
-
-
638
-
51
2,308
$
7,186
1,613
1,158
201
211
73,531
$
63
(in thousands)
Year ended December 31, 2021
Beginning
Balance
Initial ACL
on PCD
Loans
Provision for
Credit Losses
on Loans
Charge-offs
Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
19,396
6,983
26,379
$
1,491
2,112
3,603
$
(2,031)
1,826
(205)
$
(3,065)
(1,909)
(4,974)
$
169
583
752
$
15,960
9,595
25,555
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
8,970
3,614
12,584
3,389
1,818
5,207
1,022
1,755
2,777
142
88
230
(112)
(567)
(679)
1,134
1,766
2,900
(1,337)
-
(1,337)
(383)
-
(383)
34
-
34
34
5
39
8,577
4,802
13,379
4,316
3,677
7,993
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
6,119
895
340
261
135
51,920
$
-
147
-
-
-
6,757
$
(1,333)
1
743
(57)
27
1,397
$
-
-
(987)
-
-
(7,681)
$
3
1
676
-
-
1,505
$
4,789
1,044
772
204
162
53,898
$
(in thousands)
Year ended December 31, 2020
Beginning
Balance
Impact of
Adopting
ASC 326
Initial ACL on
PCD Loans
Provision for
Credit Losses
on Loans
Charge-offs
Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
5,235
3,327
8,562
$
2,946
1,542
4,488
$
152
1,350
1,502
$
11,194
2,115
13,309
$
(143)
(1,351)
(1,494)
12
$
-
12
$
19,396
6,983
26,379
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
6,782
5,657
12,439
1,527
947
2,474
365
(1,528)
(1,163)
1,087
429
1,516
-
-
-
99
-
99
1,832
(515)
1,317
737
442
1,179
(18)
-
(18)
(79)
(2)
(81)
-
9
9
18
2
20
8,970
3,614
12,584
3,389
1,818
5,207
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards - commercial
Total net loan (charge-offs) recoveries
2,105
728
100
237
146
26,791
$
3,056
114
264
(4)
(50)
8,221
$
-
-
34
-
-
1,635
$
902
53
91
28
39
16,918
$
-
-
(508)
-
-
(2,101)
$
56
-
359
-
-
456
$
6,119
895
340
261
135
51,920
$
Bancorp’s ACL for loans was $74 million as of December 31, 2022 compared to $54 million as of December 31, 2021.
The change in the ACL for loans was driven by a number of factors, which resulted in the $20 million, or 36%, increase
for the year ended December 31, 2022. Activity associated with the CB acquisition 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.
64
Provision expense for credit losses on loans (excluding acquisition-related activity) of $5.3 million was recorded for the
year ended December 31, 2022. Significant organic loan growth, inflation and recession-based fears that drove increases
in the projected unemployment rate forecast, along with qualitative factor updates related to the potential impact of rising
rates on the C&I portfolio were the main drivers of expense within the CECL model for 2022. Further, net charge
off/recovery activity for the year ended December 31, 2022 was minimal.
The table below details net charge-offs to average loans outstanding by category of loan for the years ended December
31, 2022, 2021 and 2020:
2022
2021
2020
Net
(charge
offs)/
recoveries
Average
loans
Net
(charge
offs)/
recoveries
to average
loans
Net
(charge
offs)/
recoveries
Net
(charge
offs)/
recoveries
to average
loans
Net
(charge
offs)/
recoveries
Net
(charge
offs)/
recoveries
to average
loans
Average
loans
Average
loans
(in thousands)
Year ended December 31,
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
-
$
172
172
$
1,342,829
782,185
2,125,014
0.00%
0.02%
0.01%
$
(2,896)
(1,326)
(4,222)
$
1,027,405
592,577
1,619,982
-0.28%
-0.22%
-0.26%
$
(131)
(1,351)
(1,482)
$
818,132
493,141
1,311,273
Commercial and industrial - term
Commercial and industrial - term - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
559
-
(200)
359
34
(5)
29
692,214
52,704
417,254
1,162,172
513,458
296,682
810,140
(72)
-
(442)
-
(45)
$
1
374,415
182,874
130,595
13,849
20,065
4,819,124
$
0.08%
0.00%
-0.05%
0.03%
0.01%
0.00%
0.00%
-0.02%
0.00%
-0.34%
0.00%
-0.22%
0.00%
(1,303)
-
-
(1,303)
(349)
5
(344)
550,101
397,282
290,231
1,237,614
334,718
221,214
555,932
3
1
(311)
-
-
(6,176)
$
290,705
121,276
98,093
13,770
13,885
3,951,257
$
-0.24%
0.00%
0.00%
-0.11%
-0.10%
0.00%
-0.06%
0.00%
0.00%
-0.32%
0.00%
0.00%
-0.16%
(9)
-
-
(9)
(61)
-
(61)
441,244
442,510
271,428
1,155,182
224,501
140,923
365,424
56
-
(149)
-
-
(1,645)
$
265,796
103,143
79,018
15,271
9,802
3,304,909
$
-0.02%
-0.27%
-0.11%
0.00%
0.00%
0.00%
0.00%
-0.03%
0.00%
-0.02%
0.02%
0.00%
-0.19%
0.00%
0.00%
-0.05%
65
The following table sets forth the ACL by category of loan:
December 31, 2022
December 31, 2021
(dollars in thousands)
Allocated
Allowance
% of Total
ACL for
loans
ACL for
loans to Total
Loans (1)
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
22,641
10,827
33,468
Commercial and industrial - term (1)
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
12,991
6,389
19,380
6,717
3,597
10,314
7,186
1,613
1,158
201
211
73,531
$
31%
15%
46%
17%
9%
26%
9%
5%
14%
10%
2%
2%
0%
0%
100%
1.62%
1.30%
1.50%
1.70%
1.37%
1.57%
1.14%
1.15%
1.14%
1.61%
0.80%
0.83%
1.51%
1.03%
1.42%
% of Total
ACL for
loans
ACL for
loans to
Total Loans
(1)
30%
18%
48%
16%
9%
25%
8%
7%
15%
9%
2%
1%
0%
0%
100%
1.41%
1.41%
1.41%
1.44%
1.30%
1.38%
1.08%
1.31%
1.17%
1.60%
0.75%
0.74%
1.50%
0.95%
1.34%
Allocated
Allowance
$
15,960
9,595
25,555
8,577
4,802
13,379
4,316
3,677
7,993
4,789
1,044
772
204
162
53,898
$
(1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee.
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.
Selected ratios relating to the allowance follow:
Years Ended December 31,
2022
2021
2020
Provision for credit losses on loans to average total loans
Net (charge-offs)/recoveries to average total loans
ACL for loans to average loans
ACL for loans to total loans
ACL for loans to total loans (excluding PPP) (1)
0.20%
0.00%
1.53%
1.41%
1.42%
0.04%
-0.16%
1.36%
1.29%
1.34%
0.51%
-0.05%
1.57%
1.47%
1.74%
(1) See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
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 December 31, 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 $575,000 was also recorded for the year ended December 31, 2022, driven largely by the addition of new
construction loans, partially offset by increased C&I utilization. ACL for off balance sheet credit exposures stood at $4.5
million as of December 31, 2022 compared to $3.5 million as of December 31, 2021.
66
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 $25
million, or 32%, between December 31, 2021 and December 31, 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 markets.
Premises held for sale totaling $3 million was recorded on Bancorp’s consolidated balance sheets as of December 31,
2022, which consists of three vacant parcels of land, one branch acquired from CB and one legacy SYB branch.
BOLI
Bank-owned life insurance assets increased $32 million, or 60%, to $85 million at December 31, 2022, compared to $53
million at December 31, 2021. During the third quarter of 2022, Bancorp purchased an additional $30 million of BOLI
assets in an effort to deploy excess liquidity.
Goodwill
At December 31, 2022, Bancorp had $194 million in goodwill recorded on its balance sheet. Goodwill of $67 million was
initially recorded in relation to the March 7, 2022 acquisition of CB, $8.5 million of which was subsequently written off
as a result of Bancorp selling its partial interest in LFA. Effective December 31, 2022, management finalized the fair
values of the acquired assets and assumed liabilities associated with the CB acquisition in advance of the 12 month post-
acquisition date, as allowed by GAAP.
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 December 31, 2022 and
December 31, 2021, Bancorp’s CDI assets were $15 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 December 31, 2022, Bancorp’s CLI assets totaled $10 million. As previously noted, Bancorp’s
interest in LFA was sold effective December 31, 2022. As a result, the CLI associated with LFA noted above was written
off and is included in the loss recorded in relation to the sale for the year ended December 31, 2022.
Other Assets and Other Liabilities
Other assets increased $49 million, or 57%, as of December 31, 2022 compared to December 31, 2021, while other
liabilities increased $29 million, or 30%, for the same respective periods.
The increase in other assets stems largely from a $30 million increase in DTAs driven by the significant market
depreciation experienced within the AFS debt securities portfolio for the year ended December 31, 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 December 31, 2022, Bancorp did not incur any impairment with respect to its intangible assets or other long-lived
assets.
67
The increase for Other liabilities between December 31, 2021 and December 31, 2022 was driven largely by acquisition-
related activity resulting in higher accrued employee incentive compensation, employee benefits and various other
liabilities. Further, the rising interest rate environment also drove an $8 million increase in Bancorp’s interest rate swap
liabilities, corresponding with the increase noted above for Other assets.
Market value changes on interest rate swap transactions maintained for certain loan customers played a role in the
fluctuations of both Other Asset and Other Liabilities, as noted above. Bancorp enters into these 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 via both an asset and a related
liability as Bancorp has an agreement with the borrower (the asset) and the counterparty (the liability). Because of
matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value
have an offsetting effect on the related asset and liability. For this reason, the market value changes over the past 12 months
stemming from the rising interest rate environment have resulted in increases to both the asset and liability associated with
these transactions. For additional information, see the footnote titled “Interest Rate Swaps.”
Deposits
Total deposits increased $604 million, or 10%, from December 31, 2021 to December 31, 2022. Deposits totaling $1.12
billion were assumed as a result of the CB acquisition on March 7, 2022. Excluding the deposits added through the CB
acquisition, deposits declined $517 million, or 9%, as the elevated deposit levels that had generally been maintained by
the customer base for several quarters following the PPP moderated during 2022. While Bancorp has not experienced
fallout within the customer base, we anticipate deposit pricing will be a challenge to future NIM expansion.
(dollars in thousands)
December 31,
2022
2021
$ Change
% Change
Variance
Non-interest bearing demand deposits
$
1,950,198
$
1,755,754
$
194,444
Interest bearing deposits:
Interest bearing demand
Savings
Money market
Time deposit accounts of $250,000 or more
Other time deposits
Total time deposits (1)
2,308,960
535,903
1,124,100
97,638
374,453
472,091
2,131,928
415,258
1,050,352
89,745
344,477
434,222
177,032
120,645
73,748
7,893
29,976
37,869
Total interest bearing deposits
4,441,054
4,031,760
409,294
Total deposits
$
6,391,252
$
5,787,514
$
603,738
11%
8%
29%
7%
9%
9%
9%
10%
10%
(1)
Includes $599,000 and $5 million in brokered deposits as of December 31, 2022 and December 31, 2021, respectively.
Bancorp experienced both significant average deposit growth and sharp increases in the rates paid on deposits for the year
ended December 31, 2022 as compared to 2021. While average deposit growth was attributed entirely to the CB
acquisition, the FRB’s aggressive interest rate moves drove up deposit rates. Bancorp increased rates on transaction and
time deposit accounts alike during 2022, due to both proactive strategic measures and competitive pricing pressure. The
average cost of interest bearing deposits increased 20 bps to 0.37% between December 31, 2021 and December 31, 2022,
while the overall cost of deposits (including non-interest bearing deposits) increased 10 bps to 0.25% over the same period.
Bancorp anticipates increasing deposit costs could continue to place pressure on NIM in 2023.
68
Average deposit balances and average rates paid on such deposits for the years indicated are summarized as follows:
Years Ended December 31, (dollars in thousands)
2022
2021
2020
Average
balance
Averag
e rate
Average
balance
Averag
e rate
Average
balance
Averag
e rate
Non-interest bearing demand deposits
$ 2,053,213
— % $ 1,578,795
— % $ 1,100,942
— %
Interest bearing demand deposits
2,218,416
0.41
1,633,606
0.11
1,133,308
0.16
Savings deposits
Money market deposits
Time deposits
Total average deposits
538,971
0.12
328,570
0.03
190,368
0.02
1,140,025
0.46
919,778
0.06
771,363
0.19
487,981
0.27
420,308
0.76
412,506
1.74
$ 6,438,606
$ 4,881,057
$ 3,608,487
Maturities of time deposits of $250,000 or more at December 31, 2022 are as follows:
(in thousands)
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
$ 16,876
10,024
36,180
34,558
$ 97,638
Securities Sold Under Agreement 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 December 31, 2022, 2021 and 2020, 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 concerning SSUAR follows:
December 31, (dollars in thousands)
Outstanding balance at end of period
2022
2021
$
133,342
$
75,466
Weighted average interest rate at end of period
1.64
%
0.04
%
Years Ended December 31, (dollars in thousands)
2022
2021
2020
Average outstanding balance during the period
$
122,154
$
62,534
$
40,363
Average interest rate during the period
0.46
%
0.04
%
0.09
%
Maximum outstanding at any month end during the period
$
161,512
$
81,964
$
47,979
SSUARs totaled $133 million and $75 million at December 31, 2022 and December 31, 2021, respectively, as SSUARs
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).
69
Federal Funds Purchased and Other Short-Term Borrowing
FFP and other short-term borrowing balances decreased $2 million, or 15%, between December 31, 2022 and December
31, 2022. At December 31, 2022, FFP related entirely to excess liquidity held by downstream correspondent bank
customers of Bancorp.
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 December 31, 2022, subordinated notes added through the CB
acquisition totaled $26 million.
FHLB advances
FHLB advances outstanding at December 31, 2022 totaled $50 million, consisting entirely of a one-week cash
management advance utilized at year-end for short-term liquidity purposes. This advance represents the only FHLB
advance utilized by Bancorp in 2022 and matures in early January 2023. There were no FHLB advances outstanding at
December 31, 2021, as all outstanding FHLB advances either matured or were paid off by the end of the 2021.
Liquidity
The role of liquidity management is to ensure funds are available to meet 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 supply of those funds. Liquidity is provided by short-term assets that can be converted to cash, AFS debt
securities, 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’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, FFS and AFS debt securities. FFS and interest
bearing deposits totaled $85 million and $899 million at December 31, 2022 and December 31, 2021, respectively. The
decrease experienced for the year ended December 31, 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 while
interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity
purposes.
The fair value of the AFS debt security portfolio was $1.14 billion and $1.18 billion at December 31, 2022 and December
31, 2021 respectively. The lack of growth in AFS debt security portfolio for the year ended December 31, 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 $54 million and cash flows on amortizing debt
securities of approximately $238 million (based on assumed prepayment speeds as of December 31, 2022) expected over
the next 12 months. Combined with FFS and interest bearing deposits from banks, AFS debt securities offer substantial
resources to meet either loan growth or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of its
investment securities portfolio to secure public funds, cash balances of certain WM&T accounts and SSUAR. At
December 31, 2022, total investment securities pledged for these purposes comprised 68% of the debt securities portfolio,
leaving approximately $525 million of unpledged debt securities.
70
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 excludes public funds and brokered deposits. At December 31, 2022,
such deposits totaled $5.60 billion and represented 88% of Bancorp’s total deposits, as compared with $5.05 billion, or
87% of total deposits at December 31, 2021. Because these core deposits are less volatile and are often tied to other
products of Bancorp through long lasting relationships, they do not place undue pressure on liquidity. Non-core deposit
balances may be more sensitive to market rates, with potential decreases possibly straining Bancorp’s liquidity position.
As of December 31, 2022 and December 31, 2021, Bancorp held brokered deposits totaling $599,000 and $5 million,
respectively, all of which is attributed to deposits added through acquisition-related activity over the past 12 months.
Included in total deposit balances at December 31, 2022 are $692 million in public funds generally comprised of accounts
with local government agencies and public school districts in the markets in which Bancorp operates. At December 31,
2021, public funds deposits totaled $645 million, the increase over prior year being attributed to relationships added
through the CB acquisition.
Bancorp 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 as a potential low cost alternative to brokered deposits. At December 31, 2022
and December 31, 2021, available credit from the FHLB totaled $1.36 billion and $1.00 billion, respectively. Bancorp
also had unsecured FFP lines with correspondent banks totaling $80 million at both December 31, 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 December 31, 2022.
During the normal course of business, Bancorp 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 processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation
of Bancorp’s liquidity.
Bancorp’s principal source of cash is dividends paid to it as the sole shareholder of the Bank. As discussed in the Footnote
titled “Commitments and Contingent Liabilities,” as of January 1st of any year, the Bank may pay dividends in an amount
equal to the Bank’s net income of the prior two years less any dividends paid for the same two years. At December 31,
2022, the Bank could pay an amount equal to $86 million in dividends to Bancorp without regulatory approval subject to
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 the FHLB and FFP, as well as scheduled loan repayments and cash
flows from AFS debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which
include making loans and purchasing securities for the investment portfolio. Another important source of cash is net
income of the Bank from operating activities. For further detail regarding the sources and uses of cash, see the
“Consolidated Statements of Cash Flows” in Bancorp’s consolidated financial statements.
Commitments
In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not
reflected in whole or in part in Bancorp’s consolidated financial statements. Such activities include traditional off-balance
sheet credit-related financial instruments, commitments under operating leases and long-term debt.
Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of
credit. Unused loan commitments increased $372 million as of December 31, 2022 compared to December 31, 2021
consistent with the CB acquisition and strong organic growth.
71
Commitments to extend credit are an agreement to lend to a customer as long as collateral is available as agreed upon and
there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses. 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.
Additional detail regarding credit-related financial instruments, including both commitments to extend credit and letters
of credit at December 31, 2022 are as follows:
(in thousands)
one year
years
years
years
Total
Amount of commitment expiration per period
Less than
One-three
Three-five
Over five
Unused loan commitments
$ 980,962
$ 450,319
$ 427,265
$ 170,337
$ 2,028,883
Standby letters of credit
30,389
4,255
60
—
34,704
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 December 31, 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 for off balance sheet exposures of $575,000 was also recorded for the year ended December 31, 2022, driven
largely by the addition of new construction loans. ACL for off balance sheet credit exposures stood at $4.5 million as of
December 31, 2022 compared to $3.5 million as of December 31, 2021.
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, time deposit
maturities and other obligations.
Required payments under such commitments at December 31, 2022 are as follows:
Payments due by period
Less than
One-three
Three-five
Over five
(in thousands)
one year
years
years
years
Total
Time deposit maturities
FHLB advances
Subordinated debentures
Operating leases (1)
$ 335,095
$ 117,759
$ 19,045
$ 192
$ 472,091
50,000
—
—
—
—
—
—
50,000
26,000
26,000
2,963
5,259
4,031
8,755
21,008
Defined benefit retirement plan
Other (2)
—
274
438
2,566
3,278
4,500
3,306
1,500
2,472
11,778
(1) Includes assumed renewals.
(2) Consists primarily of contractual requirements relating to tax credit investments and community sponsorships.
See the footnote titled “Commitments and Contingent Liabilities” for additional detail.
72
Capital
Information pertaining to Bancorp’s capital balances and ratios follows:
Years ended December 31, (dollars in thousands, except per share data)
2022
2021
2020
Stockholders’ equity
Dividends per share
Dividend payout ratio, based on basic EPS
$ 675,869
$ 760,432
$ 1.14
$ 1.10
35.19 % 36.67 % 41.38 %
$ 440,701
$ 1.08
At December 31, 2022, stockholders’ equity totaled $760 million, representing an increase of $85 million, or 13%,
compared to December 31, 2021. The increase for the year ended December 31, 2022 was attributed mainly to stock issued
in relation to the CB acquisition, which totaled $134 million. Further, net income of $93.0 million was offset by a $108
million negative change in AOCI and $33 million in dividends declared during the year. AOCI consists of net unrealized
gains or losses on AFS debt securities and a minimum pension liability, each net of income taxes. The large decline in
AOCI from December 31, 2021 to December 31, 2022 was 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 December 31, 2022. TCE was 7.44% at December 31, 2022 compared to 8.22% at December 31, 2021, while
tangible book value per share was $18.50 at December 31, 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.
Bancorp increased its cash dividends declared to stockholders during 2022 to an annual dividend of $1.14, from $1.10 per
share in 2021 and $1.08 in 2020. This represents a payout ratio of 35.19% based on basic EPS and an annual dividend
yield of 1.75% based upon the year-end closing stock price.
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 inception. The plan, which will
expire in May 2023 unless otherwise extended or completed at an earlier date, does not obligate Bancorp to repurchase
any specific dollar amount or number of shares prior to the plan’s expiration. Based on economic developments over the
past year, the increased importance of capital preservation and the announcement of two acquisitions, no shares were
repurchased in 2022 nor 2021. Approximately 741,000 shares remain eligible for repurchase under the current repurchase
plan.
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
and the Bank. The Bank exceeds regulatory capital ratios required to be well-capitalized. Regulatory framework does not
define well capitalized for holding companies. Management considers the effects of growth on capital ratios as it
contemplates plans for expansion.
73
The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital ratios:
December 31,
Total risk-based capital (1)
Consolidated
Bank
Common equity tier 1 risk-based capital (1)
2022
2021
12.54 %
12.08
12.79 %
12.42
Consolidated
Bank
Tier 1 risk-based capital (1)
Consolidated
Bank
Leverage
Consolidated
Bank
11.47
11.01
11.04
11.01
9.33
8.95
11.94
11.56
11.94
11.56
8.86
8.57
(1)
Under banking agencies’ 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.
Capital ratios as of December 31, 2022 decreased compared December 31, 2021 as a result of substantial average asset
and risk-weighted asset growth, driven mainly by 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 December 31, 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. Bancorp met these levels as of December 31, 2022 and 2021.
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 December 31, 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 December 31, 2022, which was added during the first quarter to allow capital
flexibility at the Bank level.
74
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.
Fair Value Measurements
Bancorp follows 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 GAAP. It
prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such
disclosures are not already specified elsewhere in GAAP.
Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between participants at the measurement date. The guidance requires fair value measurements to
be classified as Level 1 (quoted prices), Level 2 (based on observable inputs) or Level 3 (based on significant
unobservable, internally-derived inputs).
Bancorp’s AFS debt securities and interest rate swaps are recorded at fair value on a recurring basis. Other accounts
including mortgage loans held for sale, MSRs, impaired loans and OREO may be recorded at fair value on a non-recurring
basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.
The AFS debt securities portfolio is comprised of U.S. Treasury and other U.S. government obligations, debt securities of
U.S. government-sponsored corporations (including mortgage-backed securities), and obligations of state and political
subdivisions. U.S. Treasury securities are priced using quoted prices of identical securities in an active market. These
measurements are classified as Level 1 in the hierarchy above. All other securities are priced using standard industry
models or matrices with various assumptions such as yield curves, volatility, prepayment speeds, default rates, time value,
credit rating and market prices for similar instruments. These assumptions are generally observable in the market place
and can be derived from or supported by observable data. These measurements are classified as Level 2 in the hierarchy
above.
Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements generally based on benchmark
forward yield curves and other relevant observable market data. For purposes of potential valuation adjustments to
derivative positions, Bancorp evaluates the credit risk of its counterparties as well as its own credit risk. To date, Bancorp
has not realized any losses due to a counterparty’s inability to perform and the change in value of derivative assets and
liabilities attributable to credit risk was not significant during 2020, 2021 and 2022.
MSRs, carried in other assets and 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 the reporting date. Fair value is based
on a valuation model that calculates the present value of estimated net servicing income. The model incorporates
assumptions that market participants would use in estimating future net servicing income. These measurements are
classified as Level 3. At December 31, 2022 and 2021, there was no valuation allowance for MSRs, as fair value exceeded
carrying value.
Loans considered to be collateral dependent are measured for impairment and, if indicated, a specific allocation is
established based on the value of underlying collateral. Collateral dependent loans include non-accrual loans, individually
analyzed PCD loans and loans accounted for as TDRs. For collateral dependent loans, fair value amounts represent only
those loans with specific valuation allowances and loans charged down to their carrying value. At December 31, 2022 and
December 31, 2021, the carrying value of collateral dependent loans measured at fair value on a non-recurring basis was
$21 million and $5 million, respectively. The increase over the prior year stemmed from a large CRE relationship that was
placed on non-accrual status during the year in addition to relationships added through the CB acquisition. These
measurements are classified as Level 3.
75
OREO, which is carried in other assets at the lower of cost or fair value, is periodically assessed for impairment based on
fair value at the reporting date. Fair value is commonly based on recent real estate appraisals or valuations performed by
internal or external parties which use judgments and assumptions that are property-specific and sensitive to changes in the
overall economic environment. Appraisals may be further discounted based on management’s historical knowledge and/or
changes in market conditions from the date of the most recent appraisal. Many of these inputs are not observable and,
accordingly, these measurements are classified as Level 3. OREO is equal to the carrying value of only parcels of OREO
for which carrying value equals appraised value. If a parcel of OREO has a carrying value below its appraised value, it is
not considered to be carried at fair value. The losses represent write-downs which occurred during the period indicated.
