STOCK YARDS BANCORP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. ‘ (form 10-K)

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The consolidated monetary statements embrace the accounts of Inventory Yards
Bancorp, Inc.
and its wholly owned subsidiaries, SYB and the Captive,
collectively known as “Bancorp” or the “Firm.” All vital
inter-company transactions and accounts have been eradicated in consolidation.


Bancorp is a FHC headquartered in Louisville, Kentucky. Established in 1904, SYB
is a state-chartered non-member monetary establishment that gives providers in
Louisville, central, jap and northern Kentucky, in addition to the Indianapolis,
Indiana and Cincinnati, Ohio metropolitan markets by 63 full-service
banking middle areas. The Captive is a Nevada-based, wholly-owned insurance coverage
subsidiary of the Firm, which was retained along side the KB
acquisition and gives insurance coverage protection not at present supplied by Bancorp's
industrial insurance policies to Bancorp and SYB, in addition to a gaggle of third-party
insurance coverage captives.



Administration’s Discussion and Analysis of Financial Condition and Results of
Operations must be learn along side the consolidated monetary
statements and accompanying Footnotes offered in Half II Merchandise 8 “Financial
Statements and Supplementary Information.”

Cautionary Assertion Concerning Ahead-Trying Statements



This doc incorporates statements regarding future outcomes of Bancorp which can be
thought-about "forward-looking" as outlined by Part 27A of the Securities Act of
1933, as amended, and Part 21E of the Securities Trade Act of 1934, as
amended. The forward-looking statements are principally, however not solely,
contained in Half II Merchandise 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Half I Merchandise 1A "Danger Elements."



Ahead-looking statements contain identified and unknown dangers, uncertainties, and
different components that will trigger precise outcomes, efficiency, or achievements to be
materially totally different from future outcomes, efficiency, or achievements expressed
or implied by the assertion. These statements are sometimes, however not all the time, made
by the use of phrases or phrases equivalent to "intention," "anticipate," "consider,"
"can," "conclude," "proceed," "might," "estimate," "count on," "foresee," "objective,"
"intend," "doubtless," "could," "would possibly," "outlook," "attainable," "plan," "predict,"
"mission," "potential," "search," "ought to," "goal," "will," "would," or different
related expressions. These forward-looking statements usually are not historic info
and are primarily based on present expectations, estimates and projections about our
{industry}, administration's beliefs and sure assumptions made by administration, many
of which, by their nature, are inherently unsure and past our management.
Ahead-looking statements element administration's expectations concerning the long run
and are primarily based on info identified to administration solely as of the date the
statements are made and administration undertakes no obligation to replace
forward-looking statements to mirror occasions or circumstances that happen after
the date forward-looking statements are made, besides as required by relevant
legislation.



There is no such thing as a assurance that any record of dangers and uncertainties or danger components
is full. Elements that might trigger precise outcomes to vary materially from
these expressed or implied in forward-looking statements embrace, amongst different
issues:


? influence of the COVID-19 pandemic on Bancorp’s enterprise, together with the influence of

the actions taken by governmental authorities to strive and comprise the pandemic

or tackle the influence of the pandemic on the U.S. economic system (together with, with out

limitation, numerous reduction efforts), and the ensuing impact of all such

objects on our operations, liquidity and capital place, and on the monetary

    situation of Bancorp's debtors and different prospects;




  ? modifications in, or forecasts of, future political and financial situations,
    inflation and efforts to regulate it;



? accuracy of assumptions and estimates utilized in establishing the ACL on loans,

    ACL for off-balance sheet credit score exposures and different estimates;



? impairment of funding securities, goodwill, MSRs, different intangible belongings

    or DTAs;



? potential to successfully navigate an financial slowdown or different financial or

    market disruptions;




  ? modifications in legal guidelines and laws or the interpretation thereof;




  ? modifications in fiscal, financial, and/or regulatory insurance policies;



? modifications in tax polices together with however not restricted to modifications in federal and

    state statutory charges;



? habits of securities and capital markets, together with modifications in curiosity

    charges, market volatility and liquidity;




  ? potential to successfully handle capital and liquidity;



? long-term and short-term rate of interest fluctuations, in addition to the form of

    the U.S. Treasury yield curve;




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? the magnitude and frequency of modifications to the FFTR applied by the Federal

    Open Market Committee of the FRB;




  ? aggressive product and pricing pressures;




  ? projections of income, bills, capital expenditures, losses, EPS,
    dividends, capital construction, and so forth.;




  ? descriptions of plans or aims for future operations, merchandise, or
    providers;




  ? integration of acquired monetary establishments, companies or future
    acquisitions;



? modifications within the credit score high quality of Bancorp’s prospects and counterparties,

    deteriorating asset high quality and charge-off ranges;




  ? modifications in know-how instituted by Bancorp, its counterparties or
    rivals;




  ? modifications to or the effectiveness of Bancorp's general inside management
    atmosphere;



