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What changed in Stock Yards Bancorp, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Stock Yards Bancorp, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+468 added−478 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-27)

Top changes in Stock Yards Bancorp, Inc.'s 2024 10-K

468 paragraphs added · 478 removed · 339 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe acquisition of CB in 2022 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 central and eastern Kentucky markets noted above.
Biggest changeStrategic acquisition activity over the past several years has expanded our footprint into the central, eastern and northern Kentucky markets while also building upon our market share in our home market of Louisville, Kentucky.
We believe it is important because it provides a comparable ratio after eliminating net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of 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.
We believe it is important because it provides a comparable ratio after eliminating net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of 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, if applicable.
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 metropolitan markets through 71 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.
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 metropolitan markets through 72 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.
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.
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, credit card services and other banking services.
Non-interest income represented 27% of total revenues for the year ended December 31, 2023, compared to 28% for both the years ended December 31, 2022 and 2021, 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.
Non-interest income represented 27% of total revenues for the year ended December 31, 2024, compared to 27% and 28% for the years ended December 31, 2023 and 2022, 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 commitment to fostering both new and existing relationships, along with continued investment in the communities we serve, has been essential to our success. 6 Table of Contents 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.
Our commitment to fostering both new and existing relationships, along with continued investment in the communities we serve, has been essential to our success over the past 120 years. 6 Table of Contents 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.
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; ● merit-based bonus pay; ● 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.
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; ● merit-based incentive pay; ● generous paid time-off policies; ● guidance for wealth management and estate planning; ● employee recognition and reward programs; ● a management training program that focuses on developing talent from within; ● 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.
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, 2023, the Bank had 1,075 full-time equivalent employees.
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, 2024, the Bank had 1,080 full-time equivalent employees.
Net interest income accounted for 73% of our total revenues, defined as net interest income plus non-interest income, for the year ended December 31, 2023, compared to 72% for both the years ended December 31, 2022 and 2021, respectively. Fee income, or non-interest income, is a significant component of our business.
Net interest income accounted for 73% of our total revenues, defined as net interest income plus non-interest income, for the year ended December 31, 2024, compared to 73% and 72% for the years ended December 31, 2023 and 2022, respectively. Fee income, or non-interest income, is a significant component of our business.
The report identifies ongoing practices and recent accomplishments in the areas of environmental risk and impact management, social responsibility and governance. This report is accessible on Bancorp’s web site at http://www.syb.com. 8 Table of Contents Executive Officers Name and Age Position and Offices with of Executive Officer Bancorp and/or the Bank James A.
The report identifies ongoing practices and recent accomplishments in the areas of environmental risk and impact management, social responsibility and governance. This report is accessible on Bancorp’s web site at http://www.syb.com . 8 Table of Contents Executive Officers Name and Age Position and Office Held with of Executive Officer Bancorp and the Bank James A.
Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The Captive’s activity is included in the Company’s consolidated financial statements and will be included in its 2023 federal income tax return.
Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The Captive’s activity is included in the Company’s consolidated financial statements and was included in its 2023 federal income tax return.
Approximately 69% of Bancorp’s employees are located in the home market of Louisville, Kentucky, while 21%, 5% 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.
Approximately 68% of Bancorp’s employees are located in the home market of Louisville, Kentucky, while 22%, 5% 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.
We continuously manage our cost structure and refine our internal processes and technology to create further efficiencies with the goal of enhancing our earnings, while maximizing the overall customer experience. Our efficiency ratio (FTE) for the years ended December 31, 2023, 2022 and 2021 was 55.23%, 59.30% and 59.94%, respectively.
We continuously manage our cost structure and refine our internal processes and technology to create further efficiencies with the goal of enhancing our earnings, while maximizing the overall customer experience. Our efficiency ratio (FTE) for the years ended December 31, 2024, 2023 and 2022 was 56.20%, 55.23% and 59.30%, respectively.
Bancorp’s adjusted efficiency ratio (FTE) for the years ended December 31, 2023, 2022 and 2021 was 54.84%, 53.61% and 51.76%. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures. 7 Table of Contents Human Capital Attracting and retaining talented employees is key to our ability to execute our strategy and compete effectively.
Bancorp’s adjusted efficiency ratio (FTE) for the years ended December 31, 2024, 2023 and 2022 was 56.18%, 54.84% and 53.61%. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures. 7 Table of Contents Human Capital Attracting and retaining talented employees is key to our ability to execute our strategy and compete effectively.
WM&T revenue, which is our largest source of non-interest income, constituted 43%, 41% and 42% of total non-interest income for the years ended December 31, 2023, 2022 and 2021, respectively.
WM&T revenue, which is our largest source of non-interest income, constituted 45%, 43% and 41% of total non-interest income for the years ended December 31, 2024, 2023 and 2022, respectively.
Dishman III EVP and Chief Credit Officer of SYB Age 60 Michael V. Rehm EVP and Chief Lending Officer of SYB Age 59 Shannon B. Budnick EVP and Director of WM&T Division of SYB Age 52 See Part III,
Dishman III EVP and Chief Credit Officer of SYB Age 61 Michael V. Rehm EVP and Chief Lending Officer of SYB Age 60 Shannon B. Budnick EVP and Director of WM&T Division of SYB Age 53 See Part III,
Hillebrand Chairman and CEO of Bancorp and SYB Age 55 Philip S. Poindexter President of Bancorp and SYB; Director of Bancorp and SYB Age 57 T. Clay Stinnett EVP, Treasurer and CFO of Bancorp and SYB Age 50 Michael J. Croce EVP and Director of Retail Banking of SYB Age 54 William M.
Hillebrand Chairman and CEO of Bancorp and SYB Age 56 Philip S. Poindexter President of Bancorp and SYB; Director of Bancorp and SYB Age 58 T. Clay Stinnett EVP, Treasurer and CFO of Bancorp and SYB Age 51 Michael J. Croce EVP and Director of Retail Banking of SYB Age 55 William M.
As a testament to the strong culture, inclusive environment and numerous benefits Bancorp is committed to providing its employees, in November of 2023, we were once again 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.
As a testament to the strong culture, inclusive environment and numerous benefits Bancorp is committed to providing its employees, in November of 2024, we were recognized by American Banker as one of the “Best Banks to Work For,” for the fourth consecutive year. This program 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 2023. Further, we also periodically publish an Environmental, Social and Governance (ESG) Corporate Responsibility report. We believe it provides important information on our operations and insight to management’s priorities.
We were honored to be one of only 90 banks in the country to make the list for 2024. Further, we also periodically publish a Corporate Responsibility report. We believe it provides important information on our operations and insight to management’s priorities.
The elevated ratios in 2022 and 2021 were attributed to merger-related expenses associated with the CB and KB acquisitions. Additionally, Bancorp also considers an adjusted efficiency ratio.
The elevated ratio in 2022 was attributed to merger-related expenses associated with the CB acquisition. Additionally, Bancorp also calculates an adjusted efficiency ratio.
As a result of its acquisition of Kentucky Bancshares, Inc. on May 31, 2021, Bancorp became the 100% successor owner of a Nevada-based insurance captive taxed under Section 831(b) of the Internal Revenue Code.
The sole assets of the trust subsidiaries represent the proceeds of offerings exchanged for subordinated debentures with similar terms to the related TPS. As a result of its acquisition of Kentucky Bancshares, Inc. on May 31, 2021, Bancorp became the 100% successor owner of a Nevada-based insurance captive taxed under Section 831(b) of the Internal Revenue Code.
On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a, “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively, for a period to be determined. While the regulation has not been finalized, it is expected to be finalized in 2024.
On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a, “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively. The regulation was finalized in January 2025 and its impact is being evaluated by management.
The sole assets of the trust subsidiaries represent the proceeds of offerings exchanged for subordinated debentures with similar terms to the related TPS. Also as a result of its acquisition of Commonwealth Bancshares, Inc., Bancorp acquired a 60% interest in LFA, a Bowling Green, Kentucky-based wealth management services company.
The Captive’s activity served to reduce Bancorp’s ETR by 0.20% and 0.29% for the years ended December 31, 2023 and 2022, respectively. Also as a result of its acquisition of Commonwealth Bancshares, Inc., Bancorp acquired a 60% interest in LFA, a Bowling Green, Kentucky-based wealth management services company.
Additionally, the acquisition significantly bolstered our WM&T capabilities and elevated us as 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 focus on operational efficiency is critical to our success.
This activity has provided solid growth opportunities and a larger platform for future expansion, allowing us to deliver broader product offerings, increased lending capabilities and a larger branch network to the communities we serve. Continue to manage costs and improve efficiency – We believe that conservative cost management and focus on operational efficiency is critical to our success.
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The Captive’s activity served to reduce Bancorp’s ETR by 0.2%, 0.3% and 0.2% for the years ended December 31, 2023, 2022 and 2021, respectively.
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The increase in the percentage of non-interest income attributed to WM&T for the year ended December 31, 2023 compared to the prior year is attributed mainly to large swings in market performance.
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The acquisition of KB in 2021 expanded our footprint into the central and eastern Kentucky markets, providing broader product offerings, increased lending capabilities and a larger branch delivery system for these customers. Our expansion into these new markets has provided solid growth opportunities and a larger platform for future expansion.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe dramatic rise in interest rates experienced in 2022 provided significant benefit to NIM, as interest earning assets experienced higher yields and elevated levels of liquidity allowed deposit costs to remain near pandemic-era lows. However, as liquidity dissipated in 2023, intense competition for deposits created significant pricing pressure and drove deposit costs up.
Biggest changeConsistent with a strategy of engineering a “soft landing,” they followed suit in November and December of 2024, cutting the FFTR further with respective 25 bps reductions, bringing the FFTR to a range of 4.25% - 4.50%, and Prime to 7.50%, as of December 31, 2024. 13 Table of Contents The dramatic rise in interest rates experienced in 2022 provided significant benefit to NIM, as interest earning assets experienced higher yields and elevated levels of liquidity allowed deposit costs to remain near pandemic-era lows.