At December 31, 2022 and 2021, the carrying value of OREO was $677,000 and $7 million, respectively, the decline
being attributed to a large CRE OREO property being sold during the third quarter of 2022.
See the Footnote titled “Assets and Liabilities Measured and Reported at Fair Value,” for additional detail regarding fair
value measurements.
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:
December 31, (dollars and shares in thousands, except per share data)
2022
2021
Total stockholders' equity - GAAP (a)
$
760,432
$
675,869
Less: Goodwill
Less: Core deposit and other intangibles
Tangible common equity - Non-GAAP (c)
Total assets - GAAP (b)
Less: Goodwill
Less: Core deposit and other intangibles
Tangible assets - Non-GAAP (d)
Total stockholders' equity to total assets - GAAP (a/b)
Tangible common equity to tangible assets - Non-GAAP (c/d)
Total shares outstanding (e)
(194,074)
(24,990)
(135,830)
(5,596)
$
541,368
$
534,443
$
7,496,261
$
6,646,025
(194,074)
(24,990)
(135,830)
(5,596)
$
7,277,197
$
6,504,599
10.14%
7.44%
29,259
10.17%
8.22%
26,596
Book value per share - GAAP (a/e)
$
25.99
$
25.41
Tangible common equity per share - Non-GAAP (c/e)
18.50
20.09
The general decline between December 31, 2021 and December 31, 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 for the year ended December 31, 2022, which drove a $108 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.
76
ACL on loans to total non-PPP loans represents the ACL on 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.
December 31, (dollars in thousands)
Total loans - GAAP (a)
Less: PPP loans
Total non-PPP loans - Non-GAAP (b)
ACL for loans (c)
Non-performing loans (d)
Delinquent loans (e)
ACL for loans to total loans - GAAP (c/a)
ACL for loans to total loans - Non-GAAP (c/b)
Non-performing loans to total loans - GAAP (d/a)
Non-performing loans to total loans - Non-GAAP (d/b)
Delinquent loans to total loans - GAAP (e/a)
Delinquent loans to total loans - Non-GAAP (e/b)
2022
2021
$
$
5,205,918
(18,593)
5,187,325
4,169,303
(140,734)
4,028,569
$
$
$
73,531
15,134
16,863
$
53,898
7,408
11,036
1.41%
1.42%
0.29%
0.29%
0.32%
0.33%
1.29%
1.34%
0.18%
0.18%
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 presented, Bancorp considers an adjusted efficiency ratio.
Bancorp believes it is important because it provides a comparable ratio after eliminating net gains (losses) on sales and
calls of investment securities, as well as net gains (losses) on sales of acquired premises and equipment and disposition of
any acquired assets, if applicable, and the fluctuation in non-interest expenses related to amortization of investments in
tax credit partnerships and non-recurring merger expenses.
Years ended December 31, (dollars in thousands)
2022
2021
2020
Total non-interest expenses (a)
Less: Merger expenses
Less: Loss on disposition of LFA
Less: Amortization of investments in tax credit partnerships
Total non-interest expenses - Non-GAAP (c)
Total net interest income, FTE
Total non-interest income
Total revenue - Non-GAAP (b)
Less: (Gain)/loss on sale of premises and equipment
Less: (Gain)/loss on sale of securities
Total adjusted revenue - Non-GAAP (d)
$
$
$
$
$
$
$
$
$
191,791
(19,500)
(870)
(353)
171,068
234,267
89,149
323,416
(4,369)
—
319,047
142,280
(19,025)
—
(367)
122,888
171,508
65,850
237,358
—
—
237,358
101,659
—
—
(3,096)
98,563
136,133
51,899
188,032
—
—
188,032
$
$
$
Efficiency ratio - Non-GAAP (a/b)
Adjusted efficiency ratio - Non-GAAP (c/d)
59.30%
53.62%
59.94%
51.77%
54.06%
52.42%
77
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Information required by this item is included in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of this Form 10-K.
Item 8.
Financial Statements and Supplementary Data.
The following consolidated financial statements of Bancorp, and reports of independent registered public accounting firms
and management are included below:
Consolidated Balance Sheets - December 31, 2022 and 2021
Consolidated Statements of Income - years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) - years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity - years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows - years ended December 31, 2022, 2021 and 2020
Footnotes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (FORVIS, LLP, Indianapolis, Indiana, PCAOB ID 686)
Management’s Report on Consolidated Financial Statements
78
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Cas h and due from banks
Federal funds s old and interest bearing due from banks
Total cash and cash equivalents
Mortgage loans held for sale, at fair value
Available for sale debt securities (amortized cos t of $1,297,977
in 2022 and $1,190,379 in 2021, respectively)
Held to maturity debt securities (fair value of $431,833
in 2022 and $0 in 2021, respectively)
Federal Home Loan Bank stock, at cost
Loans
Allowance for credit losses on loans
Net loans
Premises and equipment, net
Premises held for sale
Bank owned life ins urance
Accrued interest receivable
Goodwill
Core deposit intangibles
Customer list intangibles
Other ass ets
Total assets
Liabilities
Deposits:
Non-interest bearing
Interest bearing
Total depos its
Securities sold under agreements to repurchase
Federal funds purchased
Subordinated debentures
Federal Home Loan Bank advances
Accrued interest payable
Other liabilities
Total liabilities
Commitments and contingent liabilities (Footnote 21)
Stockholders ’ equity
Preferred stock, no par value. Authorized 1,000,000 s hares;
no s hares issued or outstanding
Common stock, no par value. Authorized 40,000,000 s hares;
issued and outs tanding 29,259,000 and 26,596,000 shares in
2022 and 2021, res pectively
Additional paid-in capital
Retained earnings
Accumulated other comprehens ive loss
Total stockholders ’ equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
79
December 31,
2022
December 31,
2021
$
82,515
84,852
167,367
$
62,304
898,888
961,192
2,606
1,144,617
473,217
10,928
5,205,918
73,531
5,132,387
8,614
1,180,298
—
9,376
4,169,303
53,898
4,115,405
101,612
2,644
84,674
22,157
194,074
14,958
10,032
134,988
7,496,261
$
76,894
—
53,073
13,745
135,830
5,596
—
86,002
6,646,025
$
$
1,950,198
4,441,054
$
1,755,754
4,031,760
6,391,252
5,787,514
133,342
8,789
26,343
50,000
660
125,443
75,466
10,374
—
—
300
96,502
6,735,829
5,970,156
—
—
58,367
377,703
439,898
(115,536)
49,501
243,107
391,201
(7,940)
760,432
7,496,261
$
675,869
6,646,025
$
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (in thousands, except per share data)
In te re st i n come :
Loans, including fees
Federal funds sold and int erest bearing due from banks
Mort gage loans held for sale
Federal Home Loan Bank st ock
Invest ment securities:
T axable
T ax-exempt
Total i n te re st i n com e
In te re st e xpe n se :
Deposit s
Securit ies sold under agreements to repurchase
Federal funds purchased and ot her short -t erm borrowing
Subordinat ed debent ures
Federal Home Loan Bank advances
Total i n te re st e xpe n se
Ne t i n te re st i n com e
Provi si on for cre di t l osse s
Ne t i n te re st i n com e afte r provi si on e xpe n se
Non -i n te re st i n com e :
Wealt h management and t rust services
Deposit service charges
Debit and credit card income
T reasury management fees
Mort gage banking income
Net invest ment product sales commissions and fees
Bank owned life insurance
Gain (loss) on sale of premises and equipment
Ot her
Total n on -i n te re st i n com e
Non -i n te re st e xpe n se s:
Compensation
Employee benefit s
Net occupancy and equipment
T echnology and communicat ion
Debit and credit card processing
Market ing and business development
P ost age, print ing and supplies
Legal and professional
FDIC insurance
Amort izat ion of invest ments in tax credit part nerships
Capit al and deposit based t axes
Merger expenses
Federal Home Loans Bank early terminat ion penalt y
Int angible amort izat ion
Loss on disposit ion of LFA
Ot her
Total n on -i n te re st e xpe n se s
In com e be fore i n com e tax e xpe n se
In com e tax e xpe n se
Ne t i n come
Less income at t ribut ed t o non-cont rolling int erest
2022
2021
2020
$
216,138
$
164,073
$
137,699
6,018
190
505
27,302
1,499
251,652
16,412
567
154
1,124
12
18,269
233,383
10,257
223,126
36,111
8,286
18,623
8,590
3,210
3,063
1,597
4,369
5,300
89,149
86,640
16,568
14,298
14,897
5,909
5,005
3,354
2,943
2,758
353
2,621
19,500
—
5,544
870
10,531
191,791
120,484
27,190
93,294
322
645
249
262
11,575
272
177,076
738
533
253
8,432
216
147,871
5,627
10,478
24
14
—
337
6,002
171,074
(753)
171,827
27,613
5,852
13,456
6,912
4,724
2,553
914
(78)
3,904
65,850
63,034
13,479
9,688
11,145
4,494
4,150
2,213
2,583
1,847
367
2,090
19,025
474
770
—
6,921
142,280
95,397
20,752
74,645
37
35
—
1,400
11,950
135,921
18,418
117,503
23,406
4,161
8,480
5,407
6,155
1,775
693
150
1,672
51,899
51,368
11,064
8,182
8,732
2,606
2,383
1,778
2,392
1,217
3,096
4,386
—
—
323
—
4,132
101,659
67,743
8,874
58,869
—
—
Ne t i n come avai labl e to stock h ol de rs
$
92,972
$
74,645
$
58,869
Ne t i n come pe r sh are - basi c
Ne t i n come pe r sh are - dil u te d
Weight ed average out standing shares:
Basic
Diluted
$
3.24
$
3.00
$
2.61
$
3.21
$
2.97
$
2.59
28,672
28,922
24,898
25,156
22,563
22,768
See accompanying notes to consolidated financial statements.
80
CONS OLIDATED S TATEMENTS OF COMPREHENS IVE INCOME (LOS S )
Years Ended December 31, (in thousands)
Net income
Other comprehensive income (loss):
2022
2021
2020
$ 93,294
$ 74,645
$ 58,869
Change in unrealized gain (loss) on AFS debt securities
(143,314)
(22,337)
10,831
Change in fair value of derivatives used in cash flow hedge
—
159
(109)
M inimum pension liability adjustment
521
216
(103)
Total other comprehensive income (loss) before income tax effect
(142,793)
(21,962)
10,619
Tax effect
(35,197)
(5,281)
2,555
Total other comprehensive income (loss), net of tax
(107,596)
(16,681)
8,064
Comprehensive income (loss)
(14,302)
57,964
66,933
Less comprehensive income attributed to non-controlling interest
322
—
—
Comprehensive income (loss) available to stockholders
$ (14,624)
$ 57,964
$ 66,933
See accompanying notes to consolidated financial statements.
81
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2022, 2021 and 2020
Common stock
Shares
outstanding
Amount
Additional
paid-in
capital
Retained
earnings
Accumulated
other
Total
comprehensive stockholders' Non-controlling
equity
income (loss)
interest
Total
equity
Balance, January 1, 2020
22,604
$
36,207
$
35,714
$
333,699
$
677
$
406,297
$
-
$
406,297
2020 Activity:
Impact of adoption of ASC 326
Net income
Other comprehensive income
Stock compensation expense
Stock issued for share-based awards,
net of withholdings to
satisfy employee tax obligations
Cash dividends declared, $1.08 per share
Shares cancelled
—
—
—
—
93
—
(5)
—
—
—
—
306
—
(13)
—
—
—
3,262
3,035
—
(125)
(8,823)
58,869
—
—
(5,831)
(24,478)
138
—
—
8,064
—
—
—
—
(8,823)
58,869
8,064
3,262
(2,490)
(24,478)
—
—
—
—
—
—
—
—
(8,823)
58,869
8,064
3,262
(2,490)
(24,478)
—
Balance, December 31, 2020
22,692
$
36,500
$
41,886
$
353,574
$
8,741
$
440,701
$
-
$
440,701
Balance, January 1, 2021
2021 Activity:
Net income
Other comprehensive loss
Stock compensation expense
Stock issued for share-based awards,
net of withholdings to
satisfy employee tax obligations
Stock issued for KB acquisition
Cash dividends declared, $1.10 per share
Shares cancelled
Balance, December 31, 2021
Balance, January 1, 2022
2022 Activity:
Net income
Other comprehensive loss
Stock compensation expense
Stock issued for share-based awards,
net of withholdings to
satisfy employee tax obligations
Stock issued for CB acquisition
Non-controlling interest of acquired entity
Cash dividends declared, $1.14 per share
Shares cancelled
Distributions to non-controlling interest
Disposition of non-controlling interest
Balance, December 31, 2022
22,692
$
36,500
$
41,886
$
353,574
$
8,741
$
440,701
$
-
$
440,701
—
—
—
—
—
—
—
—
4,565
74,645
—
—
—
(16,681)
—
74,645
(16,681)
4,565
—
—
—
74,645
(16,681)
4,565
101
3,808
—
(5)
26,596
334
12,682
—
(15)
49,501
$
4,841
191,988
—
(173)
243,107
$
(9,001)
—
(28,205)
188
391,201
$
—
—
—
—
(7,940)
$
(3,826)
204,670
(28,205)
—
675,869
$
—
—
—
—
$
-
(3,826)
204,670
(28,205)
—
675,869
$
26,596
$
49,501
$
243,107
$
391,201
$
(7,940)
$
675,869
$
-
$
675,869
—
—
—
109
2,564
—
—
(10)
—
—
29,259
—
—
—
—
—
4,394
92,972
—
—
—
(107,596)
—
92,972
(107,596)
4,394
322
—
—
93,294
(107,596)
4,394
364
8,539
—
—
(37)
—
—
58,367
$
6,221
125,286
—
—
(533)
—
(772)
377,703
$
(11,119)
—
—
(33,311)
298
—
(143)
439,898
$
—
—
—
—
—
—
—
(115,536)
$
(4,534)
133,825
—
(33,311)
(272)
—
(915)
760,432
$
—
—
3,094
—
—
(322)
(3,094)
$
-
(4,534)
133,825
3,094
(33,311)
(272)
(322)
(4,009)
760,432
$
See accompanying notes to consolidated financial statements.
82
CONS OLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (in thousands)
Cash flows from operating activities:
2022
2021
2020
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
93,294
$
74,645
$
58,869
Provision for credit losses
Depreciation, amortization and accretion, net
Deferred income tax expense (benefit)
Gain on sale of mortgage loans held for sale
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
Bank owned life insurance income
(Gain)/loss on the disposal of premises and equipment
(Gain)/loss on the sale of other real estate owned
Loss on disposition of LFA
Stock compensation expense
Excess tax benefit from share-based compensation arrangements
Net change in accrued interest receivable and other assets
Net change in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available for sale debt securities
Proceeeds from sales of acquired available for sale debt securities
Proceeds from maturities and paydowns of available for sale debt securities
Purchases of held to maturity debt securities
Proceeds from maturities and paydowns of held to maturity debt securities
Purchase of bank owned life insurance
Proceeds from redemption of Federal Home Loan Bank stock
Proceeds from the disposition of LFA
Proceeds from the sale of held for investment loans
Net change in non-PPP loans
Net change in PPP loans
Purchase of loans from broker
Purchases of premises and equipment
Proceeds from sale or disposal of premises and equipment
Other investment activities
Proceeds from sales of other real estate owned
Cash for acquisition, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Net change in deposits
Net change in securities sold under agreements to repurchase
and federal funds purchased
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Repayment of acquired line of credit
Repurchase of common stock
Share repurchases related to compensation plans
Cash disbursements to non-controlling interest
Disposition of LFA
Cash dividends paid
Net cash provided by financing activities
Net change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
(continued)
83
10,257
20,658
1,823
(521)
(135,045)
145,133
(1,597)
(4,369)
(46)
870
4,394
(1,713)
(14,137)
(10,259)
108,742
(196,488)
2,111
169,499
(459,183)
145,902
(30,000)
2,883
4,993
—
(423,622)
122,141
(82,074)
(18,441)
24,732
(3,502)
7,168
349,456
(384,425)
(753)
11,329
5,401
(3,602)
(157,304)
177,910
(914)
78
(163)
—
4,565
(1,482)
4,007
(11,617)
102,100
(504,777)
91,214
210,052
—
—
—
8,980
—
—
(342,468)
441,987
—
(4,581)
—
(5,181)
919
24,981
(78,874)
18,418
9,743
(7,508)
(4,713)
(258,525)
249,439
(693)
(150)
73
—
3,262
(452)
(20,880)
30,242
77,125
(455,368)
—
348,736
—
—
—
—
—
2,794
(144,353)
(550,186)
—
(5,458)
1,240
(2,381)
258
—
(804,718)
(515,669)
759,752
854,618
(9,929)
50,000
—
(3,200)
(4,534)
(272)
(322)
(915)
(33,301)
(518,142)
(793,825)
961,192
167,367
$
15,037
30,000
(152,744)
—
(3,618)
(208)
—
—
(28,198)
620,021
643,247
317,945
961,192
$
16,661
100,000
(148,495)
—
(2,265)
(224)
—
—
(24,481)
795,814
68,221
249,724
317,945
$
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31, (in thousands)
Supplemental cash flow information:
Interest paid
Income tax paid, net of refunds
Cash paid for operating lease liabilities
Supplemental non-cash activity:
2022
2021
2020
$
17,909
20,892
3,833
$
6,093
14,259
2,568
$
12,199
12,468
2,218
Unfunded commitments in tax credit investments
Loans purchased and not settled
Due to broker
Dividends payable to stockholders
Loans transferred to OREO
Premises and equipment transferred to premises held for sale
$
6,517
—
22,245
230
587
21,662
$
5,217
—
20,998
220
7,136
—
$
8,958
5,000
—
213
119
—
Liabilities assumed in conjunction with acquisitions:
Fair value of assets acquired
Cash paid in acquisition
Common stock issued in acquisition
Non-controlling interest of acquired entity
Total consideration paid
Liabilities assumed
See accompanying notes to consolidated financial statements.
$
1,403,509
$
1,389,327
$ —
30,994
133,825
3,094
167,913
1,235,596
$
28,276
204,670
—
232,946
1,156,381
—
—
—
—
$ —
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Operations – Stock Yards Bancorp, Inc. (“Bancorp” or “the Company”) is a FHC headquartered in Louisville,
Kentucky. The accompanying consolidated financial statements include the accounts of its wholly owned subsidiaries,
SYB (“the Bank”) and 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.
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.
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, leasing, 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.
The 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. Effective December 31, 2022, Bancorp’s partial interest in LFA was sold, resulting in a pre-tax loss of $870,000
recorded in other non-interest expense on the consolidated income statements for the year ended December 31, 2022.
Critical Accounting Policies and Estimates – To prepare financial statements in conformity with GAAP, management
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 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 December 31, 2022 and 2021, the accounting policies considered the most critical
in preparing Bancorp’s consolidated financial statements is the determination of the ACL for loans and Goodwill. A
detailed explanation of how Bancorp determines both the ACL for loans and Goodwill is provided within this footnote.
85
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 provisional period 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 and 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.
Mortgage Loans Held for Sale and Mortgage Banking Activities – Effective March 31, 2022, Bancorp elected to begin
carrying mortgages originated and intended for sale in the secondary at fair value, as determined by outstanding
commitments from investors. Mortgage loans held for sale prior to March 31, 2022 were carried at the lower of cost or
market value. Net gains on mortgage loans held for sale are recorded as a component of Mortgage banking income and
represent the difference between the selling price and the carrying value of the loans sold. Substantially all of the gains
or losses on the sale of loans are reported in earnings when the interest rates on loans are locked.
Commitments to fund mortgage loans (“interest rate lock commitments”) to be sold into the secondary market and non-
exchange traded mandatory forward sales contracts (“forward contracts”) for the future delivery of these mortgage loans
or the purchase of TBA securities are accounted for as free-standing derivatives. Fair values of these mortgage derivatives
are estimated based on changes in mortgage interest rates from the date the Bank enters into the derivative. Generally, the
Bank enters into forward contracts for the future delivery of mortgage loans or the purchase of TBA securities when
interest rate lock commitments are entered into in order to hedge the change in interest rates resulting from its
commitments to fund the loans. Changes in the fair values of these mortgage derivatives are included in net gains on sales
of loans, which is a component of Mortgage banking income on the income statement.
Mortgage loans held for sale are generally sold with the MSRs retained. When mortgage loans are sold with servicing
retained, servicing rights are initially recorded at fair value with the income statement effect recorded as component of
Mortgage banking income. Fair value is based on the market prices for comparable mortgage servicing contracts when
available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing
income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing
rights to be amortized into Mortgage banking income in proportion to, and over the period of, the estimated future net
servicing income of the underlying loans. Amortization of MSRs are initially set at seven years and are periodically
adjusted based on the weighted average remaining life of the underlying loans.
A primary factor influencing the fair value is the estimated life of the underlying serviced loans. The estimated life of the
serviced loans is significantly influenced by market interest rates. During a period of declining interest rates, the fair value
of the MSRs generally decline due to higher expected prepayments within the portfolio. Alternatively, during a period of
rising interest rates, the fair value of MSRs generally will increase, as prepayments on the underlying loans would be
expected to decline.
86
Loan servicing income is reported on the income statement as a component of Mortgage banking income. Loan servicing
income is recorded as loan payments are collected and includes servicing fees from investors and certain charges collected
from borrowers. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan,
and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are considered nominal.
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 in AOCI, net of tax.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification
method. Amortization of premiums and discounts are recognized in interest income over the period to maturity using the
interest method, except for premiums on callable debt securities, which are amortized to their earliest call date.
Bancorp has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and reports
accrued interest separately in the consolidated balance sheets. A debt security is placed on non-accrual status at the time
any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal
becomes uncertain. Accrued interest for a security placed on non-accrual is reversed against interest income. There was
no accrued interest related to AFS debt securities reversed against interest income for the years ended December 31, 2022
and 2021.
ACL – AFS Debt Securities – For AFS debt securities in an unrealized loss position, Bancorp evaluates the
securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due
to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in
AOCI, net of tax. Credit-related impairment is recognized as an ACL for AFS debt securities on the balance
sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding
adjustment to earnings. Accrued interest receivable on AFS debt securities totaled $3.8 million and $2.6 million
as of December 31, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses.
Both the ACL for AFS debt securities and the adjustment to net income may be reversed if conditions change.
However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to
sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized
in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s
amortized cost basis is adjusted to fair value, there is no ACL for AFS debt securities in this situation.
In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent
or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized
cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond
rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.
There were no credit related factors underlying unrealized losses on AFS debt securities at December 31, 2022
and December 31, 2021, therefore, no ACL for AFS securities was recorded.
Changes in the ACL for AFS debt securities are recorded as expense. Losses are charged against the ACL for
AFS debt securities when management believes the uncollectability of an AFS debt security is confirmed or
when either of the criteria regarding intent or requirement to sell is met.
ACL – HTM Debt Securities – Bancorp measures expected credit losses on HTM debt securities on a collective
basis by major security type. Accrued interest receivable on HTM debt securities totaled $1.8 million and $0 as
of December 31, 2022 and December 31, 2021, respectively, and is excluded from the ACL on HTM securities.
The estimate of the ACL for HTM securities considers historical credit loss information that is adjusted for
current conditions and reasonable and supportable forecasts. As of both December 31, 2022 and December 31,
2021, no ACL for HTM securities was recorded.
87
FHLB Stock – Bancorp is a member institution of the FHLB. Members are required to own a certain amount of stock
based on the level of borrowings and other factors and may invest in additional amounts of stock. FHLB stock is carried
at cost, classified as a restricted security and annually evaluated for impairment. Because this stock is viewed as a long-
term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are recorded as
interest income.
Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred
loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans and
any direct partial charge-offs. Bancorp has made a policy election to exclude accrued interest from the amortized cost
basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs,
are deferred and recognized in interest income over the life of the loan without anticipating prepayments.
Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the
terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The
accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is
well-secured and in process of collection, or if full collection of interest or principal becomes doubtful. Consumer loans
are typically charged off no later than 120 days past due. All interest accrued but not received for a loan placed on non-
accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-
recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized
until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is
received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Acquired loans are recorded at fair value at the date of acquisition based on a DCF methodology that considers various
factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan
and whether or not the loan was amortizing, and a discount rate reflecting Bancorp’s assessment of risk inherent in the
cash flow estimates. Certain larger purchased loans are individually evaluated while certain purchased loans are grouped
together according to similar risk characteristics and are treated in aggregate when applying various valuation techniques.
These cash flow evaluations are inherently subjective, as they require material estimates, all of which may be susceptible
to significant change.
Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality
since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for
groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This
initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish
the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss
expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans
and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium. Discounts
and premiums are recognized through interest income on a level-yield method over the life of the loans.
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 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 acquisition.
For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal
balance are recognized as interest income over the lives of the related loans. For non-PCD loans, an initial ACL on loans
is estimated and recorded as credit loss expense at the acquisition date.
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.