? adequacy of Bancorp’s danger administration framework, disclosure controls and

    procedures and inside management over monetary reporting;



? modifications in relevant accounting requirements, together with the introduction of new

    accounting requirements;




  ? modifications in investor sentiment or habits;




  ? modifications in shopper/enterprise spending or financial savings habits;



? potential to appropriately tackle social, environmental and sustainability

    considerations that will come up from enterprise actions;



? incidence of pure or man-made disasters or calamities, together with well being

emergencies, the unfold of infectious illnesses, pandemics or outbreaks of

hostilities, and Bancorp’s potential to deal successfully with disruptions precipitated

    by the foregoing;



? potential to keep up the safety of its monetary, accounting, know-how,

    knowledge processing and different operational methods and services;



? potential to face up to disruptions that could be brought on by any failure of its

    operational methods or these of third events;



? potential to successfully defend itself towards cyberattacks or different makes an attempt by

unauthorized events to entry info of Bancorp, its distributors or its

    prospects or to disrupt methods; and



? different dangers and uncertainties reported from time-to-time in Bancorp’s filings

    with the SEC, together with Half I Merchandise 1A "Danger Elements.".




Bancorp executed a definitive Settlement and Plan of Merger ("settlement"), dated
as of August 3, 2021, to accumulate Commonwealth Bancshares, Inc. and its
subsidiary Commonwealth Financial institution & Belief Firm (collectively known as
"Commonwealth"). This doc incorporates statements concerning the proposed
acquisition transaction that aren't statements of historic truth and are
thought-about forward-looking statements throughout the standards described above. These
statements are likewise topic to numerous dangers and uncertainties that will
trigger precise outcomes and outcomes of the proposed transaction to vary,
presumably materially, from the anticipated outcomes or outcomes expressed or
implied in these forward-looking statements. Along with components disclosed in
experiences filed by Bancorp with the SEC, dangers and uncertainties for Bancorp,
Commonwealth and the mixed firm embrace, however usually are not restricted to: the
chance that some or all of the anticipated advantages of the proposed merger
is not going to be realized or is not going to be realized throughout the anticipated time interval;
the danger that integration of Commonwealth's operations with these of Bancorp
can be materially delayed or can be extra expensive or troublesome than anticipated;
the events' incapability to fulfill expectations concerning the timing, completion and
accounting and tax remedies of the merger; the failure to fulfill the
situations to completion of the merger; the failure of the proposed transaction
to shut for another motive, together with, with out limitation, the incidence of
any occasion, change or different circumstance that might give rise to the proper of
both occasion or each events to the definitive settlement to terminate the
settlement; diversion of administration's consideration from ongoing enterprise operations
and alternatives because of the merger; the challenges of integrating and retaining
key staff; the impact of the announcement of the merger on Bancorp's,
Commonwealth's or the mixed firm's respective buyer and worker
relationships and working outcomes; the chance that the merger could also be extra
costly to finish than anticipated, together with because of this of surprising
components or occasions; dilution brought on by Bancorp's issuance of further shares of
widespread inventory in reference to the merger; the magnitude and length of the
COVID-19 pandemic and its influence on the worldwide economic system and monetary market
situations and the enterprise, outcomes of operations and monetary situation of
Bancorp, Commonwealth and the mixed firm; and normal aggressive,
financial, political and market situations and fluctuations.



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Pending Acquisition of Commonwealth Bancshares, Inc. and its Subsidiary
Commonwealth Financial institution & Belief Firm



Efficient August 3, 2021, Bancorp executed a definitive settlement, pursuant to
which Bancorp will purchase all of the excellent widespread inventory of
privately-owned Commonwealth Bancshares, Inc., which operates 15 retail
branches, together with 9 in Jefferson County, 4 in Shelby county and two in
Northern Kentucky.



Below the phrases of the Settlement, the Firm will purchase all excellent
widespread inventory in a mixed inventory and money transaction, leading to complete
consideration to Commonwealth's shareholders of roughly $171 million primarily based
on estimates as of February 17, 2022. Bancorp will fund the money fee portion
of the acquisition by present sources on-hand.



Bancorp has obtained all required regulatory approvals to finish the
acquisition and the acquisition is predicted to shut on or round March 7, 2022,
topic to satisfaction or waiver of remaining closing situations. As of
December 31, 2021, Commonwealth reported roughly $1.31 billion in belongings,
$680 million in loans, $1.16 billion in deposits and $88 million in tangible
widespread fairness. Commonwealth additionally maintains a Wealth Administration and Belief
Division with complete belongings underneath administration of $2.73 billion at December 31,
2021. The mixed franchise can have 78 branches at acquisition date and
anticipates serving prospects by a department community of 73 areas, as
Bancorp has notified regulators of its intent to shut 5 areas as half of
the merger. The mixed franchise can have complete belongings of roughly $8.0
billion, $4.85 billion in gross loans, $6.95 billion in deposits and $7.53
billion in belief belongings underneath administration.



Accomplished Acquisition of Kentucky Bancshares, Inc.