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, a breach of information could still occur. See the section titled “ Cybersecurity ” for more information related to our cybersecurity risk management practices.
We utilize multiple third-party vendors who have access to our assets via electronic media. While we require third parties, many of whom are small companies, to have similar or superior controls in place, a breach of information could still occur. See the section titled “ Cybersecurity ” for more information related to our cybersecurity risk management practices.
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 accordance with GAAP, goodwill is not amortized but, instead, is subject to impairment testing 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.
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.
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; 22 Table of Contents ● 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.
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.
As a result, defaults by, or even rumors or questions about, one or more bank or non-bank financial services companies, or the 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.
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. 19 Table of Contents Our ability to stay current on technological changes in order to compete and meet customer demands is constantly being challenged.
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. 20 Table of Contents Our ability to stay current on technological changes in order to compete and meet customer demands is constantly being challenged.
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. 21 Table of Contents Item 1B. Unresolved Staff Comments. None.
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. 23 Table of Contents Item 1B. Unresolved Staff Comments. None.
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 potential credit losses.
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, collateral valuations and other factors that may provide an indication of potential credit losses.
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. 18 Table of Contents An extended disruption of vital infrastructure could negatively impact our business, results of operations, and financial condition.
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. 19 Table of Contents An extended disruption of vital infrastructure could negatively impact our business, results of operations, and financial condition.
These losses or defaults could have an adverse effect on our business, financial condition and results of operations. 15 Table of Contents The bank failures of early 2023, which included three of the four largest bank failures in U.S. history, created a liquidity crisis within the banking industry and temporarily raised questions amongst depositors regarding the soundness of the banking system generally.
These losses or defaults could have an adverse effect on our business, financial condition and results of operations. The bank failures of early 2023, which included three of the four largest bank failures in U.S. history, created a liquidity crisis within the banking industry and temporarily raised questions amongst depositors regarding the soundness of the banking system generally.
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.
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 could adversely affect 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.
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 strong levels and this trend could normalize over time.
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 quality metrics are currently at solid levels and this trend could normalize over time.
We have concluded that, based on the level of positive evidence, it is more likely than not that at December 31, 2023 all DTAs will be realized. At December 31, 2023, Bancorp had DTAs totaling $47 million. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations and financial condition.
We have concluded that, based on the level of positive evidence, it is more likely than not that at December 31, 2024 all DTAs will be realized. At December 31, 2024, Bancorp had DTAs totaling $72 million. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations and financial condition.
Failure to closely monitor, and appropriately adapt to, changes in industry practices and consumer behavior could have an adverse impact on our performance. 16 Table of Contents Strategic Risks Acquisitions could adversely affect our business, financial condition and results of operations.
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.
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, 2023, Bancorp had intangible assets of $20 million.
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, 2024, Bancorp had intangible assets of $16 million.
We may finance acquisitions with borrowed funds, thereby increasing our leverage and reducing liquidity, or with potentially dilutive issuances of equity securities. Competition with other financial institutions could adversely affect profitability.
Additionally, we may finance acquisitions with borrowed funds, thereby increasing our leverage and reducing liquidity, or with potentially dilutive issuances of equity securities. 17 Table of Contents Competition with other financial institutions could adversely affect profitability.
We consider the majority of these deposits to be 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.
Additionally, as a commercial bank, we are dependent on large commercial deposits. We consider the majority of these deposits to be 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.
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, 2023, Bancorp had goodwill of $194 million.
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.
Our enterprise-wide framework is designed to analyze the specific risks we are subject to by evaluating type, likelihood of occurrence and potential severity in an effort to determine levels of inherent risk.
We have established a risk management framework to identify, assess and manage our risk exposure. Our enterprise-wide framework is designed to analyze the specific risks we are subject to by evaluating type, likelihood of occurrence and potential severity in an effort to determine levels of inherent risk.
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 global economic conditions.
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 global economic conditions.
In March of 2020, the FRB implemented severe, pandemic-driven interest rate decreases that lowered the FFTR to a range of 0% - 0.25% and Prime to 3.25%, sustaining these levels for approximately two years.
The FRB’s severe, pandemic-driven interest rate reductions in March of 2020 lowered the FFTR to a range of 0% - 0.25%, and Prime to 3.25%, levels that were sustained for approximately two years.
An inability to raise funds through deposits, FHLB advances and other borrowings, sales of investment securities, 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.
An inability to raise funds through deposits, FHLB advances and other borrowings, sales of investment securities, sales of loans and other sources could have a significant negative effect on our liquidity.
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.
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. 21 Table of Contents Key provisions from the Tax Cuts and Jobs Act of 2017 are set to expire December 31, 2025.
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 43% of non-interest income.
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.
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.
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.
From time to time, customers may make claims and take legal action pertaining to our fiduciary responsibilities.
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.
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.
Financial condition and profitability could be negatively impacted by collateral values. 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.
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.
At December 31, 2024, Bancorp had goodwill of $194 million. 15 Table of Contents 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.
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.
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. The interest rate environment has experienced significant volatility over the past several years.
In an effort to fight resulting inflation that had risen to its highest levels in decades, the FRB increased the FFTR a total of 425 bps in 2022 and an additional 100 bps in 2023, driving the FFTR to a range of 5.25% - 5.50% and Prime to 8.50% as of December 31, 2023.
In an effort to combat the resulting inflation that had risen to its highest levels in decades, the FRB increased the FFTR a total of 525 bps via numerous, incremental rate increases over the course of 2022 and 2023, driving the FFTR to a range of 5.25% - 5.50-%, and Prime to 8.50%, by July of 2023.
Financial condition and profitability depend significantly on local and national economic conditions. Our success depends on general economic conditions 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.
Our success depends on general economic conditions 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.
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.
Interest rate lock loan commitments represent commitments to fund loans at a specific rate. 16 Table of Contents 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.
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.
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.
While Bancorp was not negatively impacted by these failures, remaining well-capitalized and successfully managing the fluctuations in liquidity created by these events, further bank failures or the failure of financial institutions with whom we have relationships could adversely affect us. Our mortgage banking line of business is highly dependent upon programs administered by the FNMA and FHLMC.
While Bancorp was not explicitly impacted by these failures, remaining well-capitalized and successfully managing the fluctuations in liquidity created by these events, any future bank failures, the failure of financial institutions with whom we have relationships, or related events and/or regulatory action stemming from such activity could adversely affect us.
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.
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 Owning Our Common Stock Our common stock price may fluctuate significantly, which could make it difficult to resell our common stock at times and/or prices acceptable to an investor.
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.
Sustained reliance on personal assets to make loan payments would result in deterioration of their liquidity, and could result in loan defaults. 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.
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. 14 Table of Contents Capital and credit markets experience volatility and disruption from time to time.
Significant stock market volatility could negatively affect our financial results. Income from WM&T constitutes approximately 45% of non-interest income. WM&T 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.
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.
As a result, a flattened or inverted yield curve, such as that experienced throughout the industry in recent years, may increase our funding costs while limiting rates that can be earned on loans and investments, thereby decreasing our net interest income and earnings.
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 impact these changes, and any other developments, have on local, regional and national economic conditions could have a significant effect on our borrowers’ ability to meet contractual obligations. Our allowance for credit losses may not be adequate to cover actual losses, which could negatively impact earnings.
Any failure to manage the challenges associated with changing levels of liquidity could adversely impact our financial condition and results of operations. Our investment in tax credit partnerships may not generate expected or anticipated returns, which could have an adverse impact on our results of operations and financial condition.
Any failure to manage the challenges associated with changing levels of liquidity could adversely impact our financial condition and results of operations. Our ability to maintain and/or raise deposits is critical to our strategic goals. Any failure to successfully manage our deposit portfolio could have an adverse impact on our results of operations and financial condition.
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.
Our status as an approved seller and servicer with both entities is subject to compliance with their selling and servicing guidelines.
Many factors affect fluctuation of market interest rates, including, but not limited to the following: ● the FRB’s actions to change 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 action over the past several years.
Many factors affect fluctuation of market interest rates, including, but not limited to the following: ● the FRB’s actions to change 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 Deposit rates tend to be tied to the short end of the rate curve, such as the FFTR, while our fixed-rate loans are largely priced based upon longer term rates, typically five-year offerings.
Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The finalization of this proposed regulation and potential disallowance of related tax benefits could negatively impact our financial condition and results of operations. 20 Table of Contents We are subject to litigation risk and reputational risk pertaining to fiduciary responsibility.
The regulation was finalized in January 2025 and its impact is being evaluated by management. Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The finalization of the proposal and any disallowance of related tax benefits could negatively impact our financial condition and results of operations.
Operational Risks Our risk management framework could prove ineffective, which could have an adverse effect on our business, results of operations and financial condition. We have established a risk management framework to identify, assess and manage our risk exposure.
Should we not be able to realize the tax credits and other benefits associated with such investments, our results of operation and financial condition could be negatively impacted. Operational Risks Our risk management framework could prove ineffective, which could have an adverse effect on our business, results of operations and financial condition.
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.
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.
On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a, “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively, for a period to be determined. While the regulation has not been finalized, it is expected to be finalized in 2024.
The Captive, formerly a wholly owned subsidiary of Bancorp, was a Nevada-based captive insurance company that was taxed under Section 831(b) of the Internal Revenue Code. On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a, “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively.
The resulting shift in Bancorp’s deposit mix, with a large portion of non-interest bearing and lower-rate deposits migrating to higher-yielding alternatives, created significant NIM compression during the year. The current economic outlook remains volatile, regularly changing as new economic data becomes available and the FRB’s efforts to control inflation continue.
The resulting shift in Bancorp’s deposit mix, with a large portion of non-interest bearing and lower-rate deposits migrating to higher-yielding alternatives, created significant NIM compression, which was a scenario that continued into 2024 in conjunction with Bancorp’s substantial loan growth.
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.
Further, any change to the structure or operation of these agencies stemming from their potential exit from the government conservatorship and recapitalization could significantly impact our mortgage banking line of business. 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.