88
Bancorp adopted ASC 326, “Financial Instruments – Credit Losses,” effective January 1, 2020 using the modified
retrospective approach. Bancorp recorded a net reduction of retained earnings of $8.8 million upon adoption. The
transition adjustment included an increase in the ACL on loans of $8.2 million and an increase in the ACL for off-balance
sheet credit exposures of $3.5 million, net of the total corresponding DTA increase of $2.9 million.
Bancorp adopted ASC 326 using the prospective transition approach for loans purchased with PCD that were previously
classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess
whether PCI loans met the criteria of PCD loans as of the adoption date. On January 1, 2020, non-accretable yield marks
of $1.6 million related to formerly classified PCI loans were reclassified between the amortized cost basis of loans and
corresponding ACL. The majority of these marks were subsequently charged off in the third quarter of 2020.
The following table summarizes the impact of the adoption of ASC 326 effective January 1, 2020:
(in thousands)
Allowance for credit losses on loans:
January 1, 2020
As reported under
ASC 326
Pre-ASC 326
Adoption
Impact of Adoption
(1)
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
8,333
6,219
14,552
$
5,235
3,327
8,562
$
3,098
2,892
5,990
Commercial and industrial - term
Commercial and industrial - line of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total allowance for credit losses on loans
Total allowance for credit losses on
off-balance sheet exposures
7,147
4,129
11,276
2,713
1,376
4,089
6,782
5,657
12,439
1,527
947
2,474
365
(1,528)
(1,163)
1,186
429
1,615
5,161
842
398
233
96
36,647
$
2,105
728
100
237
146
26,791
$
3,056
114
298
(4)
(50)
9,856
$
$
3,850
$
350
$
3,500
(1) – The impact of the ASC 326 adoption on the ACL on loans reflects $8.2 million related to the transition from the incurred loss
ACL model to the CECL ACL model and $1.6 million related to the transition from PCI to PCD methodology as defined in the standard.
ACL – Loans – Under the CECL model, the ACL on 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 on 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 on
loans.
89
Expected credit losses are reflected in the ACL on loans through a charge to provision for credit losses on loans.
When Bancorp deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written-
off and the ACL on 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 ACL on loans when received.
Bancorp’s methodologies for estimating the ACL on 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 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 owner of the building occupies the property. The primary source of
repayment is the cash flow from the ongoing operations and activities conducted by the party (or affiliate) who
owns the property. Repayment terms vary considerably; interest rates are fixed or variable and structured for full
or partial amortization of principal.
Commercial Real Estate – Non-Owner Occupied – Includes investment real estate loans secured by similar
collateral as above. The primary source of income for this loan type is typically rental income associated with
the property. This category also includes apartment or multifamily residential buildings (secured by five or more
dwelling units).
Construction and Land Development – Consists of loans to finance the ground up construction or improvement
of owner occupied and non-owner occupied residential and commercial properties and loans secured by raw or
improved land. The repayment of C&D loans is generally dependent upon the successful completion of the
improvements by the builder for the end user, the leasing of the property, or sale of the property to a third party.
Repayment of land secured loans is dependent upon the successful development and sale of the property, the sale
of the land as is, or the outside cash flow of the owners to support the retirement of the debt. Bancorp’s
construction loans may convert to real estate-secured loans once construction is completed or principal
amortization payments begin, assuming the borrower retains financing with the Bank.
Commercial and Industrial – Represents loans for C&I purposes to sole proprietorships, partnerships,
corporations and other business enterprises, whether secured (other than those that meet the definition of a “loan
secured by real estate”) or unsecured, single payment or installment. This category includes loans originated for
financing capital expenditures, loans secured by accounts receivable, inventory and other business assets such
as equipment, non-real estate related construction loans in addition to non-real estate loans guaranteed by the
SBA. Bancorp originates these loans for a variety of purposes across various industries. This portfolio has been
segregated between term loans and revolving lines of credits based on the varied characteristics of these
individual loan structures.
Residential Real Estate – Includes non-revolving (closed-end) first and junior lien loans secured by residential
real estate primarily in Bancorp’s market areas. This portfolio is segregated between owner occupied and non-
owner occupied status, as the investment nature of the latter poses additional credit risks to Bancorp.
Home Equity Lines of Credit – Similar to the above, however these are revolving (open-ended) lines of credit.
90
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 equipment leasing options to businesses.
Credit Cards – Represents revolving loans to businesses and, to a lesser extent, consumers.
Bancorp measures expected credit losses for its loan portfolio segments as follows:
Loan Portfolio Segment
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Commercial and industrial - term
Commercial and industrial - line of credit
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
ACL Methodology
Discounted cash flow
Discounted cash flow
Static pool
Static pool
Discounted cash flow
Discounted cash flow
Static pool
Static pool
Static pool
Static pool
Static pool
Based on the 100% SBA guarantee of the PPP loan portfolio, Bancorp does not generally reserve for potential
losses for these loans within the ACL.
Discounted Cash flow Method – The DCF methodology is used to develop cash flow projections at the instrument
level wherein payment expectations are adjusted for estimated prepayment speeds, curtailments, time to
recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment
rates and time to recovery are based on historical internal data.
Bancorp uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize
when modeling lifetime probability of default and loss given default. This analysis also determines how expected
probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools
utilizing the DCF method, management utilizes a forecasted unemployment rate as its primary loss driver, as this
was determined to best correlate to historical losses.
With regard to the DCF model and the adoption of CECL effective January 1, 2020, management determined
that four quarters represented a reasonable and supportable forecast period with reversion back to a historical
loss rate over eight quarters on a straight-line basis. However, in response to uncertainty surrounding the
magnitude and duration of the economic crisis created by the pandemic, management subsequently determined
that a one-quarter forecast period with a reversion back to a historical loss rate in the following quarter was
appropriate for the calculation performed at March 31, 2020. For the calculation performed at June 30, 2020,
management elected to return to the four quarter forecast period with reversion back to a historical loss rate in
the following quarter, which was the methodology used for all subsequent calculations through June 30, 2021.
Beginning with the calculation performed as of September 30, 2021 and continuing through the calculation
performed as of December 31, 2022, management concluded that increasing the reversion period back to a
historical loss rate over four quarters on a straight line basis was warranted, as both current and forecasted
unemployment levels have normalized.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment,
curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument
effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash
flows are then discounted at that effective yield to produce an instrument-level NPV of expected cash flows. An
ACL is established for the difference between the instrument’s NPV and amortized cost basis.
91
Static Pool Method – The static pool methodology is utilized for the loan portfolio segments that typically have
shorter durations. For each of these loan segments, Bancorp applies an expected loss ratio based on historical
losses adjusted as appropriate for qualitative loss factors. Qualitative loss factors are based on management's
judgment of company, market, industry or business specific data, changes in underlying loan composition of
specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans and
reasonable and supportable forecasts of economic conditions.
Collateral Dependent Loans – Loans that do not share risk characteristics are evaluated on an individual basis.
For collateral dependent loans where Bancorp has determined that the liquidation or foreclosure of the collateral
is probable, or where the borrower is experiencing financial difficulty and Bancorp expects repayment of the
financial asset to be provided substantially through the operation of the business or sale of the collateral, the
ACL is measured based on the difference between the estimated fair value of the collateral and the amortized
cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the
collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial
asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected
to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized
costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The
ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of
loan. Bancorp’s estimate of the ACL reflects losses expected over the remaining contractual life of the loan and
the contractual term does not consider extensions, renewals or modifications.
A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is
experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise
be considered for a borrower or transaction with similar credit risk characteristics. TDRs are evaluated
individually to determine the required ACL. TDRs performing in accordance with their modified contractual
terms for a reasonable period may be included in Bancorp’s existing pools based on the underlying risk
characteristics of the loan to measure the ACL.
Premises and Equipment – Premises and equipment are carried at cost, less accumulated depreciation and amortization.
Depreciation of premises and equipment is computed using straight-line methods over the estimated useful lives of the
assets ranging from three to 40 years. Leasehold improvements are amortized on the straight-line method over terms of
the related leases, including expected renewals, or over the useful lives of the improvements, whichever is shorter.
Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.
Premises held for sale are also carried at cost, less accumulated depreciation and amortization. Premises held for sale
represent properties owned by Bancorp that are currently listed for sale due mainly to location overlap and/or lack of
necessity stemming from acquisition-related activity.
Goodwill and Other Intangible Assets – Goodwill resulting from business acquisitions represents the excess of the fair
value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair
value of the net assets assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not amortized, but tested annually for impairment or
more frequently if events and circumstances exist that indicate a goodwill impairment test should be performed.
Bancorp has selected September 30 as the date to perform its annual goodwill impairment test. Intangible assets with
definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only
intangible asset with an indefinite life on the Bank’s balance sheet.
Currently, goodwill recorded on Bancorp’s consolidated balance sheets is attributed mainly to the Commercial Banking
segment, while a portion is also attributed to the WM&T segment. Goodwill related to the KSB acquisition is deductible
for tax purposes, as it was structured as an asset sale/338 election. Goodwill related to the CB and KB acquisitions is not
deductible for tax purposes, as both were structured as stock sales. Based on its assessment, Bancorp believes its goodwill
balances at December 31, 2022 and December 31, 2021 were not impaired and are properly recorded in the consolidated
financial statements.
92
Other intangible assets consist of CDI and CLI assets arising from business acquisitions. The CDI and CLI assets represent
customer relationships associated with acquired deposit portfolios and WM&T businesses, respectively. CDI and CLI
assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives.
Other Assets – BOLI and other life insurance policies are carried at net realizable value, which considers applicable
surrender charges. Also, Bancorp maintains life insurance policies in conjunction with its non-qualified defined benefit
and non-qualified compensation plans.
OREO is initially recorded at fair value, less estimated costs to sell, establishing a new cost basis for the asset. OREO is
subsequently carried at the lower of cost or estimated fair value minus estimated selling costs. In certain situations,
improvements to prepare assets for sale are capitalized if those costs increase the estimated fair value of the asset.
Expenses incurred in maintaining assets, write downs to reflect subsequent declines in value, and realized gains or losses
are reflected in the results of operations and are included in non-interest income and/or expense.
Off-Balance Sheet Credit Exposures – Financial instruments include off-balance sheet credit instruments, such as
commitments to originate loans, commitments to fund existing loans and commercial letters of credit issued to meet
customer-financing needs. Off-balance sheet refers to assets or liabilities that do not appear on a company's balance sheet.
Bancorp’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-
balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments
are recorded when they are funded.
Bancorp records an ACL for off-balance sheet credit exposures, unless the commitments to extend credit are
unconditionally cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in
provision for credit losses for off-balance sheet credit exposures on Bancorp’s consolidated statements of income. The
ACL for off-balance sheet credit exposures is estimated by loan portfolio segment at each balance sheet date under the
current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that
funding will occur and is included in other liabilities on Bancorp’s consolidated balance sheets.
Derivatives – Bancorp uses derivative financial instruments, including interest rate swaps, as part of its interest rate risk
management. GAAP establishes accounting and reporting standards for derivative instruments and hedging activities. As
required by GAAP, Bancorp’s interest rate swaps are recognized as other assets and liabilities in the consolidated balance
sheet at fair value. Accounting for changes in fair value of derivatives depends on the intended use of the derivative and
the resulting designation. Derivatives used to hedge exposure to variability in expected future cash flows, or other types
of forecasted transactions, are considered cash flow hedges. To qualify for hedge accounting, Bancorp must comply with
detailed rules and documentation requirements at inception of the hedge, and hedge effectiveness is assessed at inception
and periodically throughout the life of each hedging relationship. Hedge ineffectiveness, if any, is measured periodically
throughout the life of the hedging relationship.
For derivatives designated as cash flow hedges, the effective portion of changes in fair value of the derivative is initially
reported in OCI and subsequently reclassified to interest income or expense when the hedged transaction affects earnings,
while the ineffective portion of changes in fair value of derivative, if any, is recognized immediately in other noninterest
income. Bancorp assesses the effectiveness of each hedging relationship by comparing cumulative changes in cash flows
of the derivative hedging instrument with cumulative changes in cash flows of the designated hedged item or transaction.
No component of the change in the fair value of the hedging instrument is excluded from the assessment of hedge
effectiveness.
Periodically, Bancorp enters into an interest rate swap transaction with a borrower, who desires to hedge exposure to
rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching
terms, with another approved independent counterparty. Because of matching terms of offsetting contracts and collateral
provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an
insignificant effect on earnings. Because these derivative instruments have not been designated as hedging instruments,
the derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in fair value, due
to changes in prevailing interest rates, recorded in other noninterest income.
Bancorp had no fair value hedging relationships at December 31, 2022 and December 31, 2021. Bancorp does not use
derivatives for trading or speculative purposes. See the Footnote titled “Interest Rate Swaps” for additional discussion.
93
Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has
been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from
Bancorp, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets and Bancorp does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
Stock-Based Compensation – For all awards, stock-based compensation expense is recognized over the period in which
it is earned based on the grant-date fair value of the portion of stock-based payment awards that are ultimately expected
to vest, reduced for estimated forfeitures at the time of grant. GAAP requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in DTAs
and DTLs. DTAs and DTLs are the expected future tax amounts for the temporary differences between carrying amounts
and tax bases of assets and liabilities, computed using enacted statutory tax rates. A valuation allowance, if needed,
reduces DTAs to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a
tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the “more-likely-
than-not” test, no tax benefit is recorded.
Bancorp recognizes interest and/or penalties related to income tax matters in income tax expense, if any.
Bancorp periodically invests in certain partnerships with customers that yield historic tax credits, accounted for using the
flow through method, which approximates the equity method. Also, low-income housing tax credits, as well as tax-
deductible losses, are accounted for using the effective yield method for older transactions or proportional amortization
method for more recent transactions. The tax benefit of these investments exceeds the amortization expense associated
with them, resulting in a positive impact on net income.
Net Income Per Share – Basic net income per common share is determined by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted net income per share is determined by dividing net
income by the weighted average number of shares of common stock outstanding plus the weighted average number of
shares that would be issued upon exercise of dilutive options and SARs, assuming proceeds are used to repurchase shares
under the treasury stock method.
Comprehensive Income (Loss) – Comprehensive income (loss) is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and circumstances from outside of the Company’s
control. For Bancorp, this includes net income, changes in unrealized gains and losses on AFS debt securities and cash
flow hedging instruments, net of reclassification adjustments and taxes, and minimum pension liability adjustments, net
of taxes.
Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably
estimated. Management does not believe there are any outstanding matters that would have a material effect on the
financial statements.
Restrictions on Cash and Cash Equivalents – Bancorp has historically been required by the FRB to maintain average
reserve balances. Effective March 26, 2020, the FRB reduced the reserve requirement ratio to 0% in response to the
COVID-19 pandemic, eliminating reserve requirements for all depository institutions. The reserve requirement ratio
remained at 0% as of December 31, 2022.
The Company’s insurance captive maintains cash reserves to cover insurable claims. Reserves were maintained at a
minimum of $200,000 as of December 31, 2022 and 2021.
Dividend Restriction – Banking regulations require maintaining certain capital levels and may limit the dividends paid
by the Bank to the Holding Company or by the Holding Company to shareholders.
94
Fair Value of Financial Instruments – Fair values of financial instruments are estimated using relevant market
information and other assumptions, as disclosed in the Footnote titled “Assets and Liabilities Measured and Reported at
Fair Value” in this section of the filing. Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could significantly affect such estimates.
Revenue from Contracts with Customers – The majority of Bancorp’s revenue comes from interest income and other
sources, including loans, leases, securities, and derivatives, which are not subject to ASC 606. Bancorp’s services that
fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as Bancorp
satisfies its obligation to its customer.
Segment Information – Bancorp provides a broad range of financial services to individuals, corporations and others
through its full service banking locations. These services include loan and deposit services, cash management services,
securities brokerage activities, mortgage origination and WM&T activities. Bancorp’s operations are considered by
management to be aggregated in two reportable operating segments: Commercial Banking and WM&T.
Reclassifications – Certain amounts presented in prior periods have been reclassified to conform to the current period
presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’
equity.
Adoption of New Accounting Guidance – The FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848):
“Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” in March 2020. The amendments in this
update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the
effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP
to contracts, hedging relationships, and other transactions affected by reference rate reform. The main provisions include:
A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather
than as the creation of a new one for contracts, including loans, debt, leases and other arrangements, that meet
specific criteria.
When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve
its hedge accounting.
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 were 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 nature 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.
95
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.” This guidance is effective for fiscal years beginning after
December 15, 2022 and will not have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the
potential burden in account for reference rate reform. The ASU provides optional expedients and exceptions for apply
GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or
another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide
reference rate transition period. In January 2021, the FASB issued ASU 2021-01, which clarifies that certain optional
expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are
affected by the transition. In December of 2022, the FASB issued ASU 2022-06, which extended the period of time
preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848
covers the period of time during which a significant number of modifications may take place and the ASU defers the
sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company continues to implement its
transition plan towards cessation of LIBOR and the modification of its loans and other financial instruments with attributes
that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the LIBOR transition relief
allowed under ASU 2020-04, ASU 2021-01 and ASU 2022-06, as applicable, and does not expect such adoption to have
a material impact on the consolidated financial statements. The Company will continue to assess the impact as the
reference rate transition progresses.
96
(2) Cash and Due from Banks
At December 31, 2022 and 2021, Bancorp’s interest-bearing cash accounts and non-interest bearing deposits held at other
financial institutions exceeded the $250,000 federally insured limits by approximately $8 million and $92 million,
respectively. Each correspondent bank’s financial performance and market rating are reviewed on a quarterly basis to
ensure Bancorp maintains deposits only at highly rated institutions, providing minimal risk for those exceeding federally
insured limits. Bancorp had approximately $76 million and $811 million held cumulatively at the FRB and FHLB as of
December 31, 2022 and December 31, 2021, which are government-sponsored entities not insured by the FDIC. The vast
majority of these balances were held at the FRB.
Bancorp has historically been required to maintain an average reserve balance in cash or with the FRB relating to customer
deposits. However, effective March 26, 2020, the FRB reduced the requirement ratio to 0% in response to the COVID-
19 pandemic, eliminating the reserve requirements for all depository institutions. The reserve requirement remained at
0% as of December 31, 2022.
97
(3) Bank Acquisitions
Commonwealth Bancshares, Inc.
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.
Effective December 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.
(in thousands)
Assets aquired:
Cash and due from banks
M ortgage loans held for sale
Available for sale debt securities
Held to maturity debt securities (2)
Federal Home Loan Bank stock, at cost
Loans
Allowance for credits losses on loans
Net loans
Premises and equipment, net
Accrued interest receivable
Goodwill
Core deposit intangible
Customer list intangibles
M ortgage servicing rights
Deferred income taxes, net
Other assets
Total assets acquired
Liabilities assumed:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
SSUAR
Subordinated debentures
Line of credit
Accrued interest payable
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration for common stock
Cash consideration paid
Noncontrolling interest of acquired entity
Total consideration
Goodwill
As Recorded
By CB
Fair Value
Adjustments (1)
Classification
Adjustments (2)
Provisional Period
Adjustments (1)
As Recorded
by Bancorp
$
$ —
—
(416)
380,450
3,559
247,209
—
4,436
645,551
(16,102)
629,449
28,784
1,973
5,412
—
—
9,387
—
9,389
1,320,048
$ —
—
(161,819)
161,819
—
—
—
—
—
—
—
—
—
—
—
—
$ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
-
$
-
d
b
c
a
— a
—
(13,147)
6,152
(6,995)
4,009
—
e
(5,412)
12,724
f
14,360 g
h
3,289
i
(3,727)
(1,065)
j
16,767
$
380,450
3,559
84,974
161,819
4,436
632,404
(9,950)
622,454
32,793
1,973
—
12,724
14,360
12,676
(3,727)
8,324
1,336,815
$
$
$
$
302,098
818,334
1,120,432
$ —
371
371
66,220
26,806
3,200
243
17,822
1,234,723
85,325
$
—
(794)
—
—
1,296
873
15,894
$
k
l
m
$ —
—
—
$ —
—
—
$
302,098
818,705
1,120,803
—
—
—
—
—
—
$
-
$
-
—
—
—
—
—
—
66,220
26,012
3,200
243
19,118
1,235,596
101,219
$
$
133,825
30,994
$
3,094
167,913
$
66,694
(1)
(2)
See the following page for explanations of individual fair value/provisional period adjustments.
As of acquisition date, securities with a fair value of $162 million were classified by Bancorp as HTM.
98
Explanation of fair value/provisional period adjustments:
a. Adjustment to investment securities based on Bancorp’s evaluation of the acquired portfolio.
b. Adjustments to loans to reflect estimated fair value adjustments, including the following:
(in thousands)
Fair value adjustment - acquired non PCD loans
Fair value adjustment - acquired PCD loans
Eliminate unrecognized loan fees on acquired loans and fair value hedge
Net loan fair value adjustments
$
$
(9,216)
(4,094)
163
(13,147)
c.
The net adjustment to allowance for credit losses includes the following:
(in thousands)
Reversal of historical CB ACL for loans
Estimate of lifetime credit losses for PCD loans
Net change in ACL for loans
$
$
(16,102)
9,950
(6,152)
d. Adjustment to premises and equipment to reflect the estimated fair value of acquired premises and equipment and
right of use assets.
e.
f.
Elimination of the historical CB goodwill.
Calculation of CDI related to the acquisition.
g. Calculation of CLI related to the acquisition.
h. Adjustment to reflect the estimated fair value of MSRs.
i.
j.
Adjustment to net DTAs associated with the effects of the purchase accounting adjustments.
Adjustment to other assets to reflect the estimated fair value of prepaid and other assets.
k. Adjustment to deposits to reflect the estimated fair value of time deposits in interest rates, which was based on an
analysis of market interest rates and maturity dates at the time of acquisition.
l.
Adjustment to reflect the estimated fair value of subordinated debentures for differences in interest rates, which
was based primarily on an analysis of market interest rates and maturity dates at the time of acquisition.
m. Adjustment to other liabilities to establish the reserve for unfunded loan commitments under CECL, operating lease
liabilities and various accrual adjustments.
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 a 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 $38.6
million for the year ended December 31, 2022, respectively.
99
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 year ended December 31, 2021 also assumes that the KB acquisition, which actually occurred on May 31,
2021, took place at the beginning of the period.
(in thousands, except per share data)
Years ended December 31,
Net interest income
Provision for credit losses (1)
Non-interest income
Non-interest expense (2)
Income before taxes
Income tax expense
Net income
Less net income attributed to noncontrolling interest
Net income available to stockholders
Earnings per share
Basic
Diluted
2022
2021
$
$
238,416
5,828
92,089
182,783
141,894
32,212
109,682
337
109,345
218,376
(7,667)
123,530
200,941
148,632
31,443
117,189
362
116,827
$
$
$
3.75
3.72
$
4.02
3.99
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
29,122
29,386
29,037
29,295
(1) - Excludes $4.4 million in merger related credit loss expense for the year ended December 31, 2022. Excludes $7.4 million in
merger related credit loss expense for the year ended December 31, 2021.
(2) - Excludes $24.1 million in pre-tax merger expenses for the year ended December 31, 2022. Excludes $18.5 million in pre-
tax merger expenses for the year ended December 31, 2021.
100
Kentucky Bancshares, Inc.
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.
a
b
c
d
e
f
g
h
i
j
k
l
m
As Recorded
By KB
Fair Value
Adjustments (1)
Provisional Period
Adjustments (1)
As Recorded
by Bancorp
$
$
53,257
3,071
396,157
7,072
755,932
(9,491)
746,441
27,401
18,909
4,939
14,001
—
674
1,628
1,856
6,421
1,281,827
$ —
—
(295)
—
(757)
2,734
1,977
(6,361)
—
—
(14,001)
3,404
(123)
34
715
(1,866)
(16,516)
$
$ —
—
—
—
—
—
—
—
—
—
—
999
—
—
(230)
(70)
699
$
f
i
j
53,257
3,071
395,862
7,072
755,175
(6,757)
748,418
21,040
18,909
4,939
—
4,403
551
1,662
2,341
4,485
1,266,010
$
$
(in thousands)
Assets aquired:
Cash and due from banks
M ortgage loans held for sale
Available for sale debt securities
Federal Home Loan Bank stock, at cost
Loans
Allowance for credits losses on loans
Net loans
Premises and equip ment, net
Bank owned life insurance
Accrued interest receivable
Goodwill
Core deposit intangible
Other real estate owned
M ortgage servicing rights
Deferred income taxes, net
Other assets
Total assets acquired
Liabilities assumed:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
$
359,544
678,528
1,038,072
$ —
1,146
1,146
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Accrued interest payable
Other liabilities
Total liabilities assumed
11,360
88,581
505
16,231
1,154,749
—
2,490
—
(2,004)
1,632
$ —
—
—
$
359,544
679,674
1,039,218
—
—
—
—
—
11,360
91,071
505
14,227
1,156,381
Net assets acquired
$
127,078
$
(18,148)
$
699
$
109,629
Consideration for common stock
Cash consideration paid
Total consideration
Goodwill
$
204,670
28,276
$
232,946
$
123,317
(1)
See the following page for explanations of individual fair value/provisional period adjustments.