On Might 31, 2021, Bancorp accomplished its acquisition of Kentucky Bancshares, Inc.
and its wholly owned subsidiary, Kentucky Financial institution, collectively outlined as "KB," a
industrial financial institution and belief firm working 19 branches all through central and
jap Kentucky with $1.27 billion in belongings, $755 million in loans (together with
PPP), $396 million in AFS debt securities and $1.04 billion in deposits on the
time of acquisition. Kentucky Bancshares, Inc. was additionally the holding firm for
an insurance coverage captive, which Bancorp acquired and retained. Bancorp acquired all
excellent widespread inventory of Kentucky Bancshares, Inc. in a mixed inventory and
money transaction that resulted in complete consideration paid to Kentucky
Bancshares, Inc. shareholders of $233 million.



Bancorp recorded goodwill of $123 million and incurred pre-tax merger associated
bills totaling $18.1 million for the 12 months ended December 31, 2021 because of this
of the KB acquisition.



The acquisition of KB had a major influence on the ACL and credit score loss
provisioning for the 12 months ended December 31, 2021. In complete, acquisition-related
exercise served to extend the ACL by $14.2 million for the 12 months ended December
31, 2021. This improve consisted of $6.Eight million attributed to the acquired PCD
mortgage portfolio, with the corresponding offset recorded to goodwill (as opposed
to provision for credit score loss expense), and $7.Four million attributed to the
acquired non-PCD portfolio, which represented the acquisition-related provision
expense for the 12 months ended December 31, 2021.



Issued however Not But Efficient Accounting Requirements Updates

For disclosure concerning the influence to Bancorp’s monetary statements of
issued-but-not-yet-effective ASUs, see the Footnote titled “Abstract of
Vital Accounting Insurance policies” of Half II Merchandise 8 “Financial Statements and
Supplementary Information.”


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Vital Accounting Insurance policies and Estimates



Bancorp's consolidated monetary statements and accompanying footnotes have been
ready in accordance with GAAP. The preparation of these monetary statements
requires administration to make estimates and assumptions that have an effect on the reported
quantities of belongings and liabilities, the disclosure of contingent belongings and
liabilities on the date of the monetary statements and the reported quantities of
income and bills through the reported intervals.



Administration frequently evaluates its accounting insurance policies and estimates that it
makes use of to arrange the consolidated monetary statements. Basically, administration's
estimates and assumptions are primarily based on historic expertise, accounting and
regulatory steering, and info obtained from impartial third-party
professionals. Precise outcomes could differ from these estimates made by
administration.



Vital accounting insurance policies are those who administration believes are probably the most
vital to the portrayal of Bancorp's monetary situation and working
outcomes and require administration to make estimates which can be troublesome, subjective
and complicated. Most accounting insurance policies usually are not thought-about by administration to be
crucial accounting insurance policies. A number of components are thought-about in figuring out
whether or not or not a coverage is crucial within the preparation of the monetary
statements. These components embrace, amongst different issues, whether or not the estimates
have a major influence on the monetary statements, the character of the
estimates, the flexibility to readily validate the estimates with different info
together with impartial third events or out there pricing, sensitivity of the
estimates to modifications in financial situations and whether or not different strategies of
accounting could also be utilized underneath GAAP. Administration has mentioned every crucial
accounting coverage and the methodology for the identification and dedication
of crucial accounting insurance policies with Bancorp's Audit Committee. Efficient
January 1, 2021 by December 31, 2021, the numerous accounting insurance policies
thought-about probably the most crucial in making ready Bancorp's consolidated monetary
statements are the dedication of the ACL on loans and Goodwill.



Allowance for Credit score Losses on Loans and Provision for Credit score Losses

On January 1, 2020, Bancorp adopted ASC 326 “Financial Devices – Credit score
Losses,” which created materials modifications to Bancorp’s crucial accounting coverage
that existed at December 31, 2019.


For functions of establishing the overall reserve, Bancorp stratifies the mortgage
portfolio into homogeneous teams of loans that possess related loss potential
traits and calculates the web quantity anticipated to be collected over the
life of the loans to estimate the credit score losses within the mortgage portfolio. Bancorp's
methodologies for estimating the ACL on loans think about out there related
details about the collectability of money flows, together with details about
previous occasions, present situations, and affordable and supportable forecasts.



The ACL on loans is established by credit score loss expense charged to present
earnings. The quantity maintained within the ACL displays administration's estimate of the
web quantity not anticipated to be collected on the mortgage portfolio on the steadiness
sheet date over the life of the mortgage. The ACL is comprised of particular reserves
assigned to sure loans that don't share normal danger traits and
normal reserves on swimming pools of loans that do share normal danger traits.
Elements contributing to the dedication of particular reserves embrace the
creditworthiness of the borrower and extra particularly, modifications within the anticipated
future receipt of principal and curiosity funds and/or within the worth of pledged
collateral. A reserve is recorded when the carrying quantity of the mortgage exceeds
the discounted estimated money flows utilizing the mortgage's preliminary efficient curiosity
price, an anticipated loss ratio primarily based on historic losses adjusted as acceptable
for qualitative components, or the honest worth of the collateral for sure
collateral-dependent loans.