Further, changes in applicable tax code or the inability of the projects to be completed or properly managed depend on factors that are out of our control. Should we not be able to realize the tax credits and other benefits associated with such investments, our results of operation and financial condition could be negatively impacted.
Any change or potential enactment of applicable tax code, or the inability of the projects to be completed or properly managed, depend on factors that are out of our control and could impact our ability to realize expected or anticipated returns.
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 could be negatively impacted by collateral values.
Over the past several years, our asset quality metrics have trended within a narrow range, exceeding benchmarks and reaching historically strong levels.
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.
Any decline in the market value of WM&T AUM could have a meaningful impact on non-interest income and negatively affect our financial results. 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.
As a result of these fluctuations, we have had to shift from attempting to maximize return by investing excess liquidity to prudently managing deposit and borrowing costs to maintain the liquidity necessary to profitably meet loan demand and operational needs.
The deterioration of any of these factors, among others, could result in the availability of secondary funding sources being reduced or eliminated altogether. Prudently managing deposit and borrowing costs to maintain the liquidity necessary to profitably meet loan demand and operational needs is critical to our success.
Transactions between Bancorp and its former insurance subsidiary, the Captive, may be subject to certain IRS responsibilities and penalties. The Captive, formerly a wholly owned subsidiary of Bancorp, was a Nevada-based captive insurance company that was taxed under Section 831(b) of the Internal Revenue Code.
Further, such changes, or delays in making crucial tax policy decisions, could have adverse repercussions for both our business and that of our customers. Transactions between Bancorp and its former insurance subsidiary, the Captive, may be subject to certain IRS responsibilities and penalties.
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Recent projections indicate that the FFTR will remain at the current level in the first part of 2024, with probabilities suggesting FFTR decreases as we enter the second half of the year.
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The spreads between these shorter and middle/longer-term portions of the yield curve are critical to our pricing strategies and ultimately net interest income.
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As a potential economic slowdown looms, Bancorp expects ongoing pricing pressure/competition for both loans and deposits, changing levels of liquidity within the banking system and a severely inverted yield curve will continue to place pressure on NIM in the first part of 2024. 13 Table of Contents 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.
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These levels of interest rates were sustained for over a year until September of 2024, when the FRB reduced the FFTR 50 bps, representing their first rate reduction in over four years, lowering the FFTR to a range of 4.75% - 5.00%, and Prime to 8.00%.
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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 2024 suggests the potential for slowing growth and even for recession. Higher interest rates, cooling but persistent inflation, and compounding geopolitical risks create a number of uncertainties heading into 2024.
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However, as liquidity dissipated in 2023, driven in large part by the institutional failures of that year, intense competition for deposits created significant pricing pressure and drove deposit costs up.
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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.
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While short term interest rates have recently declined consistent with the FRB’s rate reductions, the middle and longer-term portions of the yield curve have been relatively stagnant. Managing volatility within the interest rate environment will continue to be a primary focus for Bancorp, and the banking industry generally, as we enter 2025.
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We have secondary funding sources to draw upon as needed, but the cost of those funds would be higher than typical deposit accounts, which could negatively impact our financial condition and results of operations. 17 Table of Contents We have experienced wide fluctuations in liquidity levels over the past several years.
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The current economic outlook remains uncertain and is regularly changing as new economic data becomes available and the FRB’s efforts to manage economic challenges continue. Recent projections indicate that the FRB will slow or halt FFTR rate reductions in 2025.
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After experiencing record levels of liquidity in 2021 stemming largely from government stimulus, liquidity moderated in 2022, and dissipated in 2023 on the heels of strong loan demand, rising interest rates and a lack of liquidity within the banking system generally.
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While NIM expansion was experienced in the second half of 2024, the previously mentioned flattening of the yield curve, pricing pressure/competition for both loans and deposits, and changing levels of liquidity could continue to pose challenges to NIM and net interest spread in 2025. Financial condition and profitability depend significantly on local and national economic conditions.
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Risks Related to Owning 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.
Added
While the economic outlook for 2025 is generally positive, proposed policy changes from the incoming administration, including tariffs and extended or additional tax cuts, the FRB’s continued efforts to control inflation and other economic challenges, and compounding geopolitical risks create a number of uncertainties heading into 2025.
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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. 14 Table of Contents Credit-related concerns stemming from the higher interest rate environment and contractual renewal and maturity activity may be experienced over the next year.
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Strong loan volumes were experienced during the historically low pandemic-era interest rate environment that began in 2020 and was marked by Prime falling to 3.25%, a level at which it remained until 2022.
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Given the standard five-year term often associated with many of our traditional lending facilities, 2025 will begin a period of elevated interest rate risk for certain borrowers, as notes originated or renewed during that period will either renew or mature in an interest rate environment that is now significantly higher, with Prime more than doubling since 2020 and standing at 7.50% as of December 31, 2024.
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Any inability of our borrowers to meet their contractual obligations, or any worsening of our borrowers financial condition, could result in the erosion of our credit metrics, including higher levels of criticized or non-accrual loans, increased reserves for potential losses within the ACL on loans and increased net charge off activity.
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A combination of higher interest rates and rising central business district vacancies across the country have created credit and collateral concerns over the past year, specifically within the CRE sector.
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While we believe the quality of our CRE portfolio, and the overall loan portfolio, remains solid, with no exposure to large office towers and minimal exposure to central business districts, we are not immune from potential deterioration in the value of loan collateral and could be negatively impacted by the effects of any such activity.
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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.
Added
To offset this interest rate risk, we enter into derivatives, such as mandatory forward contracts to sell loans.
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Further, exposure to new geographical markets in which Bancorp has limited brand recognition, history or general knowledge of, may also result in a failure to realize the anticipated or expected benefits of an acquisition.
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While our deposit portfolio represents our primary funding source, the availability of secondary funding sources, such as the FHLB, and other contingency funding sources depends on a number of factors, including our ability to pledge collateral that meets or exceeds required standards, the funding facilities our partnering financial institutions are both willing and able to provide, and Bancorp’s financial condition and capital levels.
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Our deposit portfolio is our primary source of funding. As such, capitalizing on strategic opportunities and managing our overall funding costs are directly impacted by our ability to maintain and/or raise deposits.
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Deposit levels may be affected by several factors, including rates paid by us and/or bank and non-bank competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors.
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Successfully maintaining and/or growing our deposit portfolio depends on our ability to manage all related factors, which could necessitate offering interest rates on our deposit products that meet or exceed prevailing market rates and adversely impact our results of operations and financial condition. 18 Table of Contents We’ve experienced a shift in the mix of our deposit portfolio over the past two years, consistent with a higher interest rate environment.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeManagement also plays a crucial role in assessing and managing Bancorp’s cybersecurity risks. Specific roles, such as the Information Security Officer (ISO) and Director of Information Security (DIS), are tasked with monitoring, evaluating, and mitigating these risks in coordination with the ISSG.
Biggest changeSpecific roles, such as the Information Security Officer and Director of Information Security, are tasked with monitoring, evaluating, and mitigating these risks in coordination with the Information Security Risk Committee. Both the Information Security Officer and Director of Information Security possess relevant expertise and experience in cybersecurity, enabling them to effectively navigate and respond to emerging threats.
This includes thorough due diligence during vendor selection, ongoing monitoring, setting clear contractual obligations to uphold cybersecurity standards and other interventions necessary to address risk such as those addressed in Part I Item 1A “ Risk Factors. ” In the event of a security incident, Bancorp has developed an Incident Response Plan (IRP) to guide necessary actions.
This includes thorough due diligence during vendor selection, ongoing monitoring, setting clear contractual obligations to uphold cybersecurity standards and other interventions necessary to address risk such as those addressed in Part I Item 1A “ Risk Factors. ” In the event of a security incident, Bancorp has developed an Incident Response Plan to guide necessary actions.
To ensure effective risk management, Bancorp adopts the three lines of defense model, which consists of the following elements: ● The first line of defense is operational management, which is responsible for implementing and maintaining the IS program, as well as identifying and mitigating cybersecurity risks on a day-to-day basis. ● The second line of defense consists of the risk management and compliance functions, which provide oversight, guidance, and support to the first line of defense, as well as monitoring and reporting on the institution’s cybersecurity posture and performance. ● The third line of defense is the internal audit function, which provides independent assurance of the effectiveness and adequacy of the IS program, as well as compliance with relevant policies, standards and regulations.
To ensure effective risk management, Bancorp adopts the three lines of defense model, which consists of the following elements: ● The first line of defense is operational management, which is responsible for implementing and maintaining the Information Security program, as well as identifying and mitigating cybersecurity risks on a day-to-day basis. ● The second line of defense consists of the risk management and compliance functions, which provide oversight, guidance, and support to the first line of defense, as well as monitoring and reporting on the institution’s cybersecurity posture and performance. ● The third line of defense is the internal audit function, which provides independent assurance of the effectiveness and adequacy of the Information Security program, as well as compliance with relevant policies, standards and regulations.
This approach aligns with the institution’s commitment to maintaining the trust and security of its stakeholders in an increasingly digital world. 22 Table of Contents Governance Bancorp’s Credit and Risk Committee, which includes board of director representation, maintains a robust oversight framework for evaluating and managing risks associated with cybersecurity threats.
This approach aligns with the institution’s commitment to maintaining the trust and security of its stakeholders in an increasingly digital world. 24 Table of Contents Governance Bancorp’s Credit and Risk Committee, which includes board of director representation, maintains a robust oversight framework for evaluating and managing risks associated with cybersecurity threats.
The primary objectives of the IS program are to protect the confidentiality, integrity and availability of our information assets, comply with applicable laws, regulations, contractual obligations and manage significant risks arising from cybersecurity threats. These processes are integrated into the institution’s overall risk management system, ensuring a unified approach to risk mitigation.
The primary objectives of the Information Security program are to protect the confidentiality, integrity and availability of our information assets, comply with applicable laws, regulations, contractual obligations and manage significant risks arising from cybersecurity threats. These processes are integrated into the institution’s overall risk management system, ensuring a unified approach to risk mitigation.