101
Explanation of fair value/provisional period adjustments:
a. Adjustment based on Bancorp’s evaluation of the acquired investment portfolio. Bancorp sold approximately $91
million in AFS debt securities shortly after acquisition.
b. Adjustments to loans to reflect estimated fair value adjustments, including the following:
(in thousands)
Fair value adjustment - acquired non PCD loans
Fair value adjustment - acquired PCD loans
Eliminate unrecognized loan fees on acquired loans and fair value hedge
Net loan fair value adjustments
$
$
228
(735)
(250)
(757)
c.
The net adjustment to allowance for credit losses includes the following:
(in thousands)
Reversal of historical KB ACL for loans
Estimate of lifetime credit losses for PCD loans
Net change in ACL for loans
$
$
9,491
(6,757)
2,734
d. Adjustment to premises and equipment to reflect the estimated fair value of acquired premises and equipment and
right of use assets.
Elimination of the historical KB goodwill.
Calculation of CDI related to the acquisition. During the third quarter of 2021, a provisional period adjustment of
$999,000 was recorded based on revised inputs used in the CDI calculation.
e.
f.
g. Adjustment to reflect the estimated fair value of other real estate owned.
h. Adjustment to reflect the estimated fair value of MSRs.
i.
j.
Adjustment to net DTAs associated with the effects of the purchase accounting adjustments.
Adjustment to other assets to reflect the estimated fair value of prepaid and other assets. During the third quarter
of 2021, a provisional period adjustment of $70,000 was recorded for the write off of miscellaneous mortgage
servicing fees.
k. Adjustment to deposits to reflect the estimated fair value of time deposits in interest rates, which was based on an
analysis of market interest rates and maturity dates at the time of acquisition.
l.
Adjustment to reflect the estimated fair value of FHLB advances for differences in interest rates, which was based
primarily on an analysis of current market interest rates and maturity dates. All KB FHLB advances were paid off
immediately after acquisition.
m. Adjustment to other liabilities to establish the reserve for unfunded loan commitments under CECL, operating lease
liabilities and various accrual adjustments.
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 a 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.
102
Total revenue, defined as net interest income and non-interest income, attributed to KB totaled approximately $27.0
million for the year ended December 31, 2021, 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 KB acquisition
taken place at the beginning of 2021:
(in thousands, except per share data)
Years ended December 31,
2021
Net interest income
Provision for credit losses (1)
Non-interest income
Non-interest expense (2)
Income before taxes
Income tax expense
Net income
Earnings per share
Basic
Diluted
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
185,708
(7,967)
72,308
140,508
125,475
26,406
99,069
$
3.74
3.70
26,522
26,780
(1) - Excludes $7.4 million in merger related credit loss expense for the year ended December 31, 2021.
(2) - Excludes $18.1 million in pre-tax merger expenses for the year ended December 31, 2021.
103
(4) Investment Securities
Debt securities purchased in which Bancorp has the intent and ability to hold to their maturity are classified as HTM
securities. All other investment securities are classified as AFS securities.
AFS Debt Securities
The following table summarizes the amortized cost, unrealized gains and losses, and fair value of Bancorp’s AFS debt
securities portfolio:
(in thousands)
December 31, 2022
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
Obligations of states and political subdivisions
Other
Amortized
cost
$ 122,966
149,773
874,265
145,016
5,957
Unrealized
Gains
Losses
Fair value
$ -
290
58
1
-
$ (7,927)
(6,437)
(121,585)
(17,418)
(342)
$ 115,039
143,626
752,738
127,599
5,615
Total available for sale debt securities
$ 1,297,977
$ 349
$ (153,709)
$ 1,144,617
December 31, 2021
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
Obligations of states and political subdivisions
Other
$ 123,753
132,760
857,283
75,488
1,095
$ -
2,497
2,495
289
-
$ (1,252)
(236)
(13,154)
(702)
(18)
$ 122,501
135,021
846,624
75,075
1,077
Total available for sale debt securities
$ 1,190,379
$ 5,281
$ (15,362)
$ 1,180,298
HTM Debt Securities
The following table summarizes the amortized cost, unrecognized gains and losses, and fair value of Bancorp’s HTM
debt securities portfolio:
(in thousands)
December 31, 2022
Carrying
value
Unrecognized
Gains
Losses
Fair value
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
$ 217,794
27,507
227,916
$ -
-
-
$ (9,166)
(2,559)
(29,659)
$ 208,628
24,948
198,257
Total available for sale debt securities
$ 473,217
$ -
$ (41,384)
$ 431,833
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 classified as
HTM at December 31, 2021.
All investment securities classified as HTM by Bancorp as of December 31, 2022 are obligations of the U.S. Government
and/or 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 December 31, 2022. Further, as of December
31, 2022, none of Bancorp’s HTM securities were in non-accrual or past due status.
104
Debt Securities by Contractual Maturity
A summary of AFS and HTM debt securities by contractual maturity as of December 31, 2022 follows:
(in thousands)
Amortized cost
Fair value
Carrying value
Fair value
AFS Debt Securities
HTM Debt Securities
Due within one year
Due after one year but within five years
Due after five years but within 10 years
Due after 10 years
Mortgage backed securities - government agencies
Total available for sale debt securities
$
$
$
$
38,868
154,801
68,137
161,906
874,265
1,297,977
38,329
145,075
60,473
148,002
752,738
1,144,617
15,029
203,384
26,278
610
227,916
473,217
14,796
194,412
23,767
601
198,257
431,833
$
$
$
$
Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations
with or without prepayment penalties. The investment portfolio includes MBS, which are guaranteed by agencies such as
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.
At December 31, 2022 and 2021, there were no holdings of debt securities of any one issuer, other than the U.S.
government and its agencies, in an amount greater than 10% of stockholders’ equity.
Accrued interest on the AFS and HTM securities portfolios totaled $4 million and $2 million at December 31, 2022,
respectively, and was included in the consolidated balance sheets. Accrued interest on the AFS securities portfolio totaled
$3 million at December 31, 2021. 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 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, resulting in a pre-tax loss on sale of $92,000, which was recorded as a fair value adjustment through goodwill.
AFS debt securities totaling $396 million were acquired on May 31, 2021 as a result of the KB acquisition. Shortly after
acquisition, 86 securities with a total fair value of $91 million were sold, resulting in a pre-tax loss on the sale $295,000,
which was recorded as a fair value adjustment through goodwill.
Securities with a carrying value of $1.1 billion and $879 million were pledged at December 31, 2022 and 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 December 31, 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 December 31, 2022.
105
Unrealized and Unrecognized Loss Analysis on Debt Securities
Debt securities with unrealized and unrecognized losses at December 31, 2022 and December 31, 2021, aggregated by
investment category and length of time securities have been in a continuous unrealized loss position follows:
(in thousands)
December 31, 2022
U.S. Treasury and other U.S.
Government obligations
Government sponsored
enterprise obligations
Mortgage-backed securities -
government agencies
Obligations of states and
political subdivisions
Other
Less than 12 months
Fair
value
Unrealized
losses
AFS Debt Securities
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
$ 3,025
$ (57)
$ 111,966
$ (7,870)
$ 114,991
$ (7,927)
99,785
(3,553)
22,484
(2,884)
122,269
(6,437)
180,263
(11,114)
567,988
(110,471)
748,251
(121,585)
64,165
4,865
(3,763)
(213)
56,864
749
(13,655)
(129)
121,029
5,614
(17,418)
(342)
Total AFS debt securities
$ 352,103
$ (18,700)
$ 760,051
$ (135,009)
$ 1,112,154
$ (153,709)
December 31, 2021
U.S. Treasury and other U.S.
Government obligations
Government sponsored
enterprise obligations
Mortgage-backed securities -
government agencies
Obligations of states and
political subdivisions
Other
$ 122,501
$ (1,252)
$ -
$ -
$ 122,501
$ (1,252)
23,789
(223)
447
(13)
24,236
(236)
615,130
(10,027)
102,637
(3,127)
717,767
(13,154)
46,493
957
(686)
(18)
484
-
(16)
-
46,977
957
(702)
(18)
Total AFS debt securities
$ 808,870
$ (12,206)
$ 103,568
$ (3,156)
$ 912,438
$ (15,362)
Less than 12 months
HTM Debt Securities
12 months or more
Total
(in thousands)
December 31, 2022
Fair
value
Unrecognized
losses
Fair
value
Unrecognized
losses
Fair
value
Unrecognized
losses
U.S. Treasury and other U.S.
Government obligations
Government sponsored
enterprise obligations
Mortgage-backed securities -
$ 208,628
$ (9,166)
$ -
$ -
$ 208,628
$ (9,166)
24,948
(2,559)
-
-
24,948
(2,559)
government agencies
198,257
(29,659)
-
-
198,257
(29,659)
Total HTM debt securities
$ 431,833
$ (41,384)
$ -
$ -
$ 431,833
$ (41,384)
Applicable dates for determining when securities are in an unrealized loss position are December 31, 2022 and 2021,
respectively. As such, it is possible that a security had a market value lower than its amortized cost on other days during
the past 12 months, but is not in the “Less than 12 months” category above.
106
For debt securities with unrealized and unrecognized loss positions, Bancorp evaluates the securities to determine whether
the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit
related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is
recognized as an a ACL for debt securities on the balance sheet, limited to the amount by which the amortized cost basis
exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the
estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However,
if Bancorp intends to sell an impaired debt security or more likely than not will be required to sell such a security before
recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding
adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value,
there is no ACL in this situation.
In evaluating debt securities in unrealized and unrecognized loss positions for impairment and the criteria regarding its
intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized cost,
whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuers’ financial condition, among other factors. Unrealized and
unrecognized losses on Bancorp’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 attributable to changes in the prevailing interest rate
environment since the purchase date. Fair value is expected to recover as securities reach maturity and/or the interest rate
environment returns to conditions similar to when these securities were purchased. These investments consisted of 547
and 227 separate investment positions as of December 31, 2022 and December 31, 2021, respectively. By dollar value,
approximately 98% of the portfolio was in a loss position as of December 31, 2022 compared to 79% as of December 31,
2021. There were no credit related factors underlying unrealized and unrecognized losses on debt securities at December
31, 2022 and December 31, 2021.
107
(5) Loans and ACL for Loans
Composition of loans by class follows:
December 31, (in thousands)
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
Commercial and industrial - term
Commercial and industrial - term - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total loans (1)
2022
2021
$
1,397,346
834,629
2,231,975
$
1,128,244
678,405
1,806,649
765,163
18,593
465,813
1,249,569
591,515
313,248
904,763
596,710
140,734
370,312
1,107,756
400,695
281,018
681,713
445,690
200,725
139,461
13,322
20,413
5,205,918
$
299,206
138,976
104,294
13,622
17,087
4,169,303
$
(1) Total loans are presented inclusive of premiums, discounts and 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. Loans totaling $755 million were added to the portfolio as a result of the KB acquisition on May
31, 2021.
Fees and costs of originating loans are deferred at origination and amortized over the life of the loan. Loan balances
reported herein include deferred loan origination fees, net of deferred loan costs. At December 31, 2022 and 2021, net
deferred loan origination fees exceeded deferred loan origination costs, resulting in net negative balances of $1 million
and $6 million, respectively. The large change from the prior year was attributed forgiveness activity within the PPP
portfolio, which resulted in the acceleration of origination fee recognition.
Bancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific
industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s
ability to honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does
business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current
market areas, which encompass Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana
and Cincinnati, Ohio metropolitan markets.
Bancorp occasionally enters into loan participation agreements with other banks in the ordinary course of business to
diversify credit risk. For certain sold participation loans, 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.
GAAP requires the participated portion of these loans to be recorded as secured borrowings. The participated portions of
these loans are included in the C&I totals above with a corresponding liability reflected in other liabilities. At both
December 31, 2022 and 2021, the total participated portions of loans of this nature totaled $5 million.
Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $17 million and $11 million at
December 31, 2022 and 2021, respectively, and was included in the consolidated balance sheets.
Loans with carrying amounts of $2.77 billion and $2.20 billion were pledged to secure FHLB borrowing capacity at
December 31, 2022 and December 31, 2021, respectively.
108
Loans to directors and their related interests, including loans to companies for which directors are principal owners and
executive officers are presented in the following table:
Years ended December 31, (in thousands)
2022
2021
Balance at beginning of period
$ 53,574
$ 43,091
Effect of change in composition of directors and executive officers
1,124
240
New term loans
Rep ayment of term loans
Changes in balances of revolving lines of credit
Balance at end of period
PCD Loans
15,000
5,000
(1,588)
(3,671)
10,575
8,914
$ 78,685
$ 53,574
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 subsequent to origination. Acquired loans are recorded at their fair
value at the time of acquisition with no carryover from the acquired institution’s previously recorded ACL. Acquired
loans are accounted for under ASC 326, Financial Instruments – Credit Losses.
The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and
payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash
flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount
to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition,
have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or
net discount is adjusted to reflect Bancorp’s allowance for credit losses recorded for PCD loans at the time of acquisition,
and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the
respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of
their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into
interest income over the remaining life of the respective loans. Bancorp records an ACL for non-PCD loans at the time
of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net
discount for non-PCD loans.
Bancorp purchased loans through the acquisitions of CB and KB for which there was, at the time of acquisition, more-
than-insignificant deterioration of credit quality since origination. The carrying amount of loans acquired and classified
as PCD was as follows at the respective acquisition dates:
(in thousands)
Purchase price of PCD loans at acquisition
ACL for loans at acquisition
Non-credit discount at acquisition
Fair value of PCD loans at acquisition
CB
March 7, 2022
KB
May 31, 2021
$
$
88,549
(9,950)
(4,094)
74,505
32,765
(6,757)
(735)
25,273
$
$
At December 31, 2022, the book balance of PCD loans acquired as a result of the CB and KB acquisitions totaled $64
million and $13 million, respectively. Interest income recognized on loans classified as PCD totaled $5.2 million and
$647,000 for the years ended December 31, 2022 and 2021, respectively.
109
ACL for Loans
The table below reflects activity in the ACL related to loans:
(in thousands)
Year ended December 31, 2022
Beginning
Balance
Initial ACL
for PCD
Loans
Provision for
Credit Losses
on Loans
Charge-offs
Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
15,960
9,595
25,555
$
3,508
2,121
5,629
$
3,173
(1,061)
2,112
$
(37)
(41)
(78)
$
37
213
250
$
22,641
10,827
33,468
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
8,577
4,802
13,379
4,316
3,677
7,993
1,358
1,874
3,232
590
-
590
2,497
(87)
2,410
1,777
(75)
1,702
(724)
(200)
(924)
(30)
(27)
(57)
1,283
-
1,283
64
22
86
12,991
6,389
19,380
6,717
3,597
10,314
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
4,789
1,044
772
204
162
53,898
$
419
2
78
-
-
9,950
$
2,050
567
750
(3)
94
9,682
$
(72)
-
(1,080)
-
(96)
(2,307)
$
-
-
638
-
51
2,308
$
7,186
1,613
1,158
201
211
73,531
$
(in thousands)
Year ended December 31, 2021
Beginning
Balance
Initial ACL
for PCD
Loans
Provision for
Credit Losses
on Loans
Charge-offs
Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
19,396
6,983
26,379
$
1,491
2,112
3,603
$
(2,031)
1,826
(205)
$
(3,065)
(1,909)
(4,974)
$
169
583
752
$
15,960
9,595
25,555
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
8,970
3,614
12,584
3,389
1,818
5,207
1,022
1,755
2,777
142
88
230
(112)
(567)
(679)
1,134
1,766
2,900
(1,337)
-
(1,337)
(383)
-
(383)
34
-
34
34
5
39
8,577
4,802
13,379
4,316
3,677
7,993
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
6,119
895
340
261
135
51,920
$
-
147
-
-
-
6,757
$
(1,333)
1
743
(57)
27
1,397
$
-
-
(987)
-
-
(7,681)
$
3
1
676
-
-
1,505
$
4,789
1,044
772
204
162
53,898
$
110
(in thousands)
Year ended December 31, 2020
Beginning
Balance
Impact of
Adopting
ASC 326
Initial ACL for
PCD loans
Provision for
Credit Losses
on Loans
Charge-offs Recoveries
Ending
Balance
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
5,235
3,327
8,562
$
2,946
1,542
4,488
$
152
1,350
1,502
$
11,194
2,115
13,309
$
(143)
(1,351)
(1,494)
12
$
-
12
$
19,396
6,983
26,379
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
6,782
5,657
12,439
1,527
947
2,474
365
(1,528)
(1,163)
1,087
429
1,516
-
-
-
99
-
99
1,832
(515)
1,317
737
442
1,179
(18)
-
(18)
(79)
(2)
(81)
-
9
9
18
2
20
8,970
3,614
12,584
3,389
1,818
5,207
2,105
728
100
237
146
26,791
$
3,056
114
264
(4)
(50)
8,221
$
-
-
34
-
-
1,635
$
902
53
91
28
39
16,918
$
-
-
(508)
-
-
(2,101)
$
56
-
359
-
-
$
456
6,119
895
340
261
135
51,920
$
The following tables present 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 as of December 31, 2022 and 2021:
(in thousands)
December 31, 2022
Non-accrual Loans
With No
Recorded ACL
Total
Non-accrual
Troubled Debt
Restructurings (1)
Past Due 90-Days-
or-More and Still
Accruing Interest
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
$ —
1,370
$
7,707
2,525
$ —
—
$
78
—
Total commercial real estate
1,370
10,232
Commercial and industrial - term
Commercial and industrial - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
403
—
273
676
249
—
249
1,182
21
348
1,551
1,801
219
2,020
—
—
—
—
—
—
—
—
78
259
28
300
587
—
220
220
—
—
—
—
—
2,295
$
—
205
234
—
—
14,242
$
—
—
—
—
—
$ —
—
—
—
—
7
892
$
(1) Does not include TDRs reflected in the non-accrual column.
111
(in thousands)
December 31, 2021
Non-accrual Loans
With No
Recorded ACL
Total
Non-accrual
Troubled Debt
Restructurings (1)
Past Due 90-Days-
or-More and Still
Accruing Interest
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
$
486
665
$
720
1,748
$ —
—
$ —
—
Total commercial real estate
Commercial and industrial - term
Commercial and industrial - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
1,151
419
—
—
419
805
—
805
2,468
670
—
228
898
1,997
293
2,290
—
12
—
—
12
—
—
—
—
—
592
56
648
36
—
36
—
—
—
—
—
2,375
$
—
646
410
—
—
6,712
$
—
—
—
—
—
12
$
—
—
—
—
—
684
$
(1) Does not include TDRs reflected in the non-accrual column.
For the years ended December 31, 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 years ended December 31, 2022 and 2021, no interest income was recognized on loans on non-accrual status.
The following table presents the amortized cost basis and ACL allocated for collateral dependent loans, which are
individually evaluated to determine expected credit losses:
(in thousands)
December 31, 2022
Real Estate
Accounts
Receivable /
Equipment
Other
Total
ACL
Allocation
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
14,764
4,415
19,179
-
$
-
-
-
$
-
-
$
14,764
4,415
19,179
$
2,652
846
3,498
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
39
422
461
2,199
415
2,614
2,207
2,821
5,028
-
-
-
-
-
-
-
-
-
2,246
3,243
5,489
2,199
415
2,614
1,205
761
1,966
222
116
338
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total collateral dependent loans
-
205
-
-
-
22,459
$
-
-
-
-
-
5,028
$
-
-
219
-
-
219
$
-
205
219
-
-
27,706
$
-
-
20
-
-
5,822
$
112
(in thousands)
December 31, 2021
Real Estate
Accounts
Receivable /
Equipment
Other
Total
ACL
Allocation
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
720
7,652
8,372
$
-
-
-
$
-
-
-
$
720
7,652
8,372
$
-
1,652
1,652
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
-
-
-
1,997
502
2,499
598
200
798
-
-
-
-
-
-
-
-
-
598
200
798
1,997
502
2,499
-
-
-
-
116
116
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total collateral dependent loans
-
646
-
-
-
11,517
$
-
-
-
-
-
$
798
-
-
247
-
-
247
$
-
646
247
-
-
12,562
$
-
-
-
-
-
1,768
$
There have been no significant changes to the types of collateral securing Bancorp’s collateral dependent loans.
113
The following tables present the aging of contractually past due loans by portfolio class:
(in thousands)
December 31, 2022
Current
30-59 days
Past Due
60-89 days
Past Due
90 or more
Days Past Due
Total
Past Due
Total
Loans
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
1,393,016
831,731
2,224,747
$
3,404
225
3,629
$
460
2,592
3,052
$
466
81
547
$
4,330
2,898
7,228
$
1,397,346
834,629
2,231,975
Commercial and industrial - term
Commercial and industrial - term - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
763,793
17,719
464,494
1,246,006
587,830
312,249
900,079
157
748
389
1,294
1,613
373
1,986
292
77
300
669
974
331
1,305
921
49
630
1,600
1,098
295
1,393
1,370
874
1,319
3,563
3,685
999
4,684
765,163
18,593
465,813
1,249,569
591,515
313,248
904,763
445,618
200,036
138,846
13,322
20,401
5,189,055
$
—
566
342
—
3
7,820
$
72
40
85
—
2
5,225
$
—
83
188
—
7
3,818
$
72
689
615
—
12
16,863
$
445,690
200,725
139,461
13,322
20,413
5,205,918
$
(in thousands)
December 31, 2021
Current
30-59 days
Past Due
60-89 days
Past Due
90 or more
Days Past Due
Total
Past Due
Total
Loans
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
$
1,127,448
677,231
1,804,679
$
-
360
360
$
81
327
408
$
715
487
1,202
$
796
1,174
1,970
$
1,128,244
678,405
1,806,649
Commercial and industrial - term
Commercial and industrial - term - PPP
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total
595,070
139,718
369,963
1,104,751
397,415
280,257
677,672
1,032
128
271
1,431
1,399
403
1,802
44
296
22
362
137
258
395
564
592
56
1,212
1,744
100
1,844
1,640
1,016
349
3,005
3,280
761
4,041
596,710
140,734
370,312
1,107,756
400,695
281,018
681,713
299,206
138,141
103,109
13,622
17,087
4,158,267
$
—
279
724
—
—
4,596
$
—
47
102
—
—
1,314
$
—
509
359
—
—
5,126
$
—
835
1,185
—
—
11,036
$
299,206
138,976
104,294
13,622
17,087
4,169,303
$
114
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 current financial information, historical payment
experience, credit documentation, public information and current economic trends. Pass-rated loans include all risk-rated
loans other than those classified as OAEM, substandard, and doubtful, which are defined below:
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 – Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of
collateral pledged, if any. Loans so classified have well-defined 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 usually 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.
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. A loan is typically charged off once it is classified as doubtful.