With the adoption of CECL, provision expense could also be extra risky on account of modifications
within the CECL mannequin assumptions of credit score high quality, macroeconomic components and
situations, and mortgage composition. The pandemic has had a fabric influence on
Bancorp's quarterly ACL calculations. Whereas Bancorp has not but skilled
credit score high quality points leading to charge-offs associated to the pandemic, ACL
calculations and ensuing credit score loss expense is considerably impacted by
modifications in forecasted financial situations, which had been usually risky for the
years ended December 31, 2020 and 2021, respectively. Ought to the forecast for
financial situations worsen, Bancorp might expertise additional will increase in its
required ACL and document further credit score loss expense.



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Goodwill



Goodwill ensuing from enterprise combos represents the surplus of the
buy worth over the honest worth of the web belongings of companies acquired.
Goodwill ensuing from enterprise combos is usually decided because the
extra of the honest worth of the consideration transferred, plus the honest worth
of any non-controlling pursuits within the purchase, over the honest worth of the web
belongings acquired and liabilities assumed as of the acquisition date. Goodwill and
intangible belongings acquired in a purchase order enterprise mixture and decided to
have an indefinite helpful life usually are not amortized, however examined for impairment at
least yearly. Occasions that will set off goodwill impairment embrace
deterioration in financial situations, a decline in market-dependent multiples or
metrics (i.e. inventory worth falling under tangible ebook worth), adverse tendencies in
general monetary efficiency and regulatory motion.



Bancorp has chosen September 30 because the date to carry out the annual impairment
check. Goodwill is the one intangible asset with an indefinite life on Bancorp's
consolidated steadiness sheets. No impairment to Goodwill was indicated primarily based on
Bancorp's annual testing for 2021.



At December 31, 2021, Bancorp had $136 million in goodwill recorded on its
steadiness sheet, consisting primarily of $123 million recorded in affiliation with
the acquisition of KB. As permitted underneath GAAP, administration has as much as 12 months
following the date of acquisition to finalize the honest values of the acquired
belongings and assumed liabilities associated to the KB acquisition. Throughout this
measurement interval, Bancorp could document subsequent changes to goodwill for
provisional quantities recorded on the acquisition date. Additional, further
goodwill is predicted to be recorded in affiliation with the pending Commonwealth
acquisition in 2022, which can improve the quantity of goodwill on Bancorp's
steadiness sheet considerably.



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Enterprise Phase Overview



Bancorp is split into two reportable segments: Industrial Banking and WM&T:


Industrial Banking gives a full vary of mortgage and deposit merchandise to
particular person shoppers and companies in all its markets by retail lending,
mortgage banking, deposit providers, on-line banking, cellular banking, non-public
banking, industrial lending, industrial actual property lending, leasing, treasury
administration providers, service provider providers, worldwide banking, correspondent
banking and different banking providers. The Financial institution additionally presents securities brokerage
providers through its banking middle community by an association with a 3rd
occasion broker-dealer within the Industrial Banking section.



WM&T gives funding administration, monetary & retirement planning and belief &
property providers, in addition to retirement plan administration for companies and
firms in all markets during which Bancorp operates. The magnitude of WM&T
income distinguishes Bancorp from different group banks of related asset dimension.



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



The COVID-19 pandemic within the U.S. and efforts to comprise each the virus and the
associated financial fallout have had a fancy and vital influence on the
economic system, the banking {industry} and Bancorp. Whereas the distribution of
vaccinations, easing of restrictions on public commerce and enterprise actions,
and stabilizing unemployment ranges have been constructive developments over the
previous a number of months, the pandemic's results on native, nationwide and international
financial exercise could proceed to weigh on Bancorp's monetary situation and
outcomes of operations in 2022.



Bancorp’s monetary situation and outcomes of operations for the 12 months ended
December 31, 2021 had been considerably impacted by the next pandemic-related
components, amongst others:

  ? General extra steadiness sheet liquidity




  ? The sustained low rate of interest atmosphere and associated NIM compression



? Vital participation within the SBA’s PPP, which concluded on Might 31, 2021

? The FRB’s Seasonally Adjusted Nationwide Civilian Unemployment Charge forecast and

    the ensuing influence to the ACL on loans and off steadiness sheet credit score
    exposures




The FRB's choice to decrease the FFTR 150 bps in March of 2020 in response to the
then-developing pandemic decreased the FFTR to a variety of 0%-0.25% and Prime to
3.25%, the place each remained as of December 31, 2020 and 2021. In line with the
price drops, key benchmark charges, such because the five-year treasury price and
one-month LIBOR, declined dramatically. Whereas the rate of interest atmosphere has
improved in current quarters, key charges stay effectively under pre-pandemic ranges.