While Bancorp has not experienced any cybersecurity incidents that have materially affected its operations, it acknowledges the potential impact such risks could have on business strategy, financial condition and operational resilience. The institution remains vigilant, continuously evaluating and enhancing its cybersecurity measures to preemptively address any potential risks that could impact its operations or financial condition in the future.
While Bancorp has not experienced any cybersecurity incidents that have materially affected its operations, it acknowledges the potential impact such risks could have on business strategy, financial condition and operational resilience. The institution remains vigilant, continuously evaluating and enhancing its cybersecurity measures to preemptively address any potential risks that could impact its operations or financial condition.
The IRP is a well-established document that is updated at least annually. It provides guidance before, during and after a confirmed or suspected security incident, outlining how to minimize the duration and damage of an incident, identifying a response team and streamlining actions to reduce recovery time.
The Incident Response Plan is a well-established document that is updated at least annually. It provides guidance before, during and after a confirmed or suspected security incident, outlining how to minimize the duration and damage of an incident, identifying a response team and streamlining actions to improve recovery time.
The committee convened six times during the year ended December 31, 2023 in order carry out its oversight responsibilities, engaging directly in discussions about cybersecurity risks to ensure they are comprehensively addressed within the institution’s risk management framework.
The committee convened four times during the year ended December 31, 2024 in order carry out its oversight responsibilities, engaging directly in discussions about cybersecurity risks to ensure they are comprehensively addressed within the institution’s risk management framework.
The ISO, who holds a Bachelor’s degree in Computer Science and a Master’s degree in Information Systems Security, along with several relevant industry certifications, has been with Bancorp for three years and has additional experience working in technology outside of the organization.
The Information Security Officer, who holds a Bachelor’s degree in Computer Science and a Master’s degree in Information Systems Security, along with several relevant industry certifications, has been with Bancorp for four years and has additional experience working in technology outside of the organization.
The communication between management, the ISSG, and the Credit and Risk Committee facilitates a holistic understanding of cybersecurity risks, ensuring proactive measures are in place to safeguard Bancorp's operations, preserve its financial stability, and maintain the trust of its stakeholders. 23 Table of Contents
The communication between management, the Information Security Risk Committee, and the Credit and Risk Committee facilitates a holistic understanding of cybersecurity risks, ensuring proactive measures are in place to safeguard Bancorp's operations, preserve its financial stability, and maintain the trust of its stakeholders. 25 Table of Contents
Item 1C. Cybersecurity. Risk Management and Strategy Bancorp has established an Information Security (IS) program, which is overseen by the Director of Information Security and the Information Security Officer. Both of these roles report to the Chief Risk Officer.
Item 1C. Cybersecurity. Risk Management and Strategy Bancorp has established an Information Security program, which is overseen by the Director of Information Security and the Information Security Officer. This role reports to the Chief Risk Officer.
The IS program is structured upon and informed by the Center for Internet Security Risk Assessment Method (CIS RAM), which aligns with the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF).
The Information Security program is structured upon and informed by the Center for Internet Security, which aligns with the National Institute of Standards and Technology Cybersecurity Framework.
When necessary, the institution engages external assessors, consultants, and auditors with expertise in cybersecurity to evaluate and enhance its systems, policies and procedures. These external parties provide valuable insights into emerging threats and best practices, enhancing Bancorp’s ability to adapt and respond effectively.
When necessary, the institution engages external assessors, consultants, and auditors with expertise in cybersecurity to evaluate and enhance its systems, policies and procedures. These external parties provide valuable insights into emerging threats and best practices, enhancing Bancorp’s ability to adapt and respond effectively. Bancorp also undergoes reoccurring regulatory examinations, and identified issues are actively tracked and monitored for remediation.
This ensures that the board of directors is always informed and can provide strategic direction on significant cybersecurity matters. A dedicated committee, the Information Security Steering Group (ISSG), is specifically responsible for overseeing cybersecurity threats and informing the decisions of the Credit and Risk Committee. The ISSG, comprising individuals with diverse expertise in technology, risk management and cybersecurity, meets monthly.
This ensures that the board of directors is always informed and can provide strategic direction on significant cybersecurity matters. A dedicated committee, the Information Security Risk Committee, is specifically responsible for overseeing cybersecurity threats and informing the decisions of the Credit and Risk Committee.
The DIS, who also holds several relevant certifications, has been with Bancorp’s Information Security department for 19 years and brings extensive experience with technology. To keep the ISSG and Credit and Risk Committee informed, management ensures consistent and structured reporting mechanisms are in place. They regularly update these governing bodies on the prevention, detection and mitigation of cybersecurity incidents.
The Director of Information Security, who also holds several relevant certifications, has been with Bancorp’s Information Security department for 20 years and brings extensive experience with technology. To keep the Information Security Risk Committee and Credit and Risk Committee informed, management ensures consistent and structured reporting mechanisms are in place.
Bancorp also undergoes reoccurring regulatory examinations, and any issues that are identified are actively tracked and monitored for remediation. In addition to external entities, Bancorp has internal oversight mechanisms to identify cybersecurity risks, including those associated with its use of third-party service providers and related downstream service providers.
In addition to external entities, Bancorp has internal oversight mechanisms to identify cybersecurity risks, including those associated with its use of third-party service providers and related downstream service providers.
This reporting includes detailed insights into the institution’s cybersecurity posture, ongoing initiatives and any necessary adjustments or enhancements to existing measures.
They regularly update these governing bodies on the prevention, detection and mitigation of cybersecurity incidents. This reporting includes detailed insights into the institution’s cybersecurity posture, ongoing initiatives and any necessary adjustments or enhancements to existing measures.
The IS program includes several key processes and functions such as access control monitoring, threat detection, vulnerability management, understanding the implications of technological changes, managing third-party relationships, and mandating employee awareness and education among other components. These activities aim to prevent avoidable errors, raise awareness, identify potential vulnerabilities, protect systems, detect security incidents and recover from any incidents that occur.
The Information Security program includes several key processes and functions such as access control monitoring, threat detection, vulnerability management, understanding the implications of technological changes, managing third-party relationships, and mandating employee awareness and education among other components.
They discuss a range of strategic topics, including vulnerability trends, identified or potential third-party risks, risks precipitated by technological changes, confirmed or potential security incidents and other items related to the institution’s preparedness measures. The ISSG’s purpose is to provide strategic direction for the IS program and to evaluate known risks based on Bancorp’s existing controls and risk appetite.
The Information Security Risk Committee, comprising individuals with diverse expertise in technology, risk management and cybersecurity, meets monthly. They discuss a range of strategic topics, including vulnerability trends, identified or potential third-party risks, risks precipitated by technological changes, confirmed or potential security incidents and other items related to the institution’s preparedness measures.
These processes are continually updated and enhanced to keep pace with the evolving cybersecurity landscape.
These activities aim to prevent avoidable errors, raise awareness, identify potential vulnerabilities, protect systems, detect security incidents and recover from any incidents that occur. These processes are continually updated and enhanced to keep pace with the evolving cybersecurity landscape.
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Both the ISO and DIS possess relevant expertise and experience in cybersecurity, enabling them to effectively navigate and respond to emerging threats.
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The Information Security Risk Committee’s purpose is to provide strategic direction for the Information Security program and to evaluate known risks based on Bancorp’s existing controls and risk appetite. Management also plays a crucial role in assessing and managing Bancorp’s cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOf the 71 total banking locations, 40 are located in our home market of Louisville, while 19, seven and five are located in our Central Kentucky, Cincinnati and Indianapolis metropolitan markets, respectively.
Biggest changeOf the 72 total banking locations, 40 are located in our home market of the Louisville MSA, while 19, eight and five are located in our Central Kentucky, Cincinnati and Indianapolis MSAs, respectively.
At December 31, 2023, in addition to the main office complex and the operations center, Bancorp owned 45 branches, seven of which are located on leased land. At that date, Bancorp also leased 19 branches.
At December 31, 2024, in addition to the main office complex and the operations center, Bancorp owned 45 branches, seven of which are located on leased land. At that date, Bancorp also leased 19 branches.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 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.
Biggest changeItem 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.
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Mine Safety Disclosures. NA 24 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe ten-year graph assumes the value of the investment in Bancorp’s Common Stock and in each respective index was $100 at December 31, 2013 and that all dividends were reinvested. 25 Table of Contents Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Stock Yards Bancorp, Inc. $ 100.00 $ 128.72 $ 130.86 $ 210.64 $ 218.31 $ 177.17 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 S&P U.S.
Biggest changeThe ten-year graph assumes the value of the investment in Bancorp’s Common Stock and in each respective index was $100 at December 31, 2014 and that all dividends were reinvested.
The plan, which was extended in May 2023 and will expire in May 2025 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 2022, nor in 2023. Approximately 741,000 shares remain eligible for repurchase.
The plan, which will expire in May 2025 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 2023, nor in 2024. Approximately 741,000 shares remain eligible for repurchase.
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.
In May 2023, 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 following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended December 31, 2023.
The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended December 31, 2024.
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, 2023, Bancorp had approximately 2,100 shareholders of record, and approximately 13,100 beneficial owners holding shares in nominee or “street” name.
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, 2024, Bancorp had approximately 2,100 shareholders of record, and approximately 17,981 beneficial owners holding shares in nominee or “street” name.
The graph assumes the value of the investment in Bancorp’s Common Stock and in each index was $100 at December 31, 2018 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 graph assumes the value of the investment in Bancorp’s Common Stock and in each index was $100 at December 31, 2019 and that all dividends were reinvested. 27 Table of Contents 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.
There were no equity securities of the registrant sold without registration during the quarter covered by this report. On February 20, 2024, the Board of Directors declared a quarterly cash dividend of $0.30 per common share.
There were no equity securities of the registrant sold without registration during the quarter covered by this report. On February 18, 2025, the Board of Directors declared a quarterly cash dividend of $0.31 per common share.
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 31 616 $ 53.55 — $ — November 1 - November 30 1,821 43.35 — — December 1 - December 31 4,608 50.87 — — Total 7,045 $ 49.16 — $ — 741,196 (1) Shares repurchased during the three-month period ended December 31, 2023 represent shares withheld to pay taxes due.