115
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 December 31, 2022, the risk rating of
loans based on year of origination was as follows:
Term Loans Amortized Cost Basis by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
loans
amortized
cost basis
Total
$
338,460
-
1,381
-
-
$
380,612
2,006
1,012
-
-
$
264,833
-
3,744
-
-
$
128,407
3,534
19,574
-
-
$
76,359
-
-
-
-
$
139,095
5,414
233
7,707
-
$
24,875
-
100
-
-
$
1,352,641
10,954
26,044
7,707
-
$
339,841
$
383,630
$
268,577
$
151,515
$
76,359
$
152,449
$
24,975
$
1,397,346
$
165,711
2,895
-
1,533
-
$
202,599
1,777
1,152
911
-
$
194,052
4,540
-
-
-
$
104,148
1,891
1,623
-
-
$
60,899
676
1,928
-
-
$
74,356
216
69
81
-
$
13,062
510
-
-
-
$
814,827
12,505
4,772
2,525
-
$
170,139
$
206,439
$
198,592
$
107,662
$
63,503
$
74,722
$
13,572
$
834,629
$
357,470
3,835
178
539
-
$
210,906
2,935
-
39
-
$
90,063
-
-
486
-
$
39,068
303
201
101
-
$
29,901
1,426
-
17
-
$
27,354
-
341
-
-
-
$
-
-
-
-
$
754,762
8,499
720
1,182
-
$
362,022
$
213,880
$
90,549
$
39,673
$
31,344
$
27,695
$
-
$
765,163
$
-
-
-
-
-
$
14,212
-
-
-
-
$
4,047
313
-
21
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
18,259
313
-
21
-
$
-
$
14,212
$
4,381
$
-
$
-
$
-
$
-
$
18,593
(in thousands)
December 31, 2022
Commercial real estate -
non-owner occupied:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial real estate
non-owner occupied
Commercial real estate -
owner occupied:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial real estate
owner occupied
Commercial and industrial -
term:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
term
Commercial and industrial -
PPP
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
PPP
(continued)
116
(continued)
(in thousands)
December 31, 2022
Commercial and industrial -
lines of credit
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
lines of credit
Residential real estate -
owner occupied
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Residential real estate -
owner occupied
Residential real estate -
non-owner occupied
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Residential real estate -
non-owner occupied
Construction and land
development
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Construction and land
development
Home equity lines of credit
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Home equity lines of credit
(continued)
Term Loans Amortized Cost Basis by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
loans
amortized
cost basis
Total
$
54,948
-
-
-
-
$
13,999
-
-
-
-
991
$
-
905
-
-
$
9,179
-
1,915
273
-
$
1,188
-
-
-
-
$
1,033
366
-
-
-
$
367,688
12,491
762
75
-
$
449,026
12,857
3,582
348
-
$
54,948
$
13,999
$
1,896
$
11,367
$
1,188
$
1,399
$
381,016
$
465,813
$
188,765
360
18
65
-
$
189,007
96
-
191
-
$
96,818
-
10
70
-
$
28,316
70
-
292
-
$
15,281
-
140
122
-
$
70,556
-
277
1,061
-
-
$
-
-
-
-
$
588,743
526
445
1,801
-
$
189,208
$
189,294
$
96,898
$
28,678
$
15,543
$
71,894
$
-
$
591,515
$
97,313
15
-
86
-
$
83,458
-
-
21
-
$
55,787
115
-
-
-
$
34,304
271
-
-
-
$
19,300
124
-
-
-
$
21,720
290
332
112
-
$
-
-
-
-
-
$
311,882
815
332
219
-
$
97,414
$
83,479
$
55,902
$
34,575
$
19,424
$
22,454
$
-
$
313,248
$
257,559
-
4,461
-
-
$
99,204
-
-
-
-
$
45,427
-
-
-
-
580
$
-
-
-
-
$
5,959
-
-
-
-
$
1,123
-
-
-
-
$
30,378
999
-
-
-
$
440,230
999
4,461
-
-
$
262,020
$
99,204
$
45,427
$
580
$
5,959
$
1,123
$
31,377
$
445,690
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
117
$
$
200,481
-
39
205
-
200,725
200,481
-
39
205
-
200,725
$
$
(continued)
(in thousands)
December 31, 2022
Consumer
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Consumer
Leases
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Leases
Credit cards
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Credit cards
Total loans
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Loans
Term Loans Amortized Cost Basis by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
loans
amortized
cost basis
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,450
-
-
62
-
5,512
$
2,270
-
-
9
-
2,279
$
1,621
-
-
31
-
1,652
78,646
-
-
15
-
78,661
27,308
-
-
21
-
27,329
4,643
-
-
-
-
4,643
18,396
-
-
56
-
18,452
4,344
-
-
-
-
4,344
5,536
-
-
40
-
5,576
2,589
-
-
-
-
2,589
$
$
$
$
$
$
$
535
-
-
-
-
535
$
$
576
-
-
-
-
576
$
$
635
-
-
-
-
635
$
$
-
-
-
-
-
$
-
$
$
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
20,413
-
-
-
-
20,413
$
$
$
$
139,227
-
-
234
-
139,461
13,322
-
-
-
-
13,322
20,413
-
-
-
-
20,413
$
1,492,177
7,105
6,038
2,244
-
$
1,216,737
6,814
2,164
1,218
-
$
760,143
4,968
4,659
617
-
$
349,987
6,069
23,313
728
-
$
211,733
2,226
2,068
148
-
$
337,493
6,286
1,252
8,992
-
$
735,543
14,000
901
295
-
$
5,103,813
47,468
40,395
14,242
-
$
1,507,564
$
1,226,933
$
770,387
$
380,097
$
216,175
$
354,023
$
750,739
$
5,205,918
118
As of December 31, 2021, the risk rating of loans based on year of origination was as follows:
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
loans
amortized
cost basis
Total
$
381,014
3,186
4,174
-
-
$
298,177
2,666
1,440
39
-
$
134,286
19,784
-
78
-
$
86,638
-
-
-
-
$
85,110
353
-
592
-
$
81,635
1,619
7,629
11
-
$
19,465
248
100
-
-
$
1,086,325
27,856
13,343
720
-
$
388,374
$
302,322
$
154,148
$
86,638
$
86,055
$
90,894
$
19,813
$
1,128,244
$
203,545
1,681
5,051
1,259
-
$
192,322
1,480
3,605
-
-
$
91,078
3,568
5,985
-
-
$
75,062
469
1,275
-
-
$
33,713
1,506
627
32
-
$
44,364
124
-
457
-
$
9,236
570
1,396
-
-
$
649,320
9,398
17,939
1,748
-
$
211,536
$
197,407
$
100,631
$
76,806
$
35,878
$
44,945
$
11,202
$
678,405
$
283,150
738
170
-
-
$
143,211
86
42
543
-
$
58,988
254
2,667
72
-
$
52,388
3,382
176
55
-
$
26,081
8
111
-
-
$
24,421
-
167
-
-
-
$
-
-
-
-
$
588,239
4,468
3,333
670
-
$
284,058
$
143,882
$
61,981
$
56,001
$
26,200
$
24,588
$
-
$
596,710
$
128,409
-
-
-
-
$
12,325
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
$
140,734
-
-
-
-
$
128,409
$
12,325
$
-
$
-
$
-
$
-
$
-
$
140,734
(in thousands)
December 31, 2021
Commercial real estate -
non-owner occupied:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial real estate
non-owner occupied
Commercial real estate -
owner occupied:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial real estate
owner occupied
Commercial and industrial -
term:
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
term
Commercial and industrial -
PPP
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
PPP
(continued)
119
(continued)
(in thousands)
December 31, 2021
Commercial and industrial -
lines of credit
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Commercial and industrial -
lines of credit
Residential real estate -
owner occupied
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Residential real estate -
owner occupied
Residential real estate -
non-owner occupied
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Residential real estate -
non-owner occupied
Construction and land
development
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Construction and land
development
Home equity lines of credit
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Home equity lines of credit
(continued)
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
loans
amortized
cost basis
Total
$
33,875
-
-
-
-
$
8,352
-
-
-
-
$
11,103
-
1,916
-
-
$
1,039
-
-
-
-
207
$
-
1,549
-
-
193
$
-
-
-
-
$
303,682
6,355
1,813
228
-
$
358,451
6,355
5,278
228
-
$
33,875
$
8,352
$
13,019
$
1,039
$
1,756
$
193
$
312,078
$
370,312
$
176,487
101
-
164
-
$
99,936
-
-
103
-
$
31,327
174
-
136
-
$
17,259
-
-
230
-
$
16,599
-
108
714
-
$
56,639
-
68
650
-
-
$
-
-
-
-
$
398,247
275
176
1,997
-
$
176,752
$
100,039
$
31,637
$
17,489
$
17,421
$
57,357
$
-
$
400,695
$
94,482
352
-
103
-
$
78,785
126
-
-
-
$
46,177
281
-
45
-
$
27,494
132
-
28
-
$
16,171
-
-
-
-
$
15,909
462
354
117
-
$
-
-
-
-
-
$
279,018
1,353
354
293
-
$
94,937
$
78,911
$
46,503
$
27,654
$
16,171
$
16,842
$
-
$
281,018
$
160,696
-
-
-
-
$
99,699
-
-
-
-
$
16,665
-
-
-
-
$
6,262
-
-
-
-
$
1,890
102
-
-
-
$
1,156
-
-
-
-
$
12,736
-
-
-
-
$
299,104
102
-
-
-
$
160,696
$
99,699
$
16,665
$
6,262
$
1,992
$
1,156
$
12,736
$
299,206
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
-
$
-
-
-
-
$
-
120
$
$
138,239
91
-
646
-
138,976
138,239
91
-
646
-
138,976
$
$
(continued)
(in thousands)
December 31, 2021
Consumer
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Consumer
Leases
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Leases
Credit cards
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Credit cards
Total loans
Risk rating
Pass
OAEM
Substandard
Substandard non-performing
Doubtful
Total Loans
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
loans
amortized
cost basis
Total
$
$
$
$
$
$
$
$
23,866
-
-
55
-
23,921
5,375
-
-
-
-
5,375
9,316
-
-
304
-
9,620
3,596
-
-
-
-
3,596
5,014
-
-
30
-
5,044
1,375
-
-
-
-
1,375
1,260
-
-
11
-
1,271
1,331
-
-
-
-
1,331
555
$
-
-
-
-
$
555
646
$
-
-
$
63,227
-
-
4
6
-
$
650
-
63,233
$
$
$
103,884
-
-
410
-
104,294
406
$
-
-
-
-
$
406
1,539
-
-
-
-
1,539
-
$
-
-
-
-
$
-
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
17,087
-
-
-
-
17,087
$
$
$
$
13,622
-
-
-
-
13,622
17,087
-
-
-
-
17,087
$
$
$
$
$
$
$
1,490,899
6,058
9,395
1,581
-
$
1,507,933
945,719
4,358
5,087
989
-
956,153
396,013
24,061
10,568
361
-
431,003
268,733
3,983
1,451
324
-
274,491
180,732
1,969
2,395
1,338
-
186,434
226,502
2,205
8,218
1,239
-
238,164
563,672
7,264
3,309
880
-
575,125
$
4,072,270
49,898
40,423
6,712
-
$
4,169,303
$
$
$
$
$
$
For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was
previously presented, and by payment activity. The following table presents the recorded investment in credit cards based
on payment activity:
(in thousands)
December 31,
Credit cards
Performing
Non-performing
Total credit cards
2022
2021
$
20,413
$
17,087
—
—
$
20,413
$
17,087
121
Troubled Debt Restructurings
Detail of outstanding TDRs included in total non-performing loans follows:
December 31, 2022
December 31, 2021
S pecific
Additional
reserve
commitment
S pecific
Additional
reserve
commitment
(in thousands)
Balance
allocation
to lend
Balance
allocation
to lend
Commercial real estate - owner occup ied
$
850
$
202
$ —
$
950
$
202
$ —
Commercial and industrial - term
—
—
—
12
12
—
Total TDRs
$
850
$
202
$ —
$
962
$
214
$ —
At December 31, 2022, Bancorp had one loan classified as a TDR, the balance of which was $850,000. Bancorp had two
loans classified as TDR at December 31, 2021, the balances of which were $950,000 and $12,000, respectively, the latter
of which was paid off during the year ended December 31, 2022.
During the year ended December 31, 2022, there were no loans modified as TDRs and there were no payment defaults of
existing TDRs within 12 months following modification. Default is determined at 90 or more days past due, charge-off,
or foreclosure. During the year ended December 31, 2021, one CRE loan, which was acquired through the KB acquisition,
was modified as a TDR. The loan had a pre- and post-modification investment of $2 million and $950,000, respectively.
The borrower was given a payment concession through a change in terms in an effort to enable the borrower to fulfill the
loan agreement and has paid as contracted under the modification as of December 31, 2021. The TDR described above
decreased the allowance for credit losses on loans by $548,000, which was the amount charged off in relation to this note,
for the year ended December 31, 2021. This TDR paid as contracted under the modification for the year ended December
31, 2022.
At December 31, 2022 and December 31, 2021, Bancorp had residential real estate loans for which formal foreclosure
proceedings were in process totaling $317,000 and $917,000, respectively.
122
(6) Premises and Equipment and Premises Held for Sale
A summary of premises and equipment follows:
December 31, (in thousands)
2022
2021
Land
$ 23,011
$ 15,981
Buildings and improvements
72,322
61,908
Furniture and equip ment
Construction in p rogress
25,367
22,420
1,660
2,723
Right-of-use operating lease asset
19,694
14,958
Total
142,054
117,990
Accumulated dep reciation and amortization
(40,442)
(41,096)
Total p remises and equipment
$ 101,612
$ 76,894
Depreciation expense related to premises and equipment was $6.5 million in 2022, $4.8 million in 2021 and $4.4 million
in 2020, respectively.
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 $25
million between December 31, 2021 and December 31, 2022, driven largely by the CB acquisition. As a result of the CB
acquisition, 15 branches were acquired, four of which were closed shortly acquisition as a result of overlapping with
existing locations of the Bank. By comparison, the 2021 acquisition of KB resulted in the addition of 19 locations.
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 markets.
In addition to the premises and equipment detailed above, premises held for sale totaling $2.6 million are also recorded
on Bancorp’s consolidated balance sheets as of December 31, 2022, which consists of three vacant parcels of land, one
branch acquired from CB and one legacy SYB branch.
Bancorp has operating leases for various branch locations with terms ranging from approximately eight months to 17
years, some of which include options to extend the leases in five-year increments. A total of four operating leases were
added in 2022 as a result of the CB acquisition. By comparison, a total of seven operating leases were added as a result
of the 2021 KB acquisition. Options reasonably expected to be exercised are included in determination of the right-of-use
asset. Bancorp elected to use a practical expedient to expense short-term lease obligations associated with leases with
original terms of 12 months or less. Bancorp elected not to separate non-lease components from lease components for its
operating leases. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and
other liabilities on the consolidated balance sheet.
123
Balance sheet, income statement, and cash flow detail regarding operating leases follows:
December 31, (dollars in thousands)
Balance Sheet
Operating lease right-of-use asset
Operating lease liability
2022
2021
$
19,694
21,008
$
14,958
16,408
Weighted average remaining lease term (years)
Weighted average discount rate
9.0
2.57%
9.4
3.02%
Maturities of lease liabilities:
One year or less
Year two
Year three
Year four
Year five
Greater than five years
Total lease payments
Less imputed interest
Total
Income Statement
Components of lease expense:
Operating lease cost
Variable lease cost
Less sublease income
Total lease cost
$
$
$
$
$
$
3,453
3,293
2,739
2,339
2,245
9,559
23,628
2,620
21,008
3,077
237
96
3,218
2,634
2,673
2,408
1,924
1,608
7,699
18,946
2,538
16,408
2,239
227
95
2,371
$
$
$
$
$
$
1,896
180
54
2,022
Years ended December 31, (in thousands)
2022
2021
2020
Years ended December 31, (in thousands)
2022
2021
2020
Cash flow Statement
Supplemental cash flow information:
Operating cash flows from operating leases
$
3,833
$
2,568
$
2,218
As of December 31, 2022 Bancorp had not entered into any lease agreements that had yet to commence.
124
(7) Goodwill
As of December 31, 2022, goodwill totaled $194 million, of which $172 million is attributed to the commercial banking
segment and $22 million is attributed to WM&T. Goodwill of $67 million was added through the CB acquisition, $8.5
million of which was subsequently written off as a result of Bancorp selling its interest in LFA effective December 31,
2022. Effective December 31, 2022, management finalized the fair values of the acquired assets and assumed liabilities
associated with the CB acquisition in advance of the 12 month post-acquisition date, as allowed by GAAP.
The composition of goodwill is presented by respective acquisition and acquisition year below:
(in thousands)
December 31,
December 31,
2022
2021
Commonwealth Bancshares (2022)
$
58,244
$ —
Kentucky Bancshares (2021)
King Southern Bancorp (2019)
Austin State Bank (1996)
Total
123,317
11,831
682
123,317
11,831
682
$
194,074
$
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. Impairment exists when a reporting unit’s carrying value of 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 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 carrying value of goodwill follows:
Years ended December 31, (in thousands)
2022
2021
2020
Balance at beginning of period
$
135,830
$
12,513
$
12,513
Goodwill recorded from acquisitions
Provisional period adjustments
Disposition of LFA
Impairment
66,694
—
(8,450)
—
124,016
(699)
—
—
—
—
—
—
Balance at end of period
$
194,074
$
135,830
$
12,513
125
(8) Core Deposit and Customer List Intangible Assets
Bancorp recorded CDI assets of $13 million, $4 million, $2 million and $3 million in association with the acquisition of
CB in 2022, KB in 2021, KSB in 2019 and TBOC in 2013, respectively.
Changes in the net carrying amount of CDI assets follow:
Years ended December 31, (in thousands)
2022
2021
2020
Balance at beginning of period
Additions from acquisitions
Provisional period adjustments
Amortized to expense
Balance at end of p eriod
$
5,596
$
1,962
$ 2,285
12,724
—
(3,362)
3,404
999
(769)
—
—
(323)
$
14,958
$
5,596
$ 1,962
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 LFA. Similar to CDI assets, these intangibles also amortize over their estimated useful lives. No such activity
was recorded for the years ended December 31, 2021 and 2020.
As previously noted, Bancorp’s interest in LFA was sold effective December 31, 2022. As a result, the remaining CLI
associated with LFA was written off at the date of sale and ultimately reflected as a component of the $870,000 pre-tax
loss on the disposition of LFA that was recorded on Bancorp’s consolidated income statements for the year ended
December 31, 2022.
The carrying amount of the CLI assets follows:
Year ended December 31, (in thousands)
Balance at beginning of period
Additions from acquisitions
Provisional period adjustments
Disposition of LFA
Amortized to expense
Balance at end of period
2022
$
-
14,360
—
(2,146)
(2,182)
$
10,032
Future CDI and CLI amortization expense is estimated as follows:
(in thousands)
CDI
CLI
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
$
3,015
$
1,672
2,686
2,375
2,063
1,752
1,339
888
576
264
-
-
1,520
1,368
1,216
1,064
912
760
608
456
304
152
Total future exp ense
$ 14,958
$ 10,032
126
(9) Other Assets
A summary of major components of other assets follows:
December 31, (in thousands)
2022
2021
Cash surrender value of life insurance other than BOLI
$
15,496
$
17,875
Net deferred tax asset
Investments in tax credit partnerships
Swap assets
Prepaid assets
Trust fee receivable
Mortgage servicing rights
Other real estate owned
Other
Total other assets
54,145
13,969
10,727
5,721
3,354
15,219
677
15,680
24,340
11,084
3,148
4,469
2,868
4,528
7,212
10,478
$
134,988
$
86,002
Bancorp maintains life insurance policies other than BOLI in conjunction with its non-qualified defined benefit retirement
and non-qualified compensation plans.
Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates,
while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another
approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance
sheet at fair value. For additional information, see the footnote titled “Interest Rate Swaps.”
For additional information related to MSRs, see the footnote titled “Mortgage Banking Activities.”
127
(10) Income Taxes
Components of income tax expense (benefit) from operations follows:
Years Ended December 31, (in thousands)
2022
2021
2020
Current income tax exp ense:
Federal
State
Total current income tax expense
Deferred income tax expense (benefit):
Federal
State
Total deferred income tax expense (benefit)
Change in valuation allowance
Total income tax expense
$
22,405
$
13,292
$
15,474
2,962
25,367
2,059
15,351
908
16,382
(513)
2,336
1,823
-
3,318
2,176
5,494
(93)
(5,398)
(2,082)
(7,480)
(28)
$
27,190
$
20,752
$
8,874
Components of income tax (benefit) expense recorded directly to stockholders’ equity were as follows:
Years Ended December 31, (in thousands)
2022
2021
2020
Unrealized gain (loss) on securities
available for sale
$ (35,323)
$ (5,371)
$ 2,607
Unrealized gain (loss) on derivatives
-
38
(27)
M inimum p ension liability adjustment
126
52
(25)
Total income tax (benefit) exp ense recorded
directly to stockholders' equity
$ (35,197)
$ (5,281)
$ 2,555
An analysis of the difference between statutory and ETRs from operations follows:
Years Ended December 31,
U.S. federal statutory income tax rate
State income taxes, net of federal benefit
Excess tax benefits from stock-based compensation arrangements
Change in cash surrender value of life insurance
Tax credits
Kentucky state income tax enactments
Tax exempt interest income
Non-deductible merger exp enses
Insurance captive
Amortization of investment in tax credit partnership s
Other, net
Effective tax rate
2022
2021
2020
21.0
%
21.0
%
21.0
%
3.5
(1.0)
0.2
(0.2)
—
(0.6)
0.1
(0.3)
0.1
(0.2)
3.5
(1.1)
(0.8)
(0.3)
—
(0.4)
0.4
(0.2)
0.1
(0.4)
0.8
(0.7)
(0.8)
(5.5)
(2.2)
(0.3)
—
—
1.0
(0.2)
22.6 %
21.8 %
13.1 %
Current state income tax expense for 2022 and 2021 represents tax owed to the state of Kentucky, Indiana and Illinois.
Prior to 2021, Kentucky state bank taxes were based on capital levels and were previously recorded as other non-interest
expense. Ohio state bank taxes are based on capital levels and are recorded as other non-interest expense.
128
The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based
franchise tax to the Kentucky corporate income tax beginning in 2021 and allows entities filing a combined Kentucky
income tax return to share certain tax attributes, including net operating loss carryforwards.
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’s
judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or
elimination of uncertain tax positions. As of December 31, 2022 and December 31, 2021, the gross amount of
unrecognized tax benefits was immaterial to Bancorp’s consolidated financial statements. Federal income tax returns are
subject to examination for the years after 2018 and state income tax returns are subject to examination for the years after
2017.
The effects of temporary differences that gave rise to significant portions of DTAs and DTLs follows:
December 31, (in thousands)
Deferred tax assets:
Allowance for credit losses
Deferred compensation
Operating lease liability
State net operating loss
Deferred PPP loan fees
Accrued exp enses
Investments in tax credit partnership s
Interest rate swaps
Securities
Acquired loan fair value adjustments
Other assets
2022
2021
$ 18,099
$ 13,354
6,349
6,245
5,066
3,951
540
2,217
77
1,186
4,605
3,345
215
747
6
—
35,935
1,171
3,506
808
—
343
Write-downs and costs associated with other real estate owned
21
21
Total deferred tax assets
74,419
33,388
Deferred tax liabilities:
Right-of-use operating lease asset
Property and equipment
Loan costs
M ortgage servicing rights
Leases
Core dep osit intangibles
Customer list intangibles
Other liabilities
Total deferred tax liabilities
Net deferred tax asset
4,848
3,706
2,395
970
1,272
968
3,712
1,088
170
221
3,399
1,077
2,469
—
2,009
1,018
20,274
9,048
$ 54,145
$ 24,340
129
A valuation allowance is recognized for a DTA if, based on the weight of available evidence, it is more likely than not
that some portion of the entire DTA will not be realized. Ultimate realization of DTAs is dependent upon generation of
future taxable income during periods in which those temporary differences become deductible. Management considers
scheduled reversal of DTLs, projected future taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projection for future taxable income over periods which the temporary
differences resulting in remaining DTAs are deductible, management believes it is more likely than not that Bancorp will
realize the benefits of these deductible differences at December 31, 2022.
Realization of DTAs associated with investment in tax credit partnerships is dependent upon generating sufficient taxable
capital gain income prior to their expiration. No valuation allowance was recorded as of both December 31, 2022 and
2021 based on management’s estimate of the temporary deductible differences that may expire prior to their utilization.
In addition, realization of DTAs are evaluated for net operating losses that will not be utilized prior to their expiration.
The Kentucky losses began to be utilized in 2021 when Bancorp began filing a combined Kentucky income tax return
with the Bank. A valuation allowance was previously maintained for the loss that expired in 2020. The loss carryforward
is currently $14 million and expires over varying periods through 2040.
130
(11) Deposits
The composition of deposits follows:
December 31, (in thousands)
2022
2021
Non-interest bearing demand deposits
$
1,950,198
$
1,755,754
Interest bearing deposits:
Interest bearing demand
Savings
Money market
Time deposit accounts of $250,000 or more
Other time deposits
Total time deposits(1)
2,308,960
535,903
1,124,100
97,638
374,453
472,091
2,131,928
415,258
1,050,352
89,745
344,477
434,222
Total interest bearing deposits
4,441,054
4,031,760
Total deposits
$
6,391,252
$
5,787,514
(1)
Includes $599,000 and $5 million in brokered deposits as of December 31, 2022 and 2021, respectively.
Deposits totaling $1.12 billion were assumed on March 7, 2022 in relation to the CB acquisition. Deposits totaling $1.04
billion were assumed on May 31, 2021 in relation to the KB acquisition.
Interest expense related to certificates of deposit and other time deposits in denominations of $250,000 or more was
$472,000, $464,000 and $888,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
At December 31, 2022, the scheduled maturities of all time deposits were as follows:
(in thousands)
2023
2024
2025
2026
2027
Beyond five years
Total time deposits
$ 334,504
94,138
24,212
8,924
10,121
192
$ 472,091
Deposits of directors and their associates, including deposits of companies for which directors are principal owners, and
executive officers were $59 million and $104 million at December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, Bancorp had $913,000 and $612,000 of deposits accounts in overdraft status and thus
have been reclassified to loans on the accompanying consolidated balance sheets.
131
(12) Securities Sold Under Agreements to Repurchase
SSUAR represent a funding source of Bancorp and are 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 December 31, 2022, all of these financing arrangements had
overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-
backed securities which were owned and controlled by Bancorp.
Information regarding SSUAR follows:
December 31, (dollars in thousands)
Outstanding balance at end of period
2022
2021
$
133,342
$
75,466
Weighted average interest rate at end of period
1.64
%
0.04
%
Years Ended December 31, (dollars in thousands)
2022
2021
2020
Average outstanding balance during the period
$
122,154
$
62,534
$
40,363
Average interest rate during the period
Maximum outstanding at any month end during the period
0.46
161,512
$
%
0.04
81,964
$
%
0.09
47,979
$
%
SSUAR totaling $66 million were assumed on March 7, 2022 in relation to the CB acquisition. SSUAR totaling $11
million were assumed on May 31, 2021 in relation to the KB acquisition.
132
(13) Subordinated Debentures
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 notes 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 January 1, 2023 and carried the notes at the costs noted below at December 31, 2022.