Bancorp's participation within the PPP resulted in roughly 5,500 PPP mortgage
originations totaling $918 million ($887 million web of unearned deferred charges
and prices) for the reason that program's inception as half of the CARES Act, which was
signed into legislation in March 2020. Whereas the primary spherical of PPP expired in August
2020, legislative motion created a second spherical of funding for this system and
subsequently prolonged this system to Might 31, 2021.



As half of the primary spherical of the PPP, Bancorp originated over 3,400 PPP loans
totaling $657 million ($637 million web of unearned deferred charges and prices). As
of December, 2021, 98% of the {dollars} originated within the first spherical have been
forgiven. Additional, roughly 99% of the $19.6 million in web charges obtained
for this spherical have been acknowledged life so far. As these debtors had been
required to start making funds in July, accelerated forgiveness exercise was
skilled through the third and fourth quarters of 2021. Remaining spherical one
originations are anticipated to be forgiven within the coming months.



As half of the second spherical of the PPP, Bancorp originated over 2,100 PPP loans
totaling $261 million ($250 million web of unearned deferred charges and prices). As
of December 31, 2021, 49% of the {dollars} originated within the second spherical have
been forgiven and 61% of the $11.Four million in web charges obtained for this spherical
had been acknowledged in 2021. As these debtors usually are not required to make funds
for 16 months, Bancorp expects a good portion of these debtors will
search forgiveness in early to mid-2022 in reference to their tax return
preparation.



As of December 31, 2021, excellent PPP loans originated by KB and acquired by
Bancorp totaled $6 million.


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Curiosity and price revenue earned on the PPP portfolio totaled $22.Zero million and
$13.6 million for the years ended December 31, 2021 and 2020, respectively. As
of December 31, 2021, Bancorp had $4.6 million of web unearned deferred charges
associated to the PPP which have but to be acknowledged and because of this, PPP mortgage
forgiveness will proceed to have an effect on working outcomes for the primary
half of 2022.



Because of this of the PPP originations, forgiveness exercise, document deposit ranges
and traditionally low rates of interest, extra liquidity has created NIM
compression, in addition to challenges related to deploying idle money. Bancorp
made substantial investments within the AFS debt securities portfolio through the
12 months in an effort to deploy extra liquidity, buying $505 million in AFS
debt securities (excluding these added by the KB acquisition) in 2021.



The ACL on loans (excluding acquisition associated exercise) decreased $5 million
between December 31, 2020 and December 31, 2021, a stark distinction from the massive
reserve construct recorded between December 31, 2019 and December 31, 2020, which
included a $15 million improve that was separate and subsequent to the
will increase recorded efficient January 1, 2020 in relation to the preliminary adoption
of CECL. The pandemic had a fabric influence on ACL calculations in 2020 and
2021, as provisioning surged amidst modifications in forecasted financial situations,
particularly the FRB's Seasonally Adjusted Nationwide Civilian Unemployment Charge.
After peaking in direction of the center of 2020, unemployment forecasts have steadily
improved, as produce other underlying CECL mannequin components, leading to a discount
of the availability for credit score losses recorded in every quarter of 2021.



Whereas separate from the ACL on loans and recorded in different liabilities on the
consolidated steadiness sheets, the ACL for off steadiness sheet credit score exposures additionally
skilled a lower between December 31, 2020 and December 31, 2021. A web
profit of $2.2 million was recorded to provision for credit score losses for off
steadiness sheet exposures in 2021, as loss components related throughout the
calculation improved and line of credit score utilization continued to extend, whereas
remaining under pre-pandemic ranges. Partially offsetting this lower was a
$250,000 improve to the ACL for off steadiness sheet credit score exposures recorded
through the second quarter, in relation to the KB acquisition, which had no
influence on earnings. The ACL for off steadiness sheet credit score exposures stood at $3.5
million as of December 31, 2021 in comparison with $5.Four million as of December 31,
2020.



Bancorp has not incurred any vital challenges to its potential to keep up
its methods and controls in mild of the measures taken to forestall the unfold of
COVID-19 and has not incurred vital useful resource constraints by the
implementation of its enterprise continuity plans and doesn't anticipate
incurring such points sooner or later. Bancorp has not made, and presently does
not count on to make, any materials staffing or compensation modifications because of this of
the pandemic.



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Overview – Working Results (FTE)

The next desk presents an outline Bancorp’s monetary efficiency for the
years ended December 31, 2021, 2020 and 2019:


Years Ended December 31,                                                                 Variance
({dollars} in hundreds, besides
per share knowledge)                     2021          2020          2019         2021 / 2020          2020 / 2019

Web revenue                        $  74,645     $  58,869     $  66,067                27 %                (11 )%

Diluted earnings per share $ 2.97 $ 2.59 $ 2.89

           15 %                (10 )%
ROA                                    1.33 %        1.40 %        1.90 %              (7 )bps             (50 )bps
ROE                                   13.02 %       14.01 %       17.09 %             (99 )bps            (308 )bps



Extra dialogue follows underneath the part titled “Results of Operations.”