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 2,050 $ 51.64 — $ — November 1 - November 30 15,456 76.31 — — December 1 - December 31 496 71.61 — — Total 18,002 $ 73.37 — $ — 741,196 (1) Shares repurchased during the three-month period ended December 31, 2024 represent shares withheld to pay taxes due.
BMI Banks - Midwest Region Index 100.00 130.10 111.85 147.78 127.53 130.20 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 Period Ending Index 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 12/31/23 Stock Yards Bancorp, Inc. $ 100.00 $ 107.54 $ 125.21 $ 238.74 $ 195.86 $ 175.16 $ 225.47 $ 229.23 $ 368.96 $ 382.39 $ 310.33 Russell 2000 Index 100.00 104.89 100.26 121.63 139.44 124.09 155.76 186.85 214.54 170.69 199.59 S&P U.S.
BMI Banks - Midwest Region Index 100.00 85.98 113.59 98.03 100.08 122.10 KBW NASDAQ Bank Index 100.00 89.69 124.06 97.52 96.65 132.60 Period Ending Index 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 12/31/23 12/31/24 Stock Yards Bancorp, Inc. $ 100.00 $ 116.44 $ 222.01 $ 182.14 $ 162.89 $ 209.67 $ 213.16 $ 343.10 $ 355.59 $ 288.58 $ 410.48 Russell 2000 Index 100.00 95.59 115.95 132.94 118.30 148.49 178.13 204.53 162.73 190.28 212.23 S&P U.S.
Removed
BMI Banks - Midwest Region Index 100.00 108.71 110.36 147.46 158.46 135.31 176.04 151.35 199.96 172.57 176.18 KBW NASDAQ Bank Index 100.00 109.37 109.91 141.24 167.50 137.83 187.62 168.28 232.77 182.97 181.34 26 Table of Contents Item 6. [RESERVED]
Added
Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Stock Yards Bancorp, Inc. $ 100.00 $ 101.66 $ 163.64 $ 169.60 $ 137.64 $ 195.77 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 S&P U.S.
Added
BMI Banks - Midwest Region Index 100.00 101.52 135.64 145.76 124.47 161.93 139.22 183.94 158.74 162.06 197.72 KBW NASDAQ Bank Index 100.00 100.49 129.14 153.15 126.02 171.55 153.86 212.83 167.29 165.80 227.48 28 Table of Contents Item 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

230 edited+98 added−126 removed106 unchanged
Biggest changeThe table below details net charge-offs to average loans outstanding by category of loan for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 (in thousands) Years ended December 31, Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Commercial real estate - non-owner occupied $ 91 $ 1,465,305 0.01 % $ - $ 1,342,829 0.00 % $ (2,896 ) $ 1,027,405 -0.28 % Commercial real estate - owner occupied 9 884,555 0.00 % 172 782,185 0.02 % (1,326 ) 592,577 -0.22 % Total commercial real estate 100 2,349,860 0.00 % 172 2,125,014 0.01 % (4,222 ) 1,619,982 -0.26 % Commercial and industrial - term (2,239 ) 796,039 -0.28 % 559 692,214 0.08 % (1,303 ) 550,101 -0.24 % Commercial and industrial - term - PPP - 8,877 0.00 % - 52,704 0.00 % - 397,282 0.00 % Commercial and industrial - lines of credit (3,476 ) 444,244 -0.78 % (200 ) 417,254 -0.05 % - 290,231 0.00 % Total commercial and industrial (5,715 ) 1,249,160 -0.46 % 359 1,162,172 0.03 % (1,303 ) 1,237,614 -0.11 % Residential real estate - owner occupied 2 649,431 0.00 % 34 513,458 0.01 % (349 ) 334,718 -0.10 % Residential real estate - non-owner occupied 2 334,660 0.00 % (5 ) 296,682 0.00 % 5 221,214 0.00 % Total residential real estate 4 984,091 0.00 % 29 810,140 0.00 % (344 ) 555,932 -0.06 % Construction and land development - 458,572 0.00 % (72 ) 374,415 -0.02 % 3 290,705 0.00 % Home equity lines of credit (12 ) 203,796 -0.01 % - 182,874 0.00 % 1 121,276 0.00 % Consumer (379 ) 141,140 -0.27 % (442 ) 130,595 -0.34 % (311 ) 98,093 -0.32 % Leases - 13,934 0.00 % - 13,849 0.00 % - 13,770 0.00 % Credit cards (626 ) 22,312 -2.81 % (45 ) 20,065 -0.22 % - 13,885 0.00 % Total $ (6,628 ) $ 5,422,865 -0.12 % $ 1 $ 4,819,124 0.00 % $ (6,176 ) $ 3,951,257 -0.16 % 64 Table of Contents The following table sets forth the ACL by category of loan: December 31, 2023 December 31, 2022 (dollars in thousands) Allocated Allowance % of Total ACL for loans ACL for loans to Total Loans (1) Allocated Allowance % of Total ACL for loans ACL for loans to Total Loans (1) Commercial real estate - non-owner occupied $ 22,133 28 % 1.42 % $ 22,641 31 % 1.62 % Commercial real estate - owner occupied 11,667 15 % 1.29 % 10,827 15 % 1.30 % Total commercial real estate 33,800 43 % 1.37 % 33,468 46 % 1.50 % Commercial and industrial - term (1) 14,359 18 % 1.66 % 12,991 17 % 1.70 % Commercial and industrial - lines of credit 6,495 8 % 1.48 % 6,389 9 % 1.37 % Total commercial and industrial 20,854 26 % 1.60 % 19,380 26 % 1.57 % Residential real estate - owner occupied 9,316 12 % 1.31 % 6,717 9 % 1.14 % Residential real estate - non-owner occupied 4,282 5 % 1.19 % 3,597 5 % 1.15 % Total residential real estate 13,598 17 % 1.27 % 10,314 14 % 1.14 % Construction and land development 7,593 10 % 1.43 % 7,186 10 % 1.61 % Home equity lines of credit 1,660 2 % 0.79 % 1,613 2 % 0.80 % Consumer 1,407 2 % 0.97 % 1,158 2 % 0.83 % Leases 220 0 % 1.42 % 201 0 % 1.51 % Credit cards 242 0 % 1.02 % 211 0 % 1.03 % Total $ 79,374 100 % 1.38 % $ 73,531 100 % 1.42 % (1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee.
Biggest changeShould the forecast for economic conditions change, Bancorp could experience further adjustments in its required ACL for loans credit loss expense. 64 Table of Contents The table below details net charge-offs to average loans outstanding by portfolio class: 2024 2023 2022 (dollars in thousands) Years ended December 31, Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Net (charge offs)/ recoveries Average loans Net (charge offs)/ recoveries to average loans Commercial real estate - non-owner occupied $ 19 $ 1,665,876 0.00 % $ 91 $ 1,465,305 0.01 % $ - $ 1,342,829 0.00 % Commercial real estate - owner occupied 93 945,055 0.01 % 9 884,555 0.00 % 172 782,185 0.02 % Total commercial real estate 112 2,610,931 0.00 % 100 2,349,860 0.00 % 172 2,125,014 0.01 % Commercial and industrial - term (339 ) 864,658 -0.04 % (2,239 ) 796,039 -0.28 % 559 692,214 0.08 % Commercial and industrial - term - PPP - 3,496 0.00 % - 8,877 0.00 % - 52,704 0.00 % Commercial and industrial - lines of credit (89 ) 484,266 -0.02 % (3,476 ) 444,244 -0.78 % (200 ) 417,254 -0.05 % Total commercial and industrial (428 ) 1,352,420 -0.03 % (5,715 ) 1,249,160 -0.46 % 359 1,162,172 0.03 % Residential real estate - owner occupied (329 ) 752,566 -0.04 % 2 649,431 0.00 % 34 513,458 0.01 % Residential real estate - non-owner occupied 7 369,119 0.00 % 2 334,660 0.00 % (5 ) 296,682 0.00 % Total residential real estate (322 ) 1,121,685 -0.03 % 4 984,091 0.00 % 29 810,140 0.00 % Construction and land development - 588,464 0.00 % - 458,572 0.00 % (72 ) 374,415 -0.02 % Home equity lines of credit (100 ) 225,823 -0.04 % (12 ) 203,796 -0.01 % - 182,874 0.00 % Consumer (300 ) 145,689 -0.21 % (379 ) 141,140 -0.27 % (442 ) 130,595 -0.34 % Leases - 16,298 0.00 % - 13,934 0.00 % - 13,849 0.00 % Credit cards (193 ) 24,472 -0.79 % (626 ) 22,312 -2.81 % (45 ) 20,065 -0.22 % Total $ (1,231 ) $ 6,085,782 -0.02 % $ (6,628 ) $ 5,422,865 -0.12 % $ 1 $ 4,819,124 0.00 % The following table sets forth the ACL by portfolio class: December 31, 2024 December 31, 2023 (dollars in thousands) Allocated Allowance % of Total ACL for loans ACL for loans to Total Loans Allocated Allowance % of Total ACL for loans ACL for loans to Total Loans Commercial real estate - non-owner occupied $ 13,935 16 % 0.76 % $ 22,133 28 % 1.42 % Commercial real estate - owner occupied 10,192 12 % 1.02 % 11,667 15 % 1.29 % Total commercial real estate 24,127 28 % 0.85 % 33,800 43 % 1.37 % Commercial and industrial - term 21,284 25 % 2.41 % 14,359 18 % 1.66 % Commercial and industrial - lines of credit 6,496 7 % 1.17 % 6,495 8 % 1.48 % Total commercial and industrial 27,780 32 % 1.93 % 20,854 26 % 1.60 % Residential real estate - owner occupied 14,468 17 % 1.80 % 9,316 12 % 1.31 % Residential real estate - non-owner occupied 5,154 6 % 1.35 % 4,282 5 % 1.19 % Total residential real estate 19,622 23 % 1.65 % 13,598 17 % 1.27 % Construction and land development 10,981 13 % 1.76 % 7,593 10 % 1.43 % Home equity lines of credit 1,277 1 % 0.52 % 1,660 2 % 0.79 % Consumer 2,531 3 % 1.75 % 1,407 2 % 0.97 % Leases 370 0 % 2.38 % 220 0 % 1.42 % Credit cards 255 0 % 1.04 % 242 0 % 1.02 % Total $ 86,943 100 % 1.33 % $ 79,374 100 % 1.38 % 65 Table of Contents The allocation of the ACL for loans amongst respective classes of the loan portfolio experienced a shift between December 31, 2023 and December 31, 2024, most notably within the CRE and C&I categories.