(dollars in thousands)
Face Value
Carrying
Value
Origination
Date
Maturity
Date
Interest Rate
Commonwealth Statutory Trust III
$
3,093
$
3,040
12/19/2003
1/7/2034
LIBOR + 2.85%
Commonwealth Statutory Trust IV
12,372
12,158
12/15/2005
12/30/2035
LIBOR + 1.35%
Commonwealth Statutory Trust V
Total
11,341
26,806
$
11,145
26,343
$
6/28/2007
9/15/2037
LIBOR + 1.40%
As part of the purchase accounting adjustments associated with the CB acquisition, the carrying values of the subordinated
notes were adjusted to fair value at acquisition date. The related discounts on the subordinated notes are amortized and
recognized as a component of interest expense in Bancorp’s consolidated financial statements.
(14) FHLB Advances and Other Borrowings
FHLB advances outstanding at December 31, 2022 totaled $50 million, consisting entirely of a one-week cash
management advance utilized at year-end for short-term liquidity purposes. This advance represents the only FHLB
advance utilized by Bancorp in 2022 and matured in early January 2023.
At December 31, 2021, Bancorp had no outstanding FHLB advances. FHLB advances totaling $91 million were assumed
on May 31, 2021 in relation to the KB acquisition, all of which were paid off immediately upon acquisition.
The elective pay offs noted above were made in the first and second quarters of 2021. During the first quarter of 2021,
Bancorp elected to pay down certain advances prior to maturity without incurring pre-payment penalties. During the
second quarter of 2021, Bancorp paid off $14 million of term advances, with a weighted average cost of 2.03%, prior to
their maturity incurring an early-termination fee of $474,000.
Information regarding FHLB advances follows:
December 31, (dollars in thousands)
Outstanding balance at end of period
2022
2021
$
50,000
$
-
Weighted average interest rate at end of period
4.37
%
-
%
FHLB advances are collateralized by certain CRE and residential real estate mortgage loans under blanket mortgage
collateral pledge agreements, as well as a portion Bancorp’s PPP loan portfolio and FHLB stock. Bancorp views these
advances as an effective lower-costing alternative to brokered deposits to fund loan growth. At December 31, 2022 and
December 31, 2021, the amount of available credit from the FHLB totaled $1.36 billion and $1.00 billion, respectively.
Bancorp also had $80 million FFP lines available from correspondent banks at both December 31, 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 December 31, 2022, which was added during the first quarter of 2022 to
allow capital flexibility at the Bank level, if ever needed.
133
(15) Accumulated Other Comprehensive Income (Loss)
The following table illustrates activity within the balances in AOCI by component:
(in thousands)
Balance, January 1, 2020
Net current period other
Net unrealized
gains (losses)
on available for sale
debt securities
Net unrealized
gains (losses)
on cash
flow hedges
Minimum
pension
liability
adjustment
Total
$
1,085
$
(39)
$
(369)
$
677
comprehensive income (loss)
8,224
(82)
(78)
8,064
Balance, December 31, 2020
$
9,309
$
(121)
$
(447)
$
8,741
Balance, January 1, 2021
Net current period other
$
9,309
$
(121)
$
(447)
$
8,741
comprehensive income (loss)
(16,966)
121
164
(16,681)
Balance, December 31, 2021
$
(7,657)
$
-
$
(283)
$
(7,940)
Balance, January 1, 2022
Net current period other
$
(7,657)
$
-
$
(283)
$
(7,940)
comprehensive income (loss)
(107,991)
-
395
(107,596)
Balance, December 31, 2022
$
(115,648)
$
-
$
112
$
(115,536)
134
(16) 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.
(17) 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:
(in thousands, except per share data)
Years Ended December 31,
2022
2021
2020
Net income available to stockholders
$ 92,972
$ 74,645
$ 58,869
Weighted average shares outstanding - basic
28,672
24,898
22,563
Dilutive shares
250
258
205
Weighted average shares outstanding - diluted
28,922
25,156
22,768
Net income per share - basic
Net income per share - diluted
$ 3.24
$ 3.00
$ 2.61
$ 3.21
$ 2.97
$ 2.59
Certain SARs that were excluded from the EPS calculation because their impact was antidilutive follows:
Years Ended December 31, (shares in thousands)
2022
2021
2020
Antidilutive SARs
1
—
202
135
(18) Employee Benefit Plans
Bancorp has a combined employee stock ownership and defined contribution plan. The plan is available to all employees
meeting certain eligibility requirements. In general, for employees who work more than 1,000 hours per year, Bancorp
matches employee contributions up to 6% of the employee’s salary, and contributes an amount of Bancorp stock equal to
2% of the employee’s salary. Employer matching expenses related to contributions to the plan for 2022, 2021, and 2020
were $4.2 million, $3.3 million and $2.9 million and are recorded on the consolidated statements of income within
employee benefits. Employee and employer contributions are made in accordance with the terms of the plan. As of
December 31, 2022 and 2021, the KSOP held 423,000 and 445,000 shares of Bancorp stock, respectively.
In addition, Bancorp has non-qualified plans into which directors and certain senior officers may defer director fees or
salary/incentives. Bancorp matched certain executives’ deferrals into the senior officers’ plan amounting to approximately
$221,000, $224,000 and $214,000 in 2022, 2021 and 2020, respectively. At December 31, 2022 and 2021, the amounts
included in other liabilities in the consolidated financial statements for this plan were $11.2 million and $10.8 million,
respectively. The total was comprised primarily of participants’ contributions, and represented the fair value of mutual
fund investments directed by plan participants.
Bancorp sponsors an unfunded, non-qualified, defined benefit retirement plan for two key officers (one current officer
and one retired officer), and has no plans to increase the number of or the benefits to participants. All participants are
fully vested based on 25 years of service. Bancorp uses a December 31 measurement date for this plan. The accumulated
benefit obligation for the plan included in other liabilities in the consolidated financial statements was $2.3 million and
$2.1 million as of December 31, 2022 and December 31, 2021, respectively. Actuarially determined pension costs are
expensed and accrued over the service period and benefits are paid from Bancorp’s assets. Bancorp maintains life
insurance policies, for which it is the beneficiary, for defined benefit plan participants and certain former executives.
Income from these policies serves to offset costs of benefits. The liability for Bancorp’s plan met the benefit obligation
as of December 31, 2022 and 2021. Net periodic benefit cost was immaterial for all periods.
Benefits expected to be paid in future periods follows:
(in thousands)
2023
2024
2025
2026
2027
2028 and thereafter
$ —
137
137
219
219
2,566
Total future pay ments
$
3,278
Expected benefits to be paid are based on the same assumptions used to measure Bancorp’s benefit obligation at
December 31, 2022. There are no obligations for other post-retirement or post-employment benefits.
136
(19) Stock-Based Compensation
The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over
the respective service period.
At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan
and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018
shareholders approved an additional 500,000 shares for issuance under the plan. As of December 31, 2022, there were
282,000 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. The model requires the input of assumptions, changes to which can materially affect the fair
value estimate. The following assumptions were used in SAR valuations at the grant date in each year:
Dividend yield
Expected volatility
Risk free interest rate
Expected life of SARs
2022
2021
2020
2.38%
25.43%
1.98%
2.52%
25.19%
1.22%
2.51%
20.87%
1.25%
7.1 years
7.1 years
7.1 years
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. 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 the fair value of such
grants incorporates a liquidity discount related to the holding period of 5.8%, 6.1% and 4.4% for 2022, 2021 and 2020,
respectively.
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, 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 2022 and 2021, respectively, for the purchase of shares upon the
vesting of RSUs.
137
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:
(in thousands)
Expense
Deferred tax benefit
Total net expense
(in thousands)
Expense
Deferred tax benefit
Total net expense
(in thousands)
Expense
Deferred tax benefit
Total net expense
Year Ended December 31, 2022
Stock
Appreciation
Rights
Restricted
Stock Awards
Restricted
Stock Units
Performance
Stock Units
Total
$
$
$
$
$
$
$
$
$
$
Year Ended December 31, 2021
Stock
Appreciation
Rights
Restricted
Stock Awards
Restricted
Stock Units
Performance
Stock Units
Total
$
$
$
$
$
$
$
$
$
$
Year Ended December 31, 2020
Stock
Appreciation
Rights
Restricted
Stock Awards
Restricted
Stock Units
Performance
Stock Units
Total
$
$
$
$
$
$
$
$
$
$
1,373
(289)
1,084
1,288
(271)
1,017
1,346
(283)
1,063
2,313
(486)
1,827
2,613
(549)
2,064
1,294
(272)
1,022
376
(79)
297
352
(74)
278
352
(74)
278
332
(70)
262
312
(66)
246
270
(57)
213
4,394
(924)
3,470
4,565
(960)
3,605
3,262
(686)
2,576
Detail of unrecognized stock-based compensation expense follows:
(in thousands)
Year Ended
Stock
Appreciation
Rights
Restricted
Stock Awards
Restricted
Stock Units
Performance
Stock Units
Total
2023
2024
2025
2026
2027
$
315
$
1,181
$
2
$
1,555
$
3,053
209
150
92
14
959
729
415
45
—
—
—
—
854
—
—
—
2,022
879
507
59
Total estimated expense
$
780
$
3,329
$
2
$
2,409
$
6,520
138
The following table summarizes SARs activity and related information:
(in thousands, except per share and years)
SARs
Outstanding, January 1, 2020
Granted
Exercised
Forfeited
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Granted
Exercised
Forfeited
Outstanding, December 31, 2021
Outstanding, January 1, 2022
Granted
Exercised
Forfeited
Outstanding, December 31, 2022
Vested and exercisable
Unvested
Outstanding, December 31, 2022
Vested in the current year
641
48
(96)
—
593
593
30
(108)
—
515
515
34
(114)
—
435
307
128
435
54
Weighted
average
exercise
price
Aggregate
intrinsic
value(1)
Weighted
average
fair
value
Weighted
average
remaining
contractual
life (in years)
$
$
$
$
$
$
$
25.06
37.30
16.33
—
27.47
27.47
50.48
16.40
—
31.16
31.16
55.45
21.55
—
35.60
$
$
$
$
10,250
154
2,401
—
7,706
7,706
—
4,239
—
16,854
16,854
—
5,258
—
12,784
$
$
$
$
4.10
5.80
2.88
—
4.44
4.44
9.69
2.85
—
5.08
5.08
12.07
3.63
—
6.02
$
$
$
$
$
31.81
44.69
35.60
$
$
10,181
2,603
12,784
$
$
5.06
8.32
6.02
5.3
5.1
5.1
5.1
5.1
5.1
4.2
5.9
5.1
Exercise
price
$14.02 - $40.00
37.30 - 37.30
14.02 - 25.76
—
$15.24 - $40.00
$15.24 - $40.00
47.17 - 50.71
15.24 - 19.37
—
$15.24 - $50.71
$15.24 - $50.71
47.17 - 74.92
15.24 - 40.00
—
$19.37 - $74.92
$19.37 - $50.71
35.90 - 74.92
$19.37 - $74.92
$15.24 - $50.71
$
39.36
$
1,384
$
6.50
(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.
SARs outstanding and exercisable by expiration year and weighted average exercise price follows:
(in thousands, except per share data)
Expiration Year
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
S ARs
Outstanding
S ARs
Exercisable
-
-
27
27
Weighted Average
Exercise Price
$
-
19.38
39
39
23.02
76
76
25.76
40
40
40.00
95
76
37.84
47
26
37.06
46
17
37.30
31
6
50.48
34
—
55.45
435
307
$ 35.60
139
The following table summarizes activity for RSAs:
(in thousands, except per share data)
RSAs
Weighted
average cost
at grant date
Unvested at January 1, 2020
Shares awarded
Restrictions lapsed and shares vested
Shares forfeited
Unvested at December 31, 2020
Unvested at January 1, 2021
Shares awarded
Restrictions lapsed and shares vested
Shares forfeited
Unvested at December 31, 2021
Unvested at January 1, 2022
Shares awarded
Restrictions lapsed and shares vested
Shares forfeited
Unvested at December 31, 2022
108
36
(41)
(4)
99
99
39
(34)
(5)
99
99
35
(32)
(6)
96
$
$
$
$
$
$
34.31
39.30
32.38
36.63
36.85
36.85
46.90
35.48
40.81
41.07
41.07
58.47
40.39
47.49
47.26
Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period,
which began January 1 of the award year, are as follows:
Grant
Year
2020
2021
2022
Vesting
Period in
Years
3
3
3
Fair Value
32.27
$
44.44
48.48
Shares Expected
to be Awarded
65,111
47,280
51,929
140
All Bancorp equity compensation plans have been approved by shareholders. The following table provides detail of the
number of shares to be issued upon exercise of outstanding stock-based awards and remaining shares available for future
issuance under Bancorp’s equity compensation plan as of December 31, 2022.
Number of
S hares
shares to be
Weighted
available for
issued upon
average
future
Plan category (in thousands)
exercising/vesting exercise price
issuance (a)
Equity compensation plans approved by security holders:
Stock Appreciation Rights
Restricted Stock Awards
Restricted Stock Units
Performance Stock Units
Total shares
(b)
96
5
(c)
101
(b)
N/A
N/A
N/A
282
(a)
(a)
(a)
282
(a) Under the 2015 Omnibus Equity Compensation Plan, shares of stock are authorized for issuance as incentive and
non-qualified stock options, SARs, RSAs, and RSUs.
(b) At December 31, 2022, approximately 435,000 SARs were outstanding at a weighted average grant price of $35.59.
The number of shares to be issued upon exercise will be determined based on the difference between the grant price
and the market price at the date of exercise.
(c) The number of shares to be issued is dependent upon Bancorp achieving certain predefined performance targets and
ranges from zero shares to approximately 164,000 shares. As of December 31, 2022, shares expected to be awarded
totaled approximately 164,000.
(20) Dividends
Bancorp’s principal source of cash revenue is dividends paid to it as the sole shareholder of the Bank. At any balance
sheet date, the Bank’s regulatory dividend restriction represents the Bank’s net income of the current year plus the prior
two years less any dividends paid for the same time period. At December 31, 2022, the Bank may pay an amount equal
to $110 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank.
141
(21) Commitments and Contingent Liabilities
As of December 31, 2022 and 2021, Bancorp had various commitments outstanding that arose in the normal course of
business which are properly not reflected in the consolidated financial statements. Total off-balance sheet commitments
to extend credit follows:
December 31, (in thousands)
Commercial and industrial
Construction and development
Home equity lines of credit
Credit cards
Overdrafts
Letters of credit
Other
Future loan commitments
2022
$
784,429
449,028
358,610
64,231
57,193
34,704
93,419
221,973
2021
$
625,858
292,351
247,885
40,471
51,104
30,779
76,721
325,983
Total off balance sheet commitments to extend credit
$
2,063,587
$
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. Since some of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not 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.
At December 31, 2022 and December 31, 2021, Bancorp had accrued $4.5 million and $3.5 million, respectively, in other
liabilities for its estimate of credit losses for off balance sheet credit exposures. 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). Provision for credit loss expense of $575,000 was also recorded for the year ended December 31,
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 are conditional commitments issued by Bancorp to guarantee the performance of a customer to
a first party beneficiary. Those guarantees are primarily issued to support 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 December
31, 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 of December 31, 2022, in the normal course of business, there were pending legal actions and proceedings in which
claims for damages are 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 results of
operations of Bancorp.
142
(22) Assets and Liabilities Measured and Reported at Fair Value
Fair value represents the exchange price that would be received 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
on the measurement date. There are three levels of inputs that may be used to measure fair 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 – Significant other observable inputs 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 pricing an asset or liability.
Authoritative guidance requires maximization of use of observable inputs and minimization of use of unobservable inputs
in fair value measurements. Where there exists limited or no observable market data, Bancorp derives its own estimates
by generally considering characteristics of the asset/liability, the current economic and competitive environment and other
factors. For this reason, results cannot be determined with precision and may not be realized on an actual sale or immediate
settlement of the asset or liability.
Bancorp used the following methods and significant assumptions to estimate fair value of each type of financial
instrument:
AFS debt securities - 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 lock loan commitments and mandatory forward sales contracts. The fair value 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 do not typically involve significant
judgement by Bancorp (Level 2 inputs).
Interest rate swap agreements – Interest rate swaps are valued using valuations received from the relevant dealer
counterparty. These valuations consider multiple observable market inputs, including interest rate yield curves, time value
and volatility factors (Level 2 inputs).
143
Total
Fair Value
$
115,039
143,626
752,738
127,599
5,615
1,144,617
2,606
137
47
10,727
Carrying values of assets measured at fair value on a recurring basis follows:
December 31, 2022 (in thousands)
Assets:
Available for sale debt securities:
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
Obligations of states and political subdivisions
Other
Fair Value Measurements Using:
Level 2
Level 1
Level 3
$
115,039
—
—
—
—
$ —
143,626
752,738
127,599
5,615
$ —
—
—
—
—
Total available for sale debt securities
115,039
1,029,578
Mortgage loans held for sale
Rate lock loan commitments
Mandatory forward contracts
Interest rate swaps
Total assets
Liabilities:
Interest rate swaps
December 31, 2021 (in thousands)
Assets:
Available for sale debt securities:
U.S. Treasury and other U.S. government obligations
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
Obligations of states and political subdivisions
Other
Total available for sale debt securities
Interest rate swaps
Total assets
Liabilities:
Interest rate swaps
—
—
—
—
2,606
137
47
10,727
—
—
—
—
—
$ 115,039
$ 1,043,095
$ —
$ 1,158,134
$ —
$ 10,737
$ —
$ 10,737
Fair Value Measurements Using:
Level 2
Level 1
Level 3
Total
Fair Value
$
122,501
—
—
—
—
$ —
135,021
846,624
75,075
1,077
122,501
1,057,797
—
3,148
$ —
—
—
—
—
$
122,501
135,021
846,624
75,075
1,077
—
—
1,180,298
3,148
$122,501
$ 1,060,945
$ —
$ 1,183,446
$ —
$ 3,162
$ —
$ 3,162
Bancorp had no financial instruments classified within Level 3 of the valuation hierarchy for assets and liabilities
measured at fair value on a recurring basis at December 31, 2022 or 2021. There were no transfers into or out of Level 3
of the fair value hierarchy during 2022 or 2021.
For the securities portfolio, Bancorp monitors the valuation technique used by pricing agencies to ascertain when transfers
between levels have occurred. The nature of other assets and liabilities measured at fair value is such that transfers in and
out of any level are expected to be rare. For the year ended December 31, 2022, there were no transfers between Levels
1, 2, or 3.
144
Discussion of assets measured at fair value on a non-recurring basis follows:
Collateral dependent loans – For collateral-dependent loans where Bancorp has determined that the liquidation or
foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company
expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is
measured based on the difference between the estimated fair value of the collateral and the amortized cost basis of the
loan as of the measurement date. For real estate loans, fair value 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 vary depending on the individual assets with no one 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 loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the
borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge,
changes in market conditions from the time of the valuation and management’s expertise or knowledge of the client and
client’s business.
OREO – OREO is primarily comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded
at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related
loan balance over the fair value less expected selling costs charged to the ACL. Subsequent changes in fair value are
reported as adjustments to the carrying 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 none 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 typically range from 8% to
10% of the appraised value.
Below are carrying values of assets measured at fair value on a non-recurring basis:
(in thousands)
Fair Value Measurement Using:
December 31, 2022
Level 1
Level 2
Level 3
Total Fair Value
Losses recorded for
the year ended
December 31, 2022
Collateral dependent loans
Other real estate owned
$ —
—
$ —
—
$
20,637
677
$
20,637
677
$
303
—
(in thousands)
Fair Value Measurement Using:
December 31, 2021
Level 1
Level 2
Level 3
Total Fair Value
Losses recorded for
the year ended
December 31, 2021
Collateral dependent loans
Other real estate owned
$ —
—
$ —
—
$
4,487
7,212
$
4,487
7,212
$
891
17
(in thousands)
December 31, 2020
Fair Value Measurement Using:
Level 2
Level 3
Level 1
Total Fair Value
Losses recorded for
the year ended
December 31, 2020
Collateral dependent loans
Other real estate owned
$ —
—
$ —
—
$
7,546
281
$
7,546
281
$
59
52
There were no liabilities measured at fair value on a non-recurring basis at December 31, 2022 and December 31, 2021.
145
For Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair
value measurements are presented below:
(dollars in thousands)
Fair Value
Valuation Technique
Unobservable Inputs
Weighted Average
Discount
Collateral dependent loans
Other real estate owned
$
20,637
677
Appraisal
Appraisal
Appraisal discounts
Appraisal discounts
%
23.3
65.6
December 31, 2022
(dollars in thousands)
Fair Value
Valuation Technique
Unobservable Inputs
Weighted Average
Discount
Impaired loans -
collateral dependent
Other real estate owned
$
4,487
7,212
Appraisal
Appraisal
Appraisal discounts
Appraisal discounts
%
41.1
31.6
December 31, 2021
146
(23) Disclosure of Financial Instruments Not Reported at Fair Value
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. The estimated fair
values of Bancorp’s financial instruments not measured at fair value on a recurring or non-recurring basis follows:
December 31, 2022 (in thousands)
Carrying
amount
Fair value
Fair Value Measurements Using:
Level 2
Level 3
Level 1
Assets
Cash and cash equivalents
HTM debt securities
Federal Home Loan Bank stock
Loans, net
Accrued interest receivable
Liabilities
Non-interest bearing deposits
Transaction deposits
Time deposits
Securities sold under agreement
to repurchase
Federal funds purchased
Subordinated debentures
FHLB advances
Accrued interest payable
$ 167,367
473,217
10,928
5,132,387
22,157
$ 167,367
431,833
10,928
4,914,770
22,157
$ 167,367
—
—
—
22,157
$ —
431,833
10,928
—
—
$ —
—
—
4,914,770
—
$ 1,950,198
3,968,963
472,091
$ 1,950,198
3,968,963
459,467
$ 1,950,198
—
—
$ —
3,968,963
459,467
$ —
—
—
133,342
8,789
26,343
50,000
660
133,342
8,789
26,460
50,000
660
—
—
—
—
660
133,342
8,789
26,460
50,000
—
—
—
—
—
—
December 31, 2021 (in thousands)
Carrying
amount
Fair value
Fair Value Measurements Using:
Level 2
Level 3
Level 1
Assets
Cash and cash equivalents
Mortgage loans held for sale
Federal Home Loan Bank stock
Loans, net
Accrued interest receivable
Liabilities
Non-interest bearing deposits
Transaction deposits
Time deposits
Securities sold under agreement
to repurchase
Federal funds purchased
Accrued interest payable
$ 961,192
8,614
9,376
4,115,405
13,745
$ 961,192
8,818
9,376
4,129,091
13,745
$ 961,192
—
—
—
13,745
$ —
8,818
9,376
—
—
$ —
—
—
4,129,091
—
$ 1,755,754
3,597,538
434,222
$ 1,755,754
3,597,538
433,813
$ 1,755,754
—
—
$ —
3,597,538
433,813
$ —
—
—
75,466
10,374
300
75,466
10,374
300
—
—
300
75,466
10,374
—
—
—
—
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’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 impact estimates.
147
(24) Mortgage Banking Activities
Mortgage banking activities primarily include residential mortgage originations and servicing.
Effective March 31, 2022, Bancorp began carrying mortgages originated and intended for sale in the secondary market
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:
Years ended December 31, (in thousands)
2022
2021
2020
Balance, beginning of period:
$
8,614
$
22,547
$
8,748
Origination of mortgage loans held for sale
Loans held for sale acquired
Proceeds from the sale of mortgage loans held for sale
Net gain on sale of mortgage loans held for sale
129,193
3,559
(139,281)
521
157,304
3,071
(177,910)
3,602
258,525
-
(249,439)
4,713
Balance, end of period
$
2,606
$
8,614
$
22,547
The following table represents the components of Mortgage banking income:
Years ended December 31, (in thousands)
2022
2021
2020
Net gain realized on sale of mortgage loans held for sale
$
521
$
3,602
$
4,713
Net change in fair value recognized on loans held for sale
Net change in fair value recognized on rate lock loan commitments
Net change in fair value recognized on forward contracts
Net gain recognized
Net loan servicing income
Amortization of mortgage servicing rights
Change in mortgage servicing rights valuation allowance
Net servicing income recognized
-
1,821
(1,102)
1,240
4,200
(3,072)
-
1,128
-
-
-
3,602
1,448
(1,092)
-
356
-
-
-
4,713
922
(446)
-
476
Other mortgage banking income
Total mortgage banking income
842
3,210
$
766
4,724
$
966
6,155
$
Activity for capitalized mortgage servicing rights was as follows:
Years ended December 31, (in thousands)
Balance, beginning of period
MSRs acquired
Additions for mortgage loans sold
Amortization
Impairment
2022
2021
2020
$
4,528
12,676
1,087
(3,072)
—
$
2,710
1,662
1,248
(1,092)
—
$
1,372
—
1,784
(446)
—
Balance, end of period
$
15,219
$
4,528
$
2,710
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, such as estimated
prepayment speeds and discount rates.
148
The estimated fair value of MSRs at December 31, 2022 and December 31, 2021 were $26 million and $6 million,
respectively. MSRs with an estimated fair value of $13 million and $2 million at the date of acquisition were acquired as
part of CB and KB acquisitions, respectively. There was no valuation allowance recorded for MSRs as of December 31,
2022 and December 31, 2021, as fair value exceeded carrying value.