Normal highlights for the 12 months ended December 31, 2021 in comparison with December 31,
2020
:

? Bancorp accomplished its acquisition of KB through the second quarter of 2021. At

the time of acquisition, KB had $1.27 billion in belongings, $755 million in loans

  (together with PPP), $396 million in AFS debt securities and $1.04 billion in
  deposits.

o The 12 months ended December 31, 2021 included seven months of exercise related

with the KB acquisition, which contributed roughly $20.Zero million in web

curiosity revenue, $7.Zero million in non-interest revenue and $15.Three million in

non-interest expense (excluding one-time merger associated bills). In

addition, one-time merger associated bills totaling $18.1 million and credit score

loss expense on the acquired mortgage portfolio of $7.Four million had been recorded for

the 12 months ended December 31, 2021.

? In 2021, Bancorp set the next monetary information:

o Whole income, comprising web curiosity revenue FTE and non-interest revenue, of

$237.Four million, shattering the earlier document of $188.Zero million in 2020

o Report mortgage manufacturing (excluding PPP), which drove $291 million of legacy

    portfolio development and, mixed with growth into the Central Kentucky
    market, led to document complete loans of $4.12 billion at December 31, 2021

o Whole deposit development of $1.80 billion, surpassing the earlier document of $855

million in 2020, $1.08 billion of which was added by growth into the

Central Kentucky market (entered into because of this of the KB acquisition)

o WM&T AUM totaled $4.80 billion at December 31, 2021, with $949 million of

development through the 12 months, roughly $250 million of which was added by

the KB acquisition

o WM&T providers revenue of $27.6 million boosted by document web new enterprise

    technology and robust market efficiency at December 31, 2021


  o Debit and bank card revenue of $13.5 million, supported by natural and
    acquisition-related development in transaction quantity and buyer base

o Greater transaction quantity, new product gross sales and buyer base growth

boosted Treasury Administration charges to a document $6.9 million

? Web revenue totaled $74.6 million for the 12 months ended December 31, 2021,

leading to diluted EPS of $2.97, in comparison with web revenue of $58.9 million and

diluted EPS of $2.59 for the 12 months ended December 31, 2020.

o Working outcomes from the 12 months ended December 31, 2021 had been considerably

impacted by the acquisition of KB, PPP forgiveness exercise, discount in each

the ACL on loans and ACL for off-balance sheet exposures, substantial natural

mortgage and deposit development (excluding acquisition and PPP) and historic ranges of

extra liquidity.

o Working outcomes for the 12 months ended December 31, 2020 had been decrease in comparison with

2021, primarily on account of elevated credit score loss provisioning and reserves for

off-balance sheet credit score exposures related to the growing pandemic and

unprecedented authorities stimulus actions had a major influence on

Bancorp’s working ends in 2020.

? NIM decreased 17 bps to three.22% for the 12 months ended December 31, 2021 in comparison with

3.39% for the prior 12 months in line with the sustained low rate of interest

atmosphere and document ranges of extra liquidity, which created vital

NIM compression. Regardless of the lower in NIM, natural mortgage development, the KB

acquisition, price revenue related to PPP loans and deposit price cuts

resulted in a $35.2 million, or 26%, improve in web curiosity revenue in contrast

  to the prior 12 months.




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? Whole loans (excluding PPP loans) elevated $1.05 billion, or 35%, for the 12 months

ended December 31, 2021 as in comparison with December 31, 2020. Whereas roughly

$756 million of this development was attributed to the central Kentucky market

(entered into because of this of the KB acquisition), the remaining $291 million

was attributed to robust natural development highlighted by every of the Louisville,

Indianapolis and Cincinnati markets ending the 12 months at historic highs.

? Whole provision for credit score losses was a web profit of $753,000 for the 12 months

ended December 31, 2021 in comparison with $18.Four million of provision expense recorded

for the 12 months ended December 31, 2020.

o Whereas provision of $7.Four million was recorded in relation to the mortgage portfolio

added by the KB acquisition, a cumulative web profit of $8.2 million was

recorded for credit score losses on loans and credit score losses on off steadiness sheet

exposures in 2021, because of this of stabilized unemployment forecasts, usually

enhancing CECL mannequin components and stronger line of credit score utilization.

o The adoption of CECL efficient January 1, 2020 and subsequent pandemic-related

developments, equivalent to elevated unemployment and historic declines in line of

credit score utilization amidst the evolving pandemic drove elevated provisioning in

2020.

? C&I line of credit score utilization improved to 31.8% at December 31, 2021, up from

26.1% at December 31, 2020. The onset of the pandemic in 2020 resulted in

step by step declining ranges of utilization that bottomed out in March of 2021,

enhancing thereafter in every of the ultimate three quarters of 2021. Whereas this

was a constructive growth for mortgage development through the 12 months, utilization nonetheless

stays effectively under pre-pandemic ranges.