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 subsidiary, Stock Yards Bank & Trust Company (“SYB” or “the Bank”).
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 subsidiary, Stock Yards Bank & Trust Company (“SYB” or “the Bank”).
Total average interest earning assets increased $316.4 million, or 5%, to $7.30 billion for the year ended December 31, 2023, as compared to year ended December 31, 2022, with the average rate earned on total interest earning assets increasing 114 bps to 4.75%. ● Average total loan balances increased $604 million, or 13%, for the year ended December 31, 2023, compared to the prior year.
Total average interest earning assets increased $316 million, or 5%, to $7.30 billion for the year ended December 31, 2023, as compared to year ended December 31, 2022, with the average rate earned on total interest earning assets increasing 114 bps to 4.75%. ● Average total loan balances increased $604 million, or 13%, for the year ended December 31, 2023, compared to the prior year.
Provision for credit loss expense for off balance sheet credit exposures (excluding acquisition-related activity) of $575,000 was recorded for the year ended December 31, 2022. The expense recorded for the year ended December 31, 2022 was driven largely by the addition of new lines of credit, and thus increased availability, within the C&D portfolio.
Provision for credit loss expense for off balance sheet credit exposures (excluding acquisition-related activity) of $575,000 was recorded for the year ended December 31, 2022, driven largely by the addition of new lines of credit, and thus increased availability, within the C&D portfolio.
Further, Bancorp elected not to renew the Captive in August and fully dissolved it during the fourth quarter of 2023, resulting in a $132,000 decrease in Captive income compared to the prior year.
Further, Bancorp elected not to renew the Captive in August 2023 and fully dissolved it during the fourth quarter of 2023, resulting in a $132,000 decrease in Captive income compared to the prior year.
The decrease was attributed to both the accelerated depreciation method for which intangible assets are amortized, coupled with the previously mentioned disposal of Bancorp’s partial interest in LFA at the end of 2022, which included writing off the related CLI effective December 31, 2022. As noted previously, Bancorp’s partial interest in LFA was sold effective December 31, 2022.
The decrease was attributed to both the accelerated depreciation method for which intangible assets are amortized, coupled with the previously mentioned disposal of Bancorp’s partial interest in LFA at the end of 2022, which included writing off the related CLI. As previously noted, Bancorp’s partial interest in LFA was sold effective December 31, 2022.
Bancorp believes it is important because it provides a comparable ratio after eliminating net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of 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 merger-related expenses.
Bancorp believes it is important because it provides a comparable ratio after eliminating net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of 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, if applicable.
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 statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “conclude,” “continue,” “could,” “estimate,” “expect,” “forecast,” “foresee,” “goal,” “intend,” “may,” “might,” “outlook,” “possible,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “will likely,” “would,” or other similar expressions.
These subordinated debentures were added as a result of the CB acquisition during the first quarter of 2022. Total interest expense increased $81.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by substantial deposit rate increases and increased borrowing activity, and to a lesser extent, acquisition-related expansion.
The subordinated debentures were added as a result of the CB acquisition during the first quarter of 2022. Total interest expense increased $81.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by substantial deposit rate increases and increased borrowing activity, and to a lesser extent, acquisition-related expansion.
Investment security purchases during 2023 were minimal. ● Average FFS and interest bearing due from bank balances decreased $313 million, or 66%, for the year ended December 31, 2023, as loan growth and average total deposit contraction have led to lower levels of liquidity compared to the prior year.
Investment security purchases during 2023 were minimal. ● Average FFS and interest bearing due from bank balances decreased $313 million, or 66%, for the year ended December 31, 2023, as loan growth and average total deposit contraction led to lower levels of liquidity compared to the prior year.
Net charge off activity for the year ended December 31, 2023 was attributed mainly to the charge off of two isolated and unrelated C&I relationships, one of which was fully reserved for in a prior period. Provision expense (excluding acquisition-related activity) of $5.3 million was recorded for the year ended December 31, 2022.
Elevated net charge off activity for the year ended December 31, 2023 was attributed mainly to the charge off of two isolated and unrelated C&I relationships, one of which was fully reserved for in a prior period. Provision expense (excluding acquisition-related activity) of $5.3 million was recorded for the year ended December 31, 2022.
These interest rate swaps are designated as cash flow hedges as described in the Footnote titled “ Derivative Financial Instruments. ” 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. 45 Table of Contents Provision for Credit Losses Provision for credit losses on loans at December 31, 2023 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.
These interest rate swaps are designated as cash flow hedges as described in the footnote titled “ Derivative Financial Instruments. ” 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. 45 Table of Contents Provision for Credit Losses Provision for credit losses on loans at December 31, 2024 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 year ended December 31, 2022 was significantly impacted by the CB acquisition. o Record results for the year ended December 31, 2023 compared to the prior year were driven by significant organic growth, the full year impact of acquisition-related activity, the benefit to interest income of rising interest rates compared to the prior year and the continued growth of Bancorp’s diversified non-interest revenue streams. 31 Table of Contents o While interest income benefitted from rising interest rates in 2023, an increase in the cost of funds stemming from deposit contraction and pricing pressure, as well as increased borrowing activity, had a substantial impact on results for the year ended December 31, 2023 compared to the prior year. o Bancorp completed its acquisition of CB on March 7, 2022.
The year ended December 31, 2022 was significantly impacted by the CB acquisition. o Record results for the year ended December 31, 2023 compared to the prior year were driven by significant organic growth, the full year impact of acquisition-related activity, the benefit to interest income of rising interest rates compared to the prior year and the continued growth of Bancorp’s diversified non-interest revenue streams. o While interest income benefitted from rising interest rates in 2023, an increase in the cost of funds stemming from deposit contraction and pricing pressure, as well as increased borrowing activity, had a substantial impact on results for the year ended December 31, 2023 compared to the prior year. o Bancorp completed its acquisition of CB on March 7, 2022.
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. 42 Table of Contents 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.
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. 43 Table of Contents 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.
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. 71 Table of Contents 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.
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. 72 Table of Contents 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.
The increased yield on the investment securities portfolio was driven by the benefit of investments purchased in the prior year once rates began to rise and the continued amortization and maturity of lower-yielding securities. ● Interest income on FFS and interest bearing due from bank balances increased $2.4 million, or 40%, for the year ended December 31, 2023, as rising short-term interest rates more than offset a $313 million decline in related average balances.
The increased yield on the investment securities portfolio was driven by the benefit of investments purchased in the prior year once rates began to rise and the continued amortization and maturity of lower-yielding securities. 40 Table of Contents ● Interest income on FFS and interest bearing due from bank balances increased $2.4 million, or 40%, for the year ended December 31, 2023, as rising short-term interest rates more than offset a $313 million decline in related average balances.
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 71 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.
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 72 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.
Interest expense of $12,000 was recorded for the year ended December 31, 2022, which stemmed entirely from a one-week cash management advance utilized at year-end. ● Interest expense totaling $2.2 million was recorded for the year ended December 31, 2023, as a result of the subordinated debentures added through the prior year acquisition, approximately $397,000 of which stems from purchase accounting-related mark-to-market amortization.
Interest expense of $12,000 was recorded for the year ended December 31, 2022, which stemmed entirely from a one-week cash management advance utilized at year-end. ● Interest expense totaling $2.2 million was recorded for the year ended December 31, 2023, as a result of the subordinated debentures added through the prior year acquisition, approximately $397,000 stemming from purchase accounting-related mark-to-market amortization.
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, 2023 and 2022, there was no valuation allowance for MSRs, as fair value exceeded carrying value.
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, 2024 and 2023, there was no valuation allowance for MSRs, as fair value exceeded carrying value.
Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. At December 31, 2023 and 2022, 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.
Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. At December 31, 2024 and 2023, 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.
The results of the interest rate sensitivity analysis performed as of December 31, 2023 were derived from conservative assumptions Bancorp uses in its model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates based on historical data.
The results of the interest rate sensitivity analysis performed as of December 31, 2024 were derived from conservative assumptions Bancorp uses in its model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates based on historical data.
Average non-PPP loan growth of $648 million, or 14%, was driven by strong organic growth and the full year impact of acquisition-related activity, which was partially offset by a $44 million, or 83%, decline in average PPP loan balances resulting from continued forgiveness activity. ● Average investment securities grew $17 million, or 1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, attributed to a combination of strategically deploying excess liquidity through further investment and the full year impact of acquisition-related activity, which was partially offset by normal amortization and maturity activity during 2023.
Average non-PPP loan growth of $648 million, or 14%, was driven by strong organic growth and the full year impact of acquisition-related activity, which was partially offset by a $44 million, or 83%, decline in average PPP loan balances resulting from SBA forgiveness activity. ● Average investment securities grew $17 million, or 1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, attributed to a combination of strategically deploying excess liquidity through further investment and the full year impact of acquisition-related activity, which was partially offset by normal amortization and maturity activity.
Interest income on loans may be impacted by the level of prepayment fees collected and accretion related to loans purchased.
Interest income on loans may be impacted by the level of prepayment fees collected and net accretion income related to loans purchased.
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, 2023, subordinated notes totaled $27 million.
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, 2024, subordinated notes totaled $27 million.
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.
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. ” 29 Table of Contents 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.
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, 2023, the significant accounting policy considered the most critical in preparing Bancorp’s consolidated financial statements is the determination of the ACL on loans.
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, 2024, the significant accounting policy considered the most critical in preparing Bancorp’s consolidated financial statements is the determination of the ACL on loans.
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.