Total outstanding principal balances of loans serviced for others were $2.08 billion and $698 million at December 31,
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 and 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:
(in thousands)
Included in Mortgage loans held for sale:
December 31, 2022
Notional
Amount
Fair Value
Mortgage loans held for sale, at fair value
$
2,548
$
2,606
Included in other assets:
Rate lock loan commitments
Mandatory forward contracts
$
5,599
$
137
6,581
47
149
(25) Interest Rate Swaps
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 and are recognized on the
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 have an insignificant effect on earnings.
Exchanges of cash flows related to undesignated interest rate swap agreements were offsetting and therefore had little
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 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 non-
performance by counterparties to these agreements. Bancorp mitigates the credit risk of its financial contracts through
credit approvals, collateral and monitoring procedures, and does not expect any counterparties to fail their obligations.
Bancorp had outstanding undesignated interest rate swap contracts as follows:
(dollars in thousands)
Notional amount
Weighted average maturity (years)
Fair value
Receiving
Paying
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
$
$
$
$
$
$
$
$
123,983
7.2
3,148
132,831
7.1
10,737
123,983
7.2
3,162
132,831
7.1
10,727
150
(26) Regulatory Matters
Bancorp and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking
regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part,
dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Holding Company and the Bank must meet specific capital guidelines that involve
quantitative measures of Bancorp’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators
regarding components, risk weightings and other factors.
Banking regulators have categorized the Bank as well-capitalized. 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
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 December 31, 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 December 31, 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 as defined by the FRB and the FDIC, in addition
to the capital conservation buffer.
The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ratios:
(dollars in thousands)
December 31, 2022
Actual
Amount
Ratio
Total risk-based capital (1)
Minimum for adequately
capitalized
Amount
Ratio
Minimum for well
capitalized
Amount
Ratio
Consolidated
Bank
$ 762,956
732,688
12.54 %
12.08
$ 486,841
485,314
8.00 %
8.00
NA
$ 606,643
NA
10.00 %
Common equity tier 1
risk-based capital (1)
Consolidated
Bank
Tier 1 risk-based capital (1)
Consolidated
Bank
Leverage
Consolidated
Bank
672,045
667,777
11.47
11.01
273,848
272,989
4.50
4.50
NA
394,318
NA
6.50
698,045
667,777
11.04
11.01
365,131
363,986
6.00
6.00
NA
485,314
NA
8.00
698,045
667,777
9.33
8.95
299,329
298,600
4.00
4.00
NA
373,250
NA
5.00
151
(dollars in thousands)
December 31, 2021
Actual
Amount
Ratio
Minimum for adequately
capitalized
Amount
Ratio
Minimum for well
capitalized
Amount
Ratio
Total risk-based capital (1)
Consolidated
Bank
Common equity tier 1
risk-based capital (1)
Consolidated
Bank
Tier 1 risk-based capital (1)
Consolidated
Bank
Leverage
Consolidated
Bank
$ 596,411
577,078
12.79 %
12.42
$ 372,929
371,809
8.00 %
8.00
NA
$ 464,761
NA
10.00 %
556,590
537,257
11.94
11.56
209,772
209,142
4.50
4.50
NA
302,095
NA
6.50
556,590
537,257
11.94
11.56
279,696
278,857
6.00
6.00
NA
371,809
NA
8.00
556,590
537,257
8.86
8.57
251,348
250,871
4.00
4.00
NA
313,588
NA
5.00
(1) Ratio is computed in relation to risk-weighted assets.
NA – Regulatory framework does not define “well-capitalized” for holding companies.
152
(27) Stock Yards Bancorp, Inc. (parent company only)
Condensed Balance S heets
(in thousands)
Assets
December 31,
2022
2021
Cash on dep osit with subsidiary bank
$
8,683
$
3,489
Investment in and receivable from subsidiaries
Other assets
Total assets
759,939
18,664
658,901
13,917
$
787,286
$
676,307
Liabilities and stockholders' equity
Other liabilities
Total stockholders’ equity
$
26,854
$
438
760,432
675,869
Total liabilities and stockholders’ equity
$
787,286
$
676,307
Condensed Statements of Income
(in thousands)
Years ended December 31,
2022
2021
2020
Income - dividends and interest from subsidiaries
$
45,076
$
62,941
$
18,050
Other income
Less expenses
Income before income taxes and equity in undistributed
net income of subsidiary
Income tax benefit
Income before equity in undistributed
net income of subsidiary
Equity in undistributed net income of subsidiary
Net income
Less income attributed to non-controlling interest
1
8,415
36,662
(3,780)
40,442
52,852
93,294
322
1
7,534
55,408
(2,957)
58,365
16,280
74,645
—
1
3,909
14,142
(1,749)
15,891
42,978
58,869
—
Net income available to stockholders
$
92,972
$
74,645
$
58,869
Comprehensive income (loss)
$
(14,624)
$
57,964
$
66,933
153
Condensed Statements of Cash Flows
(in thousands)
Operating activities
Net income available to stockholders
Adjustments to reconcile net income to net cash
p rovided by op erating activities:
Years ended December 31
2022
2021
2020
$ 92,972
$ 74,645
$ 58,869
Equity in undistributed net income of subsidiaries
(52,852)
(16,280)
(42,978)
Decrease (increase) in receivable from subsidiaries
6,812
—
—
Stock comp ensation exp ense
4,394
4,565
3,262
Excess tax benefits from stock- based comp ensation arrangements
(1,713)
(1,482)
(452)
Loss on disposition of LFA
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Investing activities
Purchase of AFS equity security
Proceeds from disposition of LFA
Cash for acquisition
Net cash used in investing activities
Financing activities
Repurchase of common stock
Share repurchases related to compensation plans
Subordinated debentures acquired
Cash disbursements to non-controlling interest
Disposition of LFA
Cash dividends paid
Net cash used in financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
(28) Segments
(870)
—
—
(4,610)
(2,685)
(1,356)
(400)
40
17
43,733
58,803
17,362
—
(120)
4,993
—
(30,994)
(28,276)
(26,001)
(28,396)
—
—
—
—
(4,533)
(3,618)
(2,265)
(272)
(208)
(224)
26,806
(322)
(915)
—
—
—
—
—
—
(33,302)
(28,198)
(24,481)
(12,538)
(32,024)
(26,970)
5,194
(1,617)
(9,608)
3,489
5,106
14,714
$ 8,683
$ 3,489
$ 5,106
Bancorp’s principal activities include commercial banking and 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
banking and investment products sales activity. 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.
Financial information for each business segment reflects that which is specifically identifiable or allocated based on an
internal allocation method. Income taxes are allocated based on the effective federal income tax rate adjusted for any tax-
exempt activity. All tax-exempt activity and provision 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’ operations if they were independent entities.
154
The majority of the net assets of Bancorp are involved in the commercial banking segment. As of December 31, 2022,
goodwill totaling $194 million was recorded on Bancorp’s consolidated balance sheets, of which $172 million is attributed
to the commercial banking segment and $22 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 a CLI asset
associated with the WM&T business added through the CB acquisition, net premises and equipment and a receivable
related to fees earned that have not been collected.
Selected financial information by business segment follows:
As of and for the Year ended December 31, 2022 (in tho us ands )
Banking
WM&T
Total
Commercial
Net interest income
Provision for credit losses
Wealth management and trust services
All other non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Less income attributable to NCI
$
232,971
$
412
$
233,383
10,257
—
53,038
170,348
105,404
23,917
81,487
322
—
36,111
—
21,443
15,080
3,273
11,807
-
10,257
36,111
53,038
191,791
120,484
27,190
93,294
322
Net income attributable to stockholders
$
81,165
$
11,807
$
92,972
Total assets
$
7,459,312
$
36,949
$
7,496,261
As of and for the Year ended December 31, 2021 (in tho us ands )
Banking
WM&T
Total
Commercial
Net interest income
Provision for credit losses
Wealth management and trust services
All other non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Total assets
$
170,775
$
299
$
171,074
(753)
—
38,237
128,091
81,674
17,774
—
27,613
—
14,189
13,723
2,978
(753)
27,613
38,237
142,280
95,397
20,752
$
63,900
$
10,745
$
74,645
$
6,641,916
$
4,109
$
6,646,025
Commercial
As of and for the Year ended December 31, 2020 (in tho us ands )
Banking
WM&T
Total
Net interest income
Provision for credit losses
Wealth management and trust services
All other non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Total assets
$
135,587
$
334
$
135,921
18,418
—
28,493
88,820
56,842
6,508
—
23,406
—
12,839
10,901
2,366
18,418
23,406
28,493
101,659
67,743
8,874
$
50,334
$
8,535
$
58,869
$
4,604,998
$
3,631
$
4,608,629
155
(29) Quarterly Operating Results (unaudited)
A summary of quarterly operating results follows:
2022
(dollars in thousands except per share data)
4th quarter
3rd quarter
2nd quarter
1st quarter
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision
Non-interest income
Non-interest expenses
Income before income taxes
Income tax expense
Net income
Less income attributed to noncontrolling interest
Net income available to stockholders
$ 75,150
9,887
65,263
3,375
61,888
23,142
45,946
39,084
9,174
$ 29,910
93
$ 29,817
$ 67,410
5,034
62,376
4,803
57,573
24,864
44,873
37,564
9,024
$ 28,540
85
$ 28,455
$ 59,108
2,124
56,984
(200)
57,184
21,940
44,675
34,449
7,547
$ 26,902
108
$ 26,794
$ 49,984
1,224
48,760
2,279
46,481
19,203
56,297
9,387
1,445
$ 7,942
36
$ 7,906
Basic earnings per share
Diluted earnings per share
$ 1.02
$ 1.01
$ 0.98
$ 0.97
$ 0.92
$ 0.91
$ 0.29
$ 0.29
(dollars in thousands except per share data)
4th quarter
3rd quarter
2nd quarter
1st quarter
2021
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision
Non-interest income
Non-interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$ 47,508
1,326
46,182
(1,900)
48,082
18,604
34,572
32,114
$ 46,948
1,465
45,483
(1,525)
47,008
17,614
34,558
30,064
$ 43,102
1,518
41,584
4,147
37,437
15,788
48,177
5,048
$ 39,518
1,693
37,825
(1,475)
39,300
13,844
24,973
28,171
7,525
$ 24,589
6,902
$ 23,162
864
$ 4,184
5,461
$ 22,710
$ 0.93
$ 0.92
$ 0.87
$ 0.87
$ 0.17
$ 0.17
$ 1.00
$ 0.99
(dollars in thousands except per share data)
4th quarter
3rd quarter
2nd quarter
1st quarter
2020
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision
Non-interest income
Non-interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$ 38,339
2,087
36,252
500
35,752
13,698
29,029
20,421
2,685
$ 17,736
$ 36,144
2,449
33,695
4,968
28,727
13,043
25,646
16,124
1,591
$ 14,533
$ 36,506
2,978
33,528
7,025
26,503
12,622
23,409
15,716
2,348
$ 13,368
$ 36,882
4,436
32,446
5,925
26,521
12,536
23,575
15,482
2,250
$ 13,232
$ 0.79
$ 0.78
$ 0.64
$ 0.64
$ 0.59
$ 0.59
$ 0.59
$ 0.58
Note: The sum of EPS of each of the quarter may not equate to the year-to-date amount reported in Bancorp’s consolidated financial
statements due to rounding.
156
(30) 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:
(in thousands)
Commercial
WM&T
Total
Year Ended December 31, 2022
$
$
$
$
$
$
$
$
$
$
36,111
—
—
—
—
—
—
—
—
36,111
27,613
—
—
—
—
—
—
—
—
27,613
23,406
—
—
—
—
—
—
—
—
23,406
36,111
8,286
18,623
8,590
3,210
3,063
1,597
4,369
5,300
89,149
27,613
5,852
13,456
6,912
4,724
2,553
914
(78)
3,904
65,850
23,406
4,161
8,480
5,407
6,155
1,775
693
150
1,672
51,899
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income (1)
Net investment product sales commissions and fees
Bank owned life insurance (1)
Gain (loss) on sale of premises and equipment (1)
Other (2)
Total non-interest income
$ —
8,286
18,623
8,590
3,210
3,063
1,597
4,369
5,300
53,038
$
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income (1)
Net investment product sales commissions and fees
Bank owned life insurance (1)
Gain (loss) on sale of premises and equipment (1)
Other (2)
Total non-interest income
$ —
5,852
13,456
6,912
4,724
2,553
914
(78)
3,904
38,237
$
(in thousands)
Year Ended December 31, 2021
Commercial
WM&T
Total
(in thousands)
Year Ended December 31, 2020
Commercial
WM&T
Total
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income (1)
Net investment product sales commissions and fees
Bank owned life insurance (1)
Gain (loss) on sale of premises and equipment (1)
Other (2)
Total non-interest income
$ —
4,161
8,480
5,407
6,155
1,775
693
150
1,672
28,493
$
$
$
(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.
157
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, stop payments fees and ACH fees, are recognized
at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account
management fees are earned over the course of a month and charged in the month in which the services are provided.
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.
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 $3.4 million and $2.9 million at December 31, 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 $842,000 and $592,000 for the years ended December 31, 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 year ended December 31, 2022.
158
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Stock Yards Bancorp, Inc.
Louisville, Kentucky
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Stock Yards Bancorp, Inc. (the “Company”) as of
December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022
and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December
31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022 based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
159
Allowances for Credit Losses
The Company’s loan portfolio totaled $5.2 billion as of December 31, 2022 and the associated allowance for credit losses
on loans was $73.5 million. The Company’s unfunded loan commitments totaled $2.1 billion, with an associated
allowance for credit loss of $4.5 million. Together these amounts represent the allowances for credit losses (“ACL”). As
discussed in Notes 1 and 5 to the consolidated financial statements, the allowance for credit losses related to loans is a
contra-asset valuation account that is deducted from the amortized cost basis of loans to present the net amount expected
to be collected. As discussed in Notes 1 and 21 to the consolidated financial statements, the allowance for credit losses
related to unfunded commitments is a liability account and is included in other liabilities. The amount of each allowance
account represented management’s best estimate of current expected credit losses on these financial instruments
considering all relevant available information, from internal and external sources, relevant to assessing exposure to credit
loss over the contractual term of the instrument.
In calculating the allowance for credit losses, loans were segmented into pools based upon similar risk characteristics.
For each loan pool, management measured expected credit losses over the life of each loan utilizing either a static pool
model or a discounted cash flow (DCF) model. The static pool model primarily utilized historical loss rates applied to
the estimated remaining life of each pool. The DCF model primarily measures probability of default (“PD”) and loss
given default (“LGD”) with PD and LGD estimated by analyzing internally sourced data related to historical performance
of each loan pool over a complete economic cycle. The models were adjusted to reflect the current impact of certain
macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. After the
reasonable and supportable forecast period, the forecasted macroeconomic variables were reverted to their historical mean
utilizing a rational, systematic basis.
In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated
the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses
on an individual basis and excluded from the collective evaluation.
Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes
but were deemed relevant in assessing the expected credit losses within the loan pools. These qualitative factor
adjustments modified management’s estimate of expected credit losses by a calculated percentage or amount based upon
the estimated level of risk.
Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative
factor adjustments included in the allowances for credit losses and complexity due to the implementation of the static pool
and DCF models. Management’s identification and measurement of the qualitative factor adjustments is highly
judgmental and could have a significant effect on the ACL.
160
How We Addressed the Matter in Our Audit
The primary procedures we performed related to this critical audit matter included:
Obtained an understanding of the Company’s process for establishing the ACL, including the implementation
of models and the qualitative factor adjustments of the ACL
Evaluated and tested the design and operating effectiveness of related controls over the reliability and accuracy
of data used to calculate and estimate the various components of the ACL including:
o Loan data completeness and accuracy
o Grouping of loans by segment and methodology selection
o Model inputs utilized including PD, LGD, remaining life and prepayment speed
o Approval of model assumptions selected
o Establishment of qualitative factors
o Loan risk ratings
o
Individually evaluated loans
Tested the mathematical accuracy of the calculation of the ACL
Performed reviews of individual credit files to evaluate the reasonableness of loan credit risk ratings
Tested internally prepared loan reviews to evaluate the reasonableness of loan credit risk ratings
Tested the completeness and accuracy, including the evaluation of the relevance and reliability, of inputs
utilized in the calculation of the ACL
Evaluated the qualitative adjustments to the ACL including assessing the basis for adjustments and the
reasonableness of the significant assumptions
Tested the reasonableness of specific reserves on individually evaluated loans
Evaluated credit quality trends in delinquencies, non-accruals, charge-offs and loan risk ratings
Evaluated the overall reasonableness of the ACL and evaluated trends identified within peer groups
Tested estimated utilization rate of unfunded loan commitments
Acquisition
As described in Note 3 to the consolidated financial statements, the Company completed the acquisition of
Commonwealth Bancshares, Inc. during the year ended December 31, 2022 with an acquisition price of $168 million,
including the recognition of $67 million of Goodwill. Management determined that the acquisition qualified as a
business and accordingly all identifiable assets and liabilities acquired were valued at fair value as part of the purchase
price allocation as of the acquisition date. The identification and valuation of such acquired assets and assumed
liabilities required management to exercise significant judgment and consider the use of outside vendors to estimate the
fair value allocations.
We identified the acquisition and the valuation of acquired assets and assumed liabilities a critical audit matter.
Auditing the acquisition transaction involved a high degree of subjectivity in evaluating management’s operational
assumptions, fair value estimates, purchase price allocations and assessing the appropriateness of outside vendor
valuation models.
161
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
Obtaining and reviewing executed Plan and Agreement of Merger documents to gain an understanding of the
underlying terms of the consummated acquisition
Obtaining and reviewing management’s reconciliation procedures of significant accounts and testing of
existence and completion procedures performed and asset/liability identification considerations made
Testing management’s computation of purchase price and determination of goodwill recognized focusing on
the completeness and accuracy of the balance sheet acquired and related fair value purchase price allocations
made to identified assets acquired and liabilities assumed
Obtaining and reviewing significant outside vendor valuation estimates and challenging management’s review
of the appropriateness of the valuations assessed/allocated to assets acquired and liabilities assumed; including
but not limited to, testing all critical inputs, including assumptions applied and valuation models utilized by the
outside vendors
Utilization of our Forensics & Valuation Services group to assist with testing and challenging the related fair
value purchase price allocations made to identified assets acquired and liabilities assumed
Reviewing and evaluating the adequacy of the disclosures made in the footnotes of the Corporation’s SEC
filings
/s/ FORVIS, LLP (Formerly, BKD, LLP)
We have served as the Company’s auditor since 2018.
Indianapolis, Indiana
February 24, 2023
Name of Engagement Executive: Ben D. Howard
Federal Employer Identification Number: 44-0160260
162
Management’s Report on Consolidated Financial Statements
The accompanying consolidated financial statements and other financial data were prepared by the management of Stock
Yards Bancorp, Inc. (Bancorp), which has the responsibility for the integrity of the information presented. The
consolidated financial statements have been prepared in conformity with GAAP and, as such, include amounts that are
the best estimates and judgments of management with consideration given to materiality.
Management is further responsible for maintaining a system of internal controls designed to provide reasonable assurance
that the books and records reflect the transactions of Bancorp and that its established policies and procedures are carefully
followed. Management believes that Bancorp’s system, taken as a whole, provides reasonable assurance that transactions
are executed in accordance with management’s general or specific authorization; transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; access
to assets is permitted only in accordance with management’s general or specific authorization, and the recorded
accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
Management also seeks to assure the objectivity and integrity of Bancorp’s financial data by the careful selection and
training of qualified personnel, an internal audit function and organizational arrangements that provide an appropriate
division of responsibility.
FORVIS, LLP, the independent registered public accounting firm that audited the consolidated financial statements of
Bancorp included in this Annual Report on Form 10-K, has issued a report on Bancorp’s internal control over financial
reporting as of December 31, 2022. The report expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2022.
The Board of Directors provides its oversight role for the consolidated financial statements through the Audit Committee.
The Audit Committee meets periodically with management, the internal auditors, and the independent auditors, each on
a private basis and as a whole, to review matters relating to financial reporting, the internal control systems, and the scope
and results of audit efforts. The internal and independent auditors have unrestricted access to the Audit Committee, with
and without the presence of management, to discuss accounting, auditing, and financial reporting matters. The Audit
Committee also recommends the appointment of the independent auditors to the Board of Directors, and ultimately has
sole authority to appoint or replace the independent auditors.
/s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO
/s/ T. Clay Stinnett
T. Clay Stinnett
EVP and CFO
163
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 with the SEC, and to record, process, summarize and disclose this information
within the time periods specified in the rules of the SEC. Based on their evaluation of Bancorp’s disclosure controls and
procedures which took place as of December 31, 2022, the Chairman/CEO and CFO believe that these controls and
procedures are effective to ensure that Bancorp is able to collect, process and disclose the information it is required to
disclose in the reports it files with the SEC within the required time periods.
Based on the evaluation of Bancorp’s disclosure controls and procedures by the Chairman/CEO and CFO; no changes
occurred during the fiscal quarter ended December 31, 2022 in Bancorp’s internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, Bancorp’s internal control over financial reporting.
164
Management’s Report on Internal Control over Financial Reporting
The management of Stock Yards Bancorp, Inc. and subsidiary (Bancorp) is responsible for establishing and maintaining
adequate internal control over financial reporting. Bancorp’s internal control over financial reporting is a process designed
under the supervision of Bancorp’s Chairman/CEO and CFO, and effected by Bancorp’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance GAAP. This process includes those policies and procedures
that:
Pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Bancorp;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of Bancorp are being made only in
accordance with authorizations of management and directors of Bancorp; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Bancorp’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2022, based
on the control criteria established in a report entitled Internal Control – Integrated Framework (2013), issued by the
COSO. As permitted by SEC guidance, management excluded from its assessment the operations of the Commonwealth
Bancshares, Inc. acquisition made during 2022, which is described in Note 3 of the Consolidated Financial Statements.
The total assets of the entity acquired in this acquisition represented approximately 18% of the Company’s total
consolidated assets as of December 31, 2022. Based on such assessment, management has concluded that Bancorp’s
internal control over financial reporting is effective as of December 31, 2022 based on the specified criteria.
FORVIS, LLP, the independent registered public accounting firm that audited the consolidated financial statements of
Bancorp included in this Annual Report on Form 10-K, has also audited Bancorp’s internal control over financial reporting
as of December 31, 2022. Their report expressed an unqualified opinion on the effectiveness of Bancorp’s internal control
over financial reporting as of December 31, 2022.
/s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO
/s/ T. Clay Stinnett
T. Clay Stinnett
EVP and CFO
165
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Stock Yards Bancorp, Inc.
Louisville, Kentucky
Opinion on the Internal Control Over Financial Reporting
We have audited Stock Yards Bancorp, Inc.’s (the “Company”) internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established
in Internal Control – Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related
consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each
of the three years in the period ended December 31, 2022, and our report February 24, 2023, expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As described in Management’s Report on Internal Control over Financial Reporting, the scope of management’s
assessment of internal control over financial reporting as of December 31, 2022, has excluded Commonwealth
Bancshares, Inc. acquired on March 7, 2022. Commonwealth Bancshares, Inc. represented 18 percent of consolidated
total assets as of December 31, 2022.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
166
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ FORVIS, LLP (Formerly, BKD, LLP)
Indianapolis, Indiana
February 24, 2023
167
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding the directors and executive officers of Bancorp is incorporated herein by reference to the discussion
under the heading, “PROPOSAL 1: ELECTION OF DIRECTORS,” in Bancorp’s Proxy Statement to be filed with the
SEC for the 2023 Annual Meeting of Shareholders (“Proxy Statement”).
Information regarding the Audit Committee is incorporated herein by reference to the discussion under the heading,
“BOARD OF DIRECTORS’ MEETINGS AND COMMITTEES” in Bancorp’s Proxy Statement.
Information regarding principal occupation of Bancorp directors as of December 31, 2022 follows:
Name of Director
Shannon B. Arvin
Principal Occupation
President and CEO, Keeneland As sociation
Paul J. Bickel III
President, U.S. Specialties
J. McCauley Brown
Retired Vice President, Brown-Forman Corporation
Allis on J. Donovan
Member, Stoll Keenon Ogden Law Firm
David P. Heintzman
Retired CEO, Stock Yards Bancorp, Inc. and Stock Yards Bank & Trust Company
Carl G. Herde
Vice Pres ident/Financial Policy, Kentucky Hospital Association
James A. Hillebrand
Chairman of the Boards and CEO, Stock Yards Bancorp, Inc. and Stock Yards Bank
& Trus t Company
Richard A. Lechleiter
President, Catholic Education Foundation of Louisville
Philip S. Poindexter
President, Stock Yards Bank & Trust Company
Stephen M. Priebe
President, Hall Contracting of Kentucky
Edwin S. Saunier
President, Saunier North American, Inc.
John L. Schutte
CEO, GeriMed, Inc.
Kathy C. Thompson
Senior EVP, Stock Yards Bancorp, Inc. and Stock Yards Bank & Trus t Company and
Manager of the Bank's WM&T Division
Laura L. Wells
Freelance Journalist
The Board of Directors of Bancorp has adopted a code of ethics for its CEO and financial executives included under
Exhibit 14.