? Bancorp’s ACL on loans to complete loans was 1.29% at December 31, 2021, in contrast

to 1.47% at December 31, 2020.

? Whole deposits elevated $1.80 billion, or 45%, at December 31, 2021 in contrast

to December 31, 2020. Roughly $1.08 billion of this development was attributed

to the central Kentucky market (entered into because of this of the KB acquisition)

whereas vital natural development was additionally skilled through the 12 months, as

prospects usually maintained elevated ranges of liquidity stemming from

financial uncertainty, PPP funding and continued federal stimulus. Deposits have

remained elevated for a number of quarters and completed at document ranges (together with

and excluding acquisition-related exercise) as of December 31, 2021.

? Non-interest revenue elevated $14.Zero million, or 27%, for the 12 months ended

December 31, 2021 in comparison with the prior 12 months. Whereas the acquisition of KB

resulted in a considerable contribution to non-interest revenue, vital

natural development was additionally skilled throughout all non-interest income streams,

with the exception of mortgage banking, led by WM&T, card revenue and Treasury

administration charges.

? Non-interest bills elevated $40.6 million, or 40%, for the 12 months ended

December 31, 2021 in comparison with the identical interval of 2020, $19.Zero million of which

associated to one-time merger associated bills (together with bills regarding the

pending Commonwealth acquisition). Whereas recurring bills attributed to the

KB acquisition comprise the bulk of the remaining improve, non-interest

bills typically remained well-controlled and in line with growth,

robust efficiency and continued funding in know-how.

? Bancorp’s effectivity ratio (FTE) for the 12 months ended December 31, 2021 elevated

to 59.94% from 54.06% for the prior 12 months, in line with recording one-time

merger associated prices of $19.Zero million for the 12 months ended December 31, 2021.

Excluding one-time merger associated prices and bills associated to the

amortization of tax credit score partnerships, Bancorp’s non-GAAP effectivity ratio at

December 31, 2021 improved to 51.77% from 52.42% for the 12 months prior. See the

part titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to

GAAP measures.

? The ETR elevated to 21.75% for the 12 months ended December 31, 2021 from 13.10%

for a similar interval in 2020. The rise was considerably impacted by the

  prior 12 months profit of a big historic tax credit score mission coupled with
  Bancorp's transition from a capital-based franchise tax to the Kentucky
  company revenue tax, which started January 1, 2021.




Whole stockholder's fairness to complete belongings was 10.17% as of December 31, 2021
in comparison with 9.56% at December 31, 2020. Whole fairness elevated $235 million in
2021, as $205 million of inventory issued for the acquisition of KB and web revenue
of $74.6 million had been offset by $28.2 million of dividends declared, modifications in
AOCI and inventory primarily based compensation exercise.



TCE is a measure of an organization's capital, which is helpful in evaluating the
high quality and adequacy of capital. Bancorp's ratio of TCE to complete tangible belongings
was 8.22% as of December 31, 2021, in contrast with 9.28% at December 31, 2020, the
decline pushed by goodwill of $123 million recorded in relation to the KB
acquisition. See the part titled "Non-GAAP Financial Measures" for
reconcilement of non-GAAP to GAAP measures.



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Normal highlights for the 12 months ended December 31, 2020 in comparison with December 31,
2019
:

? Web revenue totaled $58.9 million for the 12 months ended December 31, 2020,

leading to diluted EPS of $2.59, a 10% decline from the prior 12 months. The 12 months

ended December 31, 2019 included $3.9 million in non-recurring tax changes

associated to 2 Kentucky tax legislation modifications that equated to $0.18 per diluted share

along with one-time merger associated bills, which equated to $0.05 per

diluted share for 2019. Working outcomes for the 12 months ended December 31, 2020

had been decrease in comparison with the prior 12 months, primarily on account of elevated credit score loss

provisioning and reserves for off-balance sheet credit score exposures related

with the unsure pandemic-related financial situations, a considerably decrease

rate of interest atmosphere and unprecedented authorities stimulus actions.
? NIM decreased 43 bps to three.39% for the 12 months ended December 31, 2020 in comparison with

3.82% for the prior 12 months, in line with the decline within the rate of interest

atmosphere, the addition of the low-yielding PPP portfolio and extra steadiness

sheet liquidity; offset by robust common 12 months over prior 12 months mortgage development

(excluding PPP loans) and the strategic reducing of said deposit curiosity

charges and CD providing charges in tandem with FRB rate of interest actions. Regardless of

the lower in NIM, Bancorp’s deposit price cuts and price revenue related to

PPP loans resulted in a $10.6 million, or 8%, improve in web curiosity revenue

in comparison with the prior 12 months.
? Efficient January 1, 2020, Bancorp started accounting for credit score losses underneath ASC

326, or CECL. The adoption of this customary elevated the opening steadiness of

the ACL on loans and the reserve for off-balance sheet credit score exposures as of

January 1. Preliminary adoption lowered Bancorp’s retained earnings with no

corresponding revenue assertion influence.
? Whole loans (excluding PPP loans) elevated $136 million, or 5%, for the 12 months

ended December 31, 2020, as document first and fourth quarter mortgage manufacturing

book-ended the biggest quarterly mortgage steadiness contraction within the Firm’s

historical past through the second quarter and flat web mortgage exercise within the third

quarter.