The Company’s growing footprint has allowed us 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.
While total deposit growth was experienced compared to the prior year, there was significant shift in the deposit base mix, as customers migrated from non-interest bearing products into higher-yielding alternatives and pricing pressure related to deposits intensified during the year. o Interest-bearing deposits increased $681 million, or 15%, for the year ended December 31, 2023 compared to the prior year, led by a $511 million increase in time deposits associated with Bancorp’s successful promotional product offerings, offsetting a $402 million, or 21%, decline in non-interest bearing deposits. ● Non-interest income increased $3.1 million, or 3%, for the year ended December 31, 2023 compared to the prior year.
While total deposit growth was experienced compared to the prior year, there was significant shift in the deposit base mix, as customers migrated from non-interest bearing products into higher-yielding alternatives and pricing pressure related to deposits intensified during the year. o Interest-bearing deposits increased $681 million, or 15%, for the year ended December 31, 2023 compared to the prior year, led by a $511 million increase in time deposits associated with Bancorp’s successful promotional product offerings, offsetting a $402 million, or 21%, decline in non-interest bearing deposits. 34 Table of Contents ● Non-interest income increased $3.1 million, or 3%, for the year ended December 31, 2023 compared to the prior year.
Participation loans averaged $4 million, $5 million and $5 million for the years ended December 31, 2023, 2022 and 2021, 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.
Participation loans averaged $3 million, $4 million and $5 million for the years ended December 31, 2024, 2023 and 2022, 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.
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, 2023 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.
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, 2024 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.
While there are also fee structures for estate settlements, income received is typically 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.
While there are also fee structures for estate settlements, income received is typically 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. As previously mentioned, WM&T fees earned are not performance-based nor are they based on investment strategy or transactions.
This increase stems mainly from an increase in time deposits during 2023 attributed to general customer migration to higher-yielding deposit alternatives and Bancorp’s promotional offerings, which has been partially offset by contraction in other interest bearing deposit categories. ● Average FHLB advances totaled $280 million for the year ended December 31, 2023.
The increase stemmed mainly from an increase in time deposits during 2023 attributed to general customer migration to higher-yielding deposit alternatives and Bancorp’s promotional offerings, which has been partially offset by contraction in other interest bearing deposit categories. ● Average FHLB advances totaled $280 million for the year ended December 31, 2023.
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.
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. 69 Table of Contents Bancorp pledges portions of its investment securities portfolio to secure public funds, cash balances of certain WM&T accounts and SSUAR.
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, 2022 and December 31, 2023.
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, 2023 and December 31, 2024.
Provision expense for credit losses on loans of $12.5 million was recorded for the year ended December 31, 2023. In addition to strong loan growth, a flat unemployment forecast and other factors within the CECL allowance model, provision expense for the year ended December 31, 2023 was driven by net charge offs $6.6 million.
Provision expense for credit losses on loans of $12.5 million was recorded for the year ended December 31, 2023. In addition to strong loan growth, a flat unemployment forecast and other factors within the CECL allowance model, provision expense for the year ended December 31, 2023 was impacted significantly by net charge offs of $6.6 million.
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.
While Bancorp has a diversified loan portfolio, a customer’s ability to honor loan agreements is somewhat dependent upon the economic stability and/or industry in which that customer does business.
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 2023, 2022 and 2021. 72 Table of Contents 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.
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 2024, 2023 and 2022. 73 Table of Contents 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.
Bancorp utilized overnight borrowings with the FHLB during 2023 based on evolving liquidity needs. Bancorp also utilized rolling term advances in conjunction with three separate interest rate swaps during the year ended December 31, 2023 in an effort to secure longer-term funding at a more favorable rate.
Bancorp utilized overnight borrowings during 2023 based on changing liquidity needs. Bancorp also utilized rolling term advances in conjunction with three separate interest rate swaps during the year ended December 31, 2023 in an effort to secure longer-term funding at a more favorable rate.
Events that may trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price declining below tangible book value), negative trends in overall financial performance and regulatory actions.
Events that could potentially trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price declining below tangible book value), negative trends in overall financial performance and regulatory actions.
While a combination of higher interest rates and rising central business district vacancies across the country have created credit and collateral concerns within the CRE sector generally, Bancorp believes the quality of its CRE portfolio, and the overall loan portfolio, remains solid.
While a combination of sustained higher interest rates and rising central business district vacancies across the country has created credit and collateral concerns within the CRE sector generally, Bancorp believes the quality of its CRE portfolio, and the overall loan portfolio, remains solid.
Prioritizing the development of the opportunities afforded by recent 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.
Prioritizing the development of the opportunities afforded by recent acquisitions will play a major role in delivering strong operating results in the coming year. ● We derive significant non-interest income from WM&T services. Most of these fees are based upon the market value of AUM at respective period ends.
The yield on the overall loan portfolio increased 108 bps to 5.58% for the year ended December 31, 2023, compared to 4.50% for the year ended December 31, 2022. 37 Table of Contents ● Growth in average investment securities led to a $5.5 million, or 19%, increase in interest income (FTE) on the portfolio for the year ended December 31, 2023 compared to the prior year, driving a 30 bps, or 17%, increase in the corresponding yield on the portfolio.
The yield on the overall loan portfolio increased 108 bps to 5.58% for the year ended December 31, 2023, compared to 4.50% for the year ended December 31, 2022. ● Growth in average investment securities led to a $5.5 million, or 19%, increase in interest income (FTE) for the year ended December 31, 2023 compared to the prior year, driving a 30 bps, or 17%, increase in the corresponding yield on the investment portfolio.
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.
As of December 31, 2024, 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.
For collateral dependent loans, fair value amounts represent only those loans with specific valuation allowances established or adjusted and loans charged down to their carrying value during the period. At December 31, 2023 and December 31, 2022, the carrying value of collateral dependent loans measured at fair value on a non-recurring basis was $14 million and $21 million, respectively.
For collateral dependent loans, fair value amounts represent only those loans with specific valuation allowances established or adjusted and loans charged down to their carrying value during the period. At December 31, 2024 and December 31, 2023, the carrying value of collateral dependent loans measured at fair value on a non-recurring basis was $12 million and $14 million, respectively.
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 of December 31, 2023 and December 31, 2022, Bancorp’s CDI assets totaled $12 million and $15 million, respectively.
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 of December 31, 2024 and December 31, 2023, Bancorp’s CDI assets totaled $9 million and $12 million, respectively.
At December 31, 2023 and December 31, 2022, available credit from the FHLB totaled $1.33 billion and $1.36 billion, respectively, the decline during this period being attributed to increased utilization of FHLB borrowings. Bancorp also had unsecured FFP lines with correspondent banks totaling $80 million at both December 31, 2023 and December 31, 2022, respectively.
At December 31, 2024 and December 31, 2023, available credit from the FHLB totaled $1.25 billion and $1.33 billion, respectively, the decline during this period being attributed to increased utilization of FHLB borrowings. Bancorp also had unsecured FFP lines with correspondent banks totaling $80 million at both December 31, 2024 and December 31, 2023, respectively.
The yield on these assets increased 386 bps to 5.12% for the year ended December 31, 2023 compared to the same period of 2022, stemming from the dramatic increase in the FFTR over the past 12 months.
The yield on these assets increased 386 bps to 5.12% for the year ended December 31, 2023 compared to the same period of 2022, stemming from the dramatic increase in the FFTR over the preceding year.
See the Footnote titled “ Assets and Liabilities Measured and Reported at Fair Value ,” for additional detail regarding fair value measurements. 73 Table of Contents 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.
See the footnote titled “ Assets and Liabilities Measured and Reported at Fair Value ,” for additional detail regarding fair value measurements. 74 Table of Contents 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 elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The Captive’s activity is included in the Company’s consolidated financial statements and will be included in its 2023 federal income tax return.
Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023. The Captive’s activity is included in the Company’s consolidated financial statements and was included in its 2023 federal income tax return.
Accretion income/ (amortization expense) related to acquired loans totaled $2.4 million, $2.6 million and ($112,000) for the years ended December 31, 2023, 2022 and 2021, respectively. ● Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense.
Net accretion income/ (amortization expense) related to acquired loans totaled $2.2 million, $2.4 million and $2.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. ● Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense.
At December 31, 2023, 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, 2023 and 2022.
At December 31, 2024, 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 exceeded these levels as of December 31, 2024 and 2023.
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.
A portion of WM&T revenue, most notably estate and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation.
Net occupancy and equipment expenses primarily include depreciation, rent, property taxes, utilities and maintenance. Costs of capital asset additions (recorded on the balance sheet) flow through the statement of income over the lives of the assets in the form of depreciation expense.
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.
Prime rate, the five year Treasury note rate, one month term SOFR are included in the table above to provide a general indication of the interest rate environment Bancorp has operated in during the past three years, a period marked by a dramatic rise in interest rates.
Prime rate, the five year Treasury note rate, and one month term SOFR are included in the preceding table to provide a general indication of the interest rate environment Bancorp has operated in during the past three years, a period marked by dramatic changes in interest rates.
Non-interest income comprised 27% and 28% of total revenue, defined as net interest income and non-interest income, for the years ended December 31, 2023 and 2022, respectively. WM&T services comprised 43% of total non-interest income for the year ended December 31, 2023 compared to 41% for the same period of 2022, respectively.
Non-interest income comprised 27% and 28% of total revenue for the years ended December 31, 2023 and 2022, respectively. WM&T revenue comprised 43% of total non-interest income for the year ended December 31, 2023 compared to 41% for the same period of 2022, respectively.
While Bancorp generally expects this revenue stream to grow in conjunction with expansion of the customer base, interchange rate compression and any potential fluctuation in business and consumer spend levels could serve as challenges to future growth. Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers.
While Bancorp generally expects this revenue stream to grow with continued expansion of the customer base, interchange rate compression and fluctuations in business and consumer spend levels could serve as challenges to future growth. Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers.
While other sources of funding are available, they are typically more expensive than in-market deposit relationships and the extent to which they are utilized could increase our overall cost of funding. ● Continued monetary policy changes (or lack thereof) by the FRB and the corresponding impact on local, national and global economic conditions could present numerous challenges in 2024.