168
The following table lists the names and ages as of December 31, 2022 of all current executive officers of Bancorp and the
Bank. Each executive officer is appointed by Bancorp’s Board of Directors to serve at the discretion of the Board.
There is no arrangement or understanding between any executive officer or Bancorp or the Bank and any other person(s)
pursuant to which he/she was or is to be selected as an officer.
Name and Age
of Executive Officer
Position and Offices with
Bancorp and/or the Bank
James A. Hillebrand
Chairman and CEO of Bancorp and SYB
Age 54
Philip S. Poindexter
Age 56
T. Clay Stinnett
Age 49
Michael J. Croce
Age 53
President of Bancorp and SYB; Director of
Bancorp and SYB
EVP, Treasurer and CFO of Bancorp and SYB
EVP and Director of Retail Banking of SYB
William M. Dis hman III
EVP and Chief Risk Officer of SYB
Age 59
Michael V. Rehm
Age 58
Kathy C. Thomps on
Age 61
EVP and Chief Lending Officer of SYB
Senior EVP and Director of WM&T Division of
SYB; Director of Bancorp and SYB
Mr. Hillebrand was elected Chairman of the Board effective January 2021. Prior thereto, he was appointed CEO of
Bancorp and SYB in October 2018. Prior thereto, he served as President of Bancorp and SYB since 2008. Prior thereto,
he served as EVP and Director of Private Banking of SYB since 2005. From 2000 to 2004, he served as SVP of Private
Banking. Mr. Hillebrand joined the Bank in 1996.
Mr. Poindexter was elected to the Board of Directors at the 2022 Annual Meeting. Prior thereto, he was appointed
President of Bancorp and SYB in October 2018. Prior thereto, he served as Chief Lending Officer of SYB since 2008.
Prior thereto, he served as EVP of SYB and Director of Commercial Banking. Mr. Poindexter joined the Bank in 2004.
Mr. Stinnett was appointed EVP, Treasurer and CFO of Bancorp and SYB in April 2019. Prior thereto, he served as EVP
and Chief Strategic Officer of Bancorp and SYB since 2011. Prior thereto, he served as SVP and Chief Strategic Officer
of SYB since 2005. Mr. Stinnett joined the Bank in 2000.
Mr. Croce was appointed EVP of SYB and Director of Retail Banking in 2014. Prior thereto, he served as SVP of SYB
and Division Manager of Business Banking. Mr. Croce joined the Bank in 2004.
Mr. Dishman joined the Bank as EVP and Chief Risk Officer in 2009.
Mr. Rehm was appointed EVP and Chief Lending Officer of SYB in October 2018. Prior thereto, he served as SVP of
SYB and Division Manager of Commercial Lending. Mr. Rehm joined the Bank in 2006.
Ms. Thompson was appointed Senior EVP of Bancorp and SYB in 2006. Prior thereto, she served as EVP of Bancorp and
SYB. She joined the Bank in 1992 as Manager of the WM&T Department.
169
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the discussion under the heading,
“EXECUTIVE COMPENSATION AND OTHER INFORMATION – REPORT ON EXECUTIVE COMPENSATION” in
Bancorp’s Proxy Statement.
Information regarding the Compensation Committee is incorporated herein by reference to the discussion under the
heading, “TRANSACTIONS WITH MANAGEMENT AND OTHERS” in Bancorp’s Proxy Statement. The report of the
Compensation Committee shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934
or otherwise subject to the liabilities of that section, nor shall it be deemed soliciting material or subject to Regulation
14A of the Exchange Act or incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933,
except as shall be expressly set forth by specific reference in such filing.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated herein by reference to the discussion under the heading,
“PROPOSAL 1: ELECTION OF DIRECTORS” in Bancorp’s Proxy Statement.
The information required by this item concerning equity compensation plan information is included in the Footnote titled
“Stock Based Compensation” of the notes to Consolidated Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to the discussion under the headings,
“PROPOSAL 1. ELECTION OF DIRECTORS” and “TRANSACTIONS WITH MANAGEMENT AND OTHERS,” in
Bancorp’s Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated herein by reference to the discussion under the heading
“INDEPENDENT AUDITOR FEES,” in Bancorp’s Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements:
Consolidated Balance Sheets – December 31, 2022 and 2021
Consolidated Statements of Income - years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income - years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity - years ended December 31, 2022, 2021 and
2020
Consolidated Statements of Cash Flows - years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
(a) (2) Financial Statement Schedules:
Financial statement schedules are omitted because the information is NA.
170
(a) (3) Exhibits :
3.1
3.2
3.3
3.4
Second Amended and Restated Articles of Incorporation of S.Y. Bancorp, Inc., filed with the Secretary
of State of Kentucky on April 25, 2013. Exhibit 3.1 to Form 8-K filed April 25, 2013, is incorporated
by reference herein.
Articles of Amendment to the Second Amended and Restated Articles of Incorporation to change the
name of the company to Stock Yards Bancorp, Inc., filed with the Secretary of State of Kentucky on
April 23, 2014. Exhibit 3.1 to Form 8-K filed April 25, 2014, is incorporated by reference herein.
Articles of Amendment to the Second Amended and Restated Articles of Incorporation to increase the
number of authorized shares of common stock and adopt majority voting in uncontested director
elections, filed with the Secretary of State of Kentucky on April 23, 2015. Exhibit 3.1 to Form 8-K
filed April 27, 2015, is incorporated by reference herein.
Bylaws of Bancorp as currently in effect. Exhibit 3.1 to Form 8-K/A filed October 1, 2018, is
incorporated by reference herein.
4.1 Description of Stock Yards Bancorp, Inc. Securities
10.1* Stock Yards Bank & Trust Company Executive Nonqualified Deferred Compensation Plan (as
Amended and Restated in 2009), as filed as Exhibit 10.4 to Form 8-K filed on December 19, 2008, is
incorporated by reference herein.
10.2* Stock Yards Bank & Trust Company Director Nonqualified Deferred Compensation Plan (as Amended
and Restated in 2009), as filed as Exhibit 10.3 to Form 8-K filed on December 19, 2008, is incorporated
by reference herein.
10.3* Form of Stock Yards Bank & Trust Company Executive Nonqualified Deferred Compensation Plan
Employer Contribution Agreement, as filed as Exhibit 10.3 to Form 8-K filed on October 23, 2006, is
incorporated by reference herein.
10.4* Stock Yards Bank & Trust Company 2009 Restated Senior Officers Security Plan Exhibit 10.1 to Form
8-K filed December 19, 2008, is incorporated by reference herein.
10.5* Form of Change in Control Severance Agreement (Dishman, Stinnett and Croce), as filed as Exhibit
10.5 to Form 8-K filed January 28, 2010, is incorporated by reference herein.
10.6* S.Y. Bancorp, Inc. 2005 Stock Incentive Plan, as filed as Exhibit 10.1 to Form 8-K filed May 2, 2005,
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
is incorporated by reference herein.
Amendment No. 1 to S. Y. Bancorp, Inc. 2005 Stock Incentive Plan, as filed as Exhibit 10.1 to Form
8-K filed on April 22, 2010, is incorporated by reference herein.
Terms of Restricted Stock Program, as filed as Exhibit 10.1 to Form 8-K filed on February 26, 2007,
is incorporated by reference herein.
Form of Indemnification Agreement between Stock Yards Bank & Trust Company, S.Y. Bancorp, Inc.
and each member of the Board of Directors. Exhibit 10.3 to Annual Report on Form 10-K for the year
ended December 31, 2001, of Bancorp is incorporated by reference herein.
Amendment No. 2 to the S. Y. Bancorp, Inc. 2005 Stock Incentive Plan, as filed as Exhibit 10.1 to
Form 8-K filed on April 22, 2011, is incorporated by reference herein
Form of Annual Cash Incentive Plan, as filed as Exhibit 10.1 to Form 8-K filed on April 26, 2013, is
incorporated by reference herein.
Amendment No. 3 to the S. Y. Bancorp, Inc. 2005 Stock Incentive Plan, as filed as Exhibit 10.1 to
Form 8-K filed on November 22, 2013, is incorporated by reference herein.
Amendment No. 1 to the Director Nonqualified Deferred Compensation Plan, as filed as Exhibit 10.2
to Form 8-K filed on November 22, 2013, is incorporated by reference herein.
Form of Amended and Restated Change in Control Severance Agreement (for Ja Hillebrand and Kathy
Thompson), as filed as Exhibit 10.1 to Form 8-K filed on December 17, 2013, is incorporated by
reference herein.
Form of Annual Cash Bonus Plan (as amended December 16, 2013), as filed as Exhibit 10.2 to Form
8-K filed on December 17, 2013, is incorporated by reference herein.
Form of Restricted Stock Unit Grant Agreement for grants awarded 2014 and later, as filed as Exhibit
10.3 to Form 8-K filed on December 17, 2013, is incorporated by reference herein.
Form of Amendment No. 1 to the Stock Yards Bank & Trust Company Executive Nonqualified
Deferred Compensation Plan, as filed as Exhibit 10.1 to Form 8-K filed on December 18, 2014, is
incorporated by reference herein.
171
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Form of Amendment No. 2 to the Stock Yards Bank & Trust Company Director Nonqualified Deferred
Compensation Plan, as filed as Exhibit 10.2 to Form 8-K filed on December 18, 2014, is incorporated
by reference herein.
Stock Yards Bancorp, Inc. 2015 Omnibus Equity Compensation Plan, as filed as Exhibit 10.1 to Form
8K, on April 27, 2015 is incorporated by reference herein.
Form of Stock Appreciation Rights Agreement, as filed as Exhibit 10.2 to Form 8-K filed on March
17, 2016, is incorporated by reference herein.
Form of Performance-Vested Stock Unit Grant Agreement, as filed as Exhibit 10.1 to Form 8-K filed
on March 27, 2017, is incorporated by reference herein.
Amendment No. 1 to the Stock Yards Bancorp 2015 Omnibus Equity Compensation Plan, as filed as
Exhibit 10.37 to Form 10-K filed on March 13, 2018, is incorporated by reference herein.
Amendment No. 2 to the Stock Yards Bancorp 2015 Omnibus Equity Compensation Plan, as filed as
Exhibit 10.1 to Form 8-K filed on May 1, 2018, is incorporated by reference herein.
Executive Transition Agreement by and among David P. Heintzman, Stock Yards Bancorp, Inc., and
Stock Yards Bank & Trust Company, as filed as Exhibit 10.1 to Form 8-K filed on May 29, 2018, is
incorporated by reference herein.
Amended and Restated Change in Control Severance Agreement between Stock Yards Bank & Trust
Company and Phillip S. Poindexter, as filed as Exhibit 10.2 to Form 8-K filed on May 29, 2018, is
incorporated by reference herein.
Form of Stock Appreciation Rights Grant Agreement, as filed as Exhibit 10.1 to Form 8-K filed on
October 5, 2018, is incorporated by reference herein.
Executive Transition Agreement by and among Nancy B. Davis, Stock Yards Bancorp, Inc., and Stock
Yards Bank & Trust Company, as filed as Exhibit 10.1 to Form 8-K filed on November 23, 2018 is
incorporated by reference herein.
Form of Performance–Vested Stock Unit Grant Agreement, as filed as Exhibit 10.1 to Form 8-K filed
on March 2, 2020, is incorporated by reference herein.
Form of Director Restricted Stock Unit Award Agreement, as filed as Exhibit 10.29 to Annual Report
on Form 10-K for the year ended December 31, 2021, of Bancorp in incorporated by reference herein.
Amendment No. 2 to the Stock Yard Bank & Trust Company Executive Nonqualified Deferred
Compensation Plan, as filed as Exhibit 10.30 to Annual Report on Form 10-K for the year ended
December 31, 2021, of Bancorp is incorporated by reference herein.
Form of Performance-Vested Stock Unit Grant Agreement, as filed as Exhibit 10.1 to Form 8-K filed
on March 1, 2022, incorporated by reference herein.
14 Code of Ethics for the CEO and Financial Executives
21 Subsidiaries of the Registrant
10.28*
10.29*
10.30*
10.31*
23.1 Consent of FORVIS, LLP
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act by James A Hillebrand
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act by T. Clay Stinnett
32.1**
32.2**
101
Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 by James A. Hillebrand
Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 by T. Clay Stinnett
The following financial statements from the Stock Yards Bancorp, Inc. December 31, 2022
Annual Report on Form 10-K, filed on February 24, 2023, formatted in inline eXtensible
Business Reporting Language (XBRL):
(1) Consolidated Balance Sheets
(2) Consolidated Statements of Income
(3) Consolidated Statements of Comprehensive Income
(4) Consolidated Statements of Changes in Stockholders’ Equity
(5) Consolidated Statements of Cash Flows
(6) Footnotes to Consolidated Financial Statements
104
The cover page from Stock Yards Bancorp Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2022, formatted in inline XBRL and contained in Exhibit 101.
172
* Indicates matters related to executive compensation or other management contracts.
** This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(b)
Exhibits:
The exhibits listed in response to Item 15(a) 3 are filed or furnished as part of this report.
(c)
Financial Statement Schedules:
None.
Item 16. Form 10-K Summary.
Not applicable.
173
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 24, 2023
STOCK YARDS BANCORP, INC.
(Registrant)
By: /s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ James A. Hillebrand
James A. Hillebrand
/s/ Philip S. Poindexter
Philip S. Poindexter
/s/ T. Clay Stinnett
T. Clay Stinnett
/s/ M ichael B. Newton
M ichael B. Newton
/s/ Shannon B. Arvin
Shannon B. Arvin
/s/ Paul J. Bickel
Paul J. Bickel
/s/ J. M cCauley Brown
J. M cCauley Brown
/s/ Allison J. Donovan
Allison J. Donovan
/s/ David P. Heintzman
David P. Heinztman
/s/ Carl G. Herde
Carl G. Herde
/s/ Richard A. Lechleiter
Richard A. Lechleiter
/s/ Step hen M . Priebe
Step hen M . Priebe
/s/ Edwin S. Saunier
Edwin S. Saunier
/s/ John L. Schutte
John L. Schutte
/s/ Kathy C. Thomp son
Kathy C. Thomp son
/s/ Laura L. Wells
Laura L. Wells
Chairman and CEO
(p rincip al executive officer)
February 24, 2023
President and director
February 24, 2023
EVP and CFO
(p rincip al financial officer
February 24, 2023
SVP and Princip al Accounting Officer
February 24, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
Senior EVP and Director
February 24, 2023
Director
February 24, 2023
174
EXHIBIT 4.1
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Stock Yards Bancorp, Inc. (“Stock Yards,” “we” or “our”) has one class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended, our common stock, no par value per share. The following description of
our common stock is a summary of the material terms of our Amended and Restated Articles of Incorporation, as amended
(the “Articles of Incorporation”) and our Bylaws (the “Bylaws”) and includes all material information with respect to
the rights and privileges associated with ownership of our common stock. For a complete description, we refer you to the
more detailed provisions of our Articles of Incorporation and Bylaws, each of which is incorporated by reference as an
exhibit to this Annual Report on Form 10-K of which this Exhibit 4.1 is a part, and any applicable provisions of relevant
law, including the Kentucky Business Corporation Act and federal laws and regulations governing bank holding
companies.
Authorized Capital Stock
Pursuant to our Articles of Incorporation, we have authority to issue up to 40,000,000 shares of common stock, no par
value per share, and 1,000,000 shares of preferred stock. Our board of directors may issue shares of the preferred stock
from time to time, in one or more series, without shareholder approval. The board of directors may determine the
preferences, limitations and relative rights, to the extent permitted by Kentucky law, of any class, or series within a class,
of preferred stock that it designates. No shares of preferred stock are currently outstanding.
Voting Rights
The holders of our common stock have the right to one vote per share on all matters which require their vote and do not
have the right to cumulate votes in the election of directors. Our Articles of Incorporation and Bylaws require majority
voting for the election of directors in uncontested elections. This means that the director nominees in an uncontested
election for directors must receive a number of votes cast “for” his or her election that exceeds the number of votes cast
“against.” If the number of nominees exceeds the number of directors to be elected, the directors are elected by a plurality
of the votes cast.
Dividend Rights
Holders of our common stock are entitled to receive and share equally in dividends, if, as, and when such dividends are
declared by our board of directors out of assets legally available for such purpose, subject to the rights of holders of any
class or series of preferred stock which may then be outstanding.
Redemption, Conversion and Preemptive Rights
Shares of our common stock are not redeemable and do not have subscription, conversion or preemptive rights. There are
no redemption or sinking fund provisions available to the common stock.
Liquidation Rights
If we liquidate, dissolve or wind up our business, subject to the rights of our creditors and the holders of any outstanding
shares of preferred stock having a preference in liquidation, we will distribute our remaining assets to our common
shareholders in proportion to the number of shares that each common shareholder holds.
175
Certain Anti-Takeover Matters
Our Articles of Incorporation and Bylaws contain a number of provisions that may be deemed to have an anti-takeover
effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium over the market price for the shareholders' shares. These
provisions include:
Business Combinations. Our Articles of Incorporation require that, before certain types of business combination
transactions involving Stock Yards and a person who beneficially owns 20% or more of the outstanding voting securities
of Stock Yards (an "interested shareholder"), may be completed, the proposed transaction must first be recommended by
our board of directors and approved by (i) the holders of at least 80% of the voting power of all outstanding voting
securities of Stock Yards, voting together as a single class, and (ii) two-thirds of the outstanding voting power of our stock
other than the voting securities owned by the interested shareholder who is a party to the transaction, voting together as a
single class. A business combination includes, among other things, a merger, asset sale or a transaction resulting in a
financial benefit to the interested shareholder. These special voting requirements do not apply to a business combination
with an interested shareholder if the transaction is either approved by a majority of our directors who are not affiliated
with the interested shareholder or the proposed transaction meets certain minimum price requirements specified in the
Articles of Incorporation. In addition, Stock Yards is prohibited from engaging in a business combination transaction with
an interested shareholder for a period of three years after the date of the transaction or event in which the person became
an interested shareholder, unless prior to the time the person became an interested shareholder, a majority of the
disinterested members of our board of directors approved either the proposed business combination or the transaction that
results in the person becoming an interested shareholder. These provisions of our Articles of Incorporation are intended
to deter abusive takeover tactics and to help assure that all shareholders of Stock Yards will be treated equally in a possible
acquisition transaction. They may have the effect of encouraging a party or parties interested in acquiring Stock Yards to
negotiate in advance with our board of directors because the shareholder approval requirement would be avoided if a
majority of the directors then in office approve the proposed business combination transaction.
Advance Notice Requirements for Shareholder Proposals and Director Nominations. Our Bylaws establish an advance
notice procedure with regard to the nomination, other than by or at the direction of the board of directors, of candidates
for election as directors and with regard to certain matters to be brought before an annual meeting of our shareholders. In
general, notice must be received by Stock Yards not less than 90 days prior to the first anniversary of the preceding year's
annual meeting and must contain certain specified information concerning the person to be nominated or the matter to be
brought before the meeting and concerning the shareholder submitting the proposal.
Removal of Directors Only for Cause. Our Articles of Incorporation limit the right of its shareholders to remove
directors from office to those circumstances meeting the definition of "cause" under the Articles of Incorporation. Cause
means a director's participation in any transaction in which his or her financial interests conflict with those of Stock Yards
or our shareholders; any act or omission not in good faith or which involves intentional misconduct or a knowing violation
of law; or the participation by the director in any transaction from which he or she derived an improper personal benefit.
Authorized But Unissued Shares. Our authorized but unissued shares of common stock and preferred stock are available
for future issuance without shareholder approval, subject to limitations imposed by the Nasdaq Stock Market. We may
use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital,
acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and
preferred stock could render more difficult or discourage an attempt to obtain control of Stock Yards by means of a proxy
contest, tender offer, merger or otherwise.
Listing
Our common stock is listed on the Nasdaq Global Select Market under the symbol "SYBT."
Transfer Agent
The transfer agent for our common stock is Computershare Investor Services LLC.
176
EXHIBIT 14
Code of Ethics for the Chief Executive Officer and Financial Executives
Stock Yards Bancorp, Inc. and Stock Yards Bank & Trust Company are strongly committed to conducting business with
honesty and integrity and in compliance with all applicable laws and regulations. Senior financial officers hold an
important position in our corporate governance structure because of their role in balancing, protecting and preserving the
interests of all of our stakeholders. This Code of Ethics for the Chief Executive Officer and Financial Executives contains
specific principles to which the Chief Executive Officer, President, Chief Financial Officer, Controller and other financial,
accounting and treasury officers (the “Financial Officers”) are expected to adhere. This Code of Ethics is intended to
supplement the general corporate code of conduct.
This code is intended to be our Code of Ethics for Senior Financial Officers pursuant to the provisions of Section 406 of
the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission.
All Financial Officers will:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional
relationships.
Provide our stakeholders with information that is accurate, complete, objective, relevant, timely and
understandable.
Comply with rules and regulations of federal, state, provincial and local governments, and other appropriate
private and public regulatory agencies.
Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts
or allowing one’s independent judgment to be subordinated.
Respect the confidentiality of information acquired in the course of one’s work except when authorized or
otherwise legally obligated to disclose. Confidential information acquired in the course of one’s work will not
be used for personal advantage.
Share knowledge and maintain skills important and relevant to our stakeholders’ needs.
Proactively promote ethical behavior as a responsible partner among peers in one’s work environment.
Achieve responsible use of and control over all assets and resources employed or entrusted to us.
Report known or suspected violations of this Code in accordance with all applicable rules of procedure.
Be held accountable for adhering to this Code.
Not unduly or fraudulently influence, coerce, manipulate or mislead any authorized audit or interfere with any
auditor engaged in the performance of an internal or independent audit of our financial statements or accounting
books and records.
We will promptly disclose the nature of any amendment (other than administrative or non-substantive
amendments) to or waiver from this Code of Ethics as may be required by applicable rules of the Securities and
Exchange Commission and the NASDAQ.
177
EXHIBIT 21
Stock Yards Bancorp, Inc.
Subsidiaries of the Registrant
As of December 31, 2022
Name of Subsidiary
Jurisdiction of Incorporation
Business Name of Subsidiary
Stock Yards Bank & Trust Company
Kentucky
Stock Yards Bank & Trust Company
SYB Insurance Company, Inc.
Nevada
SYB Insurance Company, Inc.
Commonwealth Statutory Trust III
Delaware
Commonwealth Statutory Trust III
Commonwealth Statutory Trust IV
Delaware
Commonwealth Statutory Trust IV
Commonwealth Statutory Trust V
Delaware
Commonwealth Statutory Trust V
178
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-128809 and 333-
96742), Form S-3 (File No. 033-96744) and Form S-3ASR (File No. 333-261637) of Stock Yards Bancorp, Inc. (the
“Company”) of our reports dated February 24, 2023, on our audits of the consolidated financial statements of the Company
as of December 31, 2022 and 2021, and for each of the years in the three-year period then ended December 31, 2022,
which report is included in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our
report dated February 24, 2023, on our audit of the internal control over financial reporting of the Company as of
December 31, 2022, which report is included in this Annual Report on Form 10-K.
/s/ FORVIS, LLP (Formerly, BKD, LLP)
Indianapolis, Indiana
February 24, 2023
179
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, James A. Hillebrand, certify that:
1. I have reviewed this annual report on Form 10-K of Stock Yards Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report, based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 24, 2023
By: /s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO
180
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, T. Clay Stinnett, certify that:
1. I have reviewed this annual report on Form 10-K of Stock Yards Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report, based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 24, 2023
By: /s/ T. Clay Stinnett
T. Clay Stinnett,
EVP, Treasurer and CFO
181
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report of Stock Yards Bancorp, Inc. on Form 10-K for the period ending December 31,
2022 (the “Report”), we, the undersigned, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge and belief: (1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of Stock Yards Bancorp,
Inc. as of and for the periods presented in the Report.
Date: February 24, 2023
By: /s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO
A signed original of this written statement required by section 906 has been provided to Stock Yards Bancorp, Inc.
and will be retained by Stock Yards Bancorp, Inc. and furnished to the SEC or its staff upon request.
182
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report of Stock Yards Bancorp, Inc. on Form 10-K for the period ending December 31,
2022 (the “Report”), we, the undersigned, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge and belief: (1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of Stock Yards Bancorp,
Inc. as of and for the periods presented in the Report.
Date: February 24, 2023
By: /s/ T. Clay Stinnett
T. Clay Stinnett
EVP, Treasurer and CFO
A signed original of this written statement required by section 906 has been provided to Stock Yards Bancorp, Inc.
and will be retained by Stock Yards Bancorp, Inc. and furnished to the SEC or its staff upon request.
183
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Ohio
Columbus
Indiana
Carmel
Binford
Indianapolis
Plainfield
St. Francis
74
65
Austin
70
Dayton
71
Evendale
Cincinnati
Florence
71
75
Cynthiana
64
Louisville
Simpsonville
Shelbyville
Georgetown
Paris
Versailles
Lexington-Fayette
Morehead
64
Mt. Washington
Shepherdsville
Nicolasville
Winchester
Sandy Hook
Bloomfield
Chaplin
Richmond
Kentucky
= STOCK YARDS BANK OFFICE