While other sources of funding are available, they are typically more expensive than in-market deposit relationships and the extent to which they are utilized could increase our overall funding costs. ● Continued monetary policy changes by the FRB and the corresponding impact on local, national and global economic conditions could present numerous challenges in 2025.
At December 31, 2023, the Bank could pay an amount equal to $145 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank.
At December 31, 2024, the Bank could pay an amount equal to $209 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank.
Investment in the securities portfolio was minimal during the 2023, as Bancorp elected to maintain higher levels of liquidity amidst substantial loan growth and deposit fluctuations during the year. 58 Table of Contents The maturity distribution (based on contractual maturity) and weighted average yields of the AFS and HTM investment security portfolios follow: AFS Due after one but Due after five but December 31, 2023 Due within one year within five years within ten years Due after ten years (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield U.S.
Investment in the securities portfolio was minimal during 2024, with the exception of purchases made to meet collateral pledging requirements, as Bancorp elected to maintain higher levels of liquidity amidst substantial loan growth and deposit fluctuations during the year. 58 Table of Contents The maturity distribution (based on contractual maturity) and weighted average yields of the AFS and HTM investment security portfolios follow: AFS Due after one but Due after five but December 31, 2024 Due within one year within five years within ten years Due after ten years (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield U.S.
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 64% in equities and 36% in fixed income securities as of December 31, 2023, compared to 63% and 37% as of December 31, 2022.
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 65% in equities and 35% in fixed income securities as of December 31, 2024, compared to 64% and 36% as of December 31, 2023.
At December 31, 2023, such deposits totaled $5.78 billion and represented 87% of Bancorp’s total deposits, as compared with $5.60 billion, or 88% of total deposits at December 31, 2022. Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they normally do not place undue pressure on liquidity.
At December 31, 2024, such deposits totaled $6.14 billion and represented 86% of Bancorp’s total deposits, as compared with $5.78 billion, or 87% of total deposits at December 31, 2023. Because core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they normally do not place undue pressure on liquidity.
After five years, the temporary regulatory capital benefits will be fully reversed. 2024 will represent year five of the transition period for Bancorp. 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 still have exceeded the well-capitalized level.
After five years, the temporary regulatory capital benefits are fully reversed. 2024 represented the fifth and final year of the transition period for Bancorp. 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 still have exceeded the well-capitalized level.
BOLI income increased $656,000, or 41%, for the year ended December 31, 2023 compared to the prior year, which was attributed mainly to the additional prior year investment noted above in addition to general market appreciation within the policy plans during the year.
BOLI income increased $656,000, or 41%, for the year ended December 31, 2023 compared to the prior year, which was attributed mainly to the additional $30 million BOLI investment made in 2022, in addition to general market appreciation within the policy plans during the year.
The investment portfolio (HTM and AFS) includes total cash flows on amortizing debt securities of approximately $373 million (based on assumed prepayment speeds as of December 31, 2023) expected over the next 12 months, including $181 million of contractual maturities.
The investment portfolio (HTM and AFS) includes total cash flows on amortizing debt securities of approximately $515 million (based on assumed prepayment speeds as of December 31, 2024) expected over the next 12 months, including $353 million of contractual maturities.
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.
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.
Bancorp’s ratio of TCE to total tangible assets was 8.09% as of December 31, 2023, compared to 7.44% at December 31, 2022, the improvement driven by growth in stockholder’s equity associated with the year’s strong operating results and the positive change in AOCI related to the valuation of the AFS debt securities portfolio.
Bancorp’s ratio of TCE to total tangible assets was 8.44% as of December 31, 2024, compared to 8.09% at December 31, 2023, the improvement driven mainly by growth in stockholder’s equity associated with the year’s strong operating results and to a much smaller extent, the positive change in AOCI related to the valuation of the AFS debt securities portfolio.
The ACL for off balance sheet credit exposures was also increased $500,000 during the first quarter of 2022 as a result of the CB acquisition, with the offset recorded to goodwill (as opposed to provision expense). The ACL for off balance sheet credit exposures totaled $4.5 million as of December 31, 2022.
The ACL for off balance sheet credit exposures was also increased $500,000 during the first quarter of 2022 as a result of the CB acquisition, with the offset recorded to goodwill (as opposed to provision expense).
Amortization expense associated with these investments increased $941,000 for the year ended December 31, 2023 compared to the prior year stemming from Bancorp’s investment in several larger tax credit projects during 2023.
Amortization expense associated with tax credit investments increased $941,000 for the year ended December 31, 2023 compared to the prior year stemming from Bancorp’s investment in several larger tax credit projects during 2023. Intangible amortization expense decreased $858,000, or 15%, for the year ended December 31, 2023.
Net charge-off activity of $6.6 million was recorded for the year ended December 31, 2023, which was attributed mainly to the charge off of two larger, isolated C&I relationships, one of which was fully reserved for in a prior period.
Net charge off activity for the year ended December 31, 2023 was attributed mainly to the charge off of two isolated and unrelated C&I relationships, one of which was fully reserved for in a prior period.
This composition has been relatively consistent from period to period. 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 $580,000, or 7%, for the year ended December 31, 2023, as compared with the prior year.
This composition has been relatively consistent from period to period. 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 $40,000, or less than 1%, for the year ended December 31, 2024, as compared with the same period of 2023.
Income Taxes A comparison of income tax expense and ETR follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Income before income tax expense $ 137,927 $ 120,484 $ 95,397 Income tax expense 30,179 27,190 20,752 Effective tax rate 21.88 % 22.57 % 21.75 % Discussion of 2023 vs 2022: Fluctuations in the ETR are primarily attributed to the following: ● The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity in addition to the level of PSU and RSA vesting.
Income Taxes A comparison of income tax expense and ETR follows: Years Ended December 31, (dollars in thousands) 2024 2023 2022 Income before income tax expense $ 144,366 $ 137,927 $ 120,484 Income tax expense 29,827 30,179 27,190 Effective tax rate 20.66 % 21.88 % 22.57 % Discussion of 2024 vs 2023: Fluctuations in the ETR are primarily attributed to the following: ● The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity in addition to the levels of PSU, RSA and RSU vesting.
Gains and losses on the sale of premises and equipment for the year ended December 31, 2023 were driven mainly by the sale of an acquired property from CB during the third quarter and other nominal disposal activity.
Gains and losses on the sale of premises and equipment for the year ended December 31, 2023 related to the sale of an acquired property from CB during the third quarter and other nominal disposal activity.
TCE was 8.09% at December 31, 2023 compared to 7.44% at December 31, 2022, while tangible book value per share was $21.95 at December 31, 2023 compared to $18.50 at December 31, 2022. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures.
TCE was 8.44% at December 31, 2024 compared to 8.09% at December 31, 2023, while tangible book value per share was $24.82 at December 31, 2024, compared to $21.95 at December 31, 2023. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures.
Interest income recorded on non-accrual loans as principal payments was $342,000, $160,000, and $312,000 for 2023, 2022, and 2021. Interest income that would have been recorded if non-accrual loans were on a current basis in accordance with their original terms was $1.5 million, $1.1 million, and $359,000 for 2023, 2022, and 2021.
Interest income recorded on non-accrual loans as principal payments totaled $624,000, $342,000, and $160,000 for 2024, 2023, and 2022. Interest income that would have been recorded if non-accrual loans were on a current basis in accordance with their original terms totaled $1.3 million, $1.5 million, and $1.1 million for 2024, 2023, and 2022.
Loans outstanding and related unfunded commitments are concentrated within Bancorp’s current market areas, which encompass the Louisville, Kentucky MSA, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs. 59 Table of Contents CRE represents the largest segment of Bancorp’s loan portfolio, totaling $2.5 billion, or 43%, of total loans as of December 31, 2023.
Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass the Louisville, Kentucky MSA, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs. CRE represents the largest segment of Bancorp’s loan portfolio, totaling $2.84 billion, or 44%, of total loans as of December 31, 2024.
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. 35 Table of Contents 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.
We realize that current asset quality metrics remain solid and, recognizing the cyclical nature of the lending business and current economic conditions, we anticipate this trend will likely normalize over time. 36 Table of Contents 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.
Discussion of 2023 vs 2022: Net interest spread (FTE) and NIM (FTE) were 2.78% and 3.39%, for the year ended December 31, 2023 compared to 3.21% and 3.35% for the year ended December 31, 2022, respectively.
Discussion of 2024 vs 2023: Net interest spread (FTE) and NIM (FTE) were 2.58% and 3.31%, for the year ended December 31, 2024, compared to 2.78% and 3.39% for the prior year, respectively.
Approximate tax equivalent adjustments to interest income were $537,000, $884,000 and $434,000 for the years ended December 31, 2023, 2022 and 2021, respectively. ● Interest income includes loan fees of $5.2 million ($242,000 associated with the PPP), $10.3 million ($4.2 million associated with the PPP) and $20.5 million ($18.1 million associated with the PPP) for the years ended December 31, 2023, 2022 and 2021, respectively.
Approximate tax equivalent adjustments to interest income were $360,000, $537,000 and $884,000 for the years ended December 31, 2024, 2023 and 2022, respectively. ● Interest income includes loan fees of $6.3 million ($35,000 associated with the PPP), $5.2 million ($242,000 associated with the PPP) and $10.3 million ($4.2 million associated with the PPP) for the years ended December 31, 2024, 2023 and 2022, respectively.
NIM and net interest spread calculations above exclude the sold portion of certain participation loans, which totaled $4 million, $5 million and $5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
NIM and net interest spread calculations in the preceding table exclude the sold portion of certain participation loans, which totaled $2 million, $4 million and $5 million for the years ended December 31, 2024, 2023 and 2022, respectively.
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 and employee benefits comprised 59% and 54% of total non-interest expenses for the years ended December 31, 2023 and 2022, respectively. Excluding merger expenses, compensation and employee benefits comprised 60% of total non-interest expenses for the year ended December 31, 2022.

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