? Line of credit score utilization declined considerably in 2020, falling to 38.0% at

December 31, 2020 in comparison with 47.1% at December 31, 2019. The decline was led

by C&I line utilization, which dropped from 40.9% at December 31, 2019 to 26.1% at

December 31, 2020, with a low level of 23.3% reached at September 30, 2020.
? Deposit balances ended at document ranges at December 31, 2020, primarily as a

outcome of PPP funding and larger ranges of liquidity held by prospects

attributable to present financial uncertainty.
? Regardless of general robust credit score metrics, vital credit score loss provisioning

occurred primarily based on the on-going financial disaster, its corresponding influence on

unemployment forecast changes throughout the CECL mannequin, the addition of a

massive particular reserve, qualitative issue changes and mortgage development.

Vital provisioning associated to off-balance sheet credit score exposures was additionally

recorded for the 12 months ended December 31, 2020 in line with declines in line

utilization (primarily C&I).
? Bancorp’s ACL on loans to complete loans was 1.47% at December 31, 2020, in contrast

to 0.94% at December 31, 2019. Bancorp’s ACL on loans to complete loans (excluding

PPP loans) rose to 1.74% at December 31, 2020.
? Non-interest revenue elevated 5% for the 12 months ended December 31, 2020 in contrast

to the prior 12 months on the heels of document mortgage banking revenue regardless of

considerably decrease deposit service cost revenue and the prior 12 months interval

benefitting from $1.Four million of non-recurring revenue. Robust WM&T outcomes,

which included a big property price within the first quarter of 2020 and continued

development in treasury administration charges and card revenue additionally contributed to the

improve.

? Non-interest bills elevated 4% for the 12 months ended December 31, 2020

in comparison with the identical interval of 2019. Elevated tax credit score amortization stemming

from a big tax credit score funding and continued funding in know-how drove

the rise regardless of declines related to one-time acquisition-related

fees and non-recurring exercise within the prior 12 months and pandemic-driven

decreases in advertising and enterprise growth exercise.
? Bancorp’s effectivity ratio (FTE) for the 12 months ended December 31, 2020 improved

to 54.06% from 56.07% for the prior 12 months, the latter of which included $1.3

million in one-time merger-related bills related to the 2019 KSB

acquisition.

? The ETR elevated to 13.1% for the 12 months ended December 31, 2020 from 12.7% for

the identical interval in 2019, the latter of which benefitted from $3.9 million in

  non-recurring tax changes associated to 2 Kentucky tax legislation modifications.




Whole stockholder's fairness to complete belongings was 9.56% as of December 31, 2020
in comparison with 10.91% at December 31, 2019, the decline pushed by the outsized
steadiness sheet development attributed to PPP participation. Whole fairness elevated
$34.Four million in 2020, as web revenue of $58.9 million and modifications in AOCI had been
offset by dividends declared of $24.5 million and numerous inventory primarily based
compensation.



Bancorp's ratio of TCE to complete tangible belongings was 9.28% as of December 31,
2020, in contrast with 10.55% at December 31, 2019, the decline pushed by the
vital steadiness sheet development related to PPP participation as famous
above. See the part titled "Non-GAAP Financial Measures" for reconcilement of
non-GAAP to GAAP measures.



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Challenges for 2022:


Bancorp has recognized the next challenges for fiscal 12 months 2022:

? Bancorp expects to finish the merger of Commonwealth Bancshares, Inc. within the

first quarter of 2022. Bancorp has obtained all required regulatory approvals

to finish the acquisition and the acquisition is predicted to shut on or

round March 7, 2022. Acquisitions require integration of totally different company

cultures, mortgage and deposit merchandise, pricing methods, knowledge processing

methods and different applied sciences, accounting, inside audit and monetary

reporting methods, working methods and inside controls, and advertising

applications and personnel. Bancorp might want to handle the transition successfully

to maximise retention of Commonwealth’s prospects and staff, combine

personnel and methods effectively, and maximize anticipated financial advantages.
? The prospects of a rising rate of interest atmosphere for 2022 and past current

rate of interest danger administration challenges. Bancorp has benefitted considerably

from the low price of funds supplied by its deposit base over the previous 12 months, as

said deposit charges have remained at very low ranges since early 2020. Bancorp

has additionally made vital funding in its AFS debt securities portfolio at

low fastened charges, the market values of which can be impacted by rising charges.

Given the document ranges of liquidity held by Bancorp and within the banking system

usually, the rate of interest danger profile of Bancorp is predicted to be barely

asset delicate with rates of interest anticipated to rise.
? NIM compression stays a problem for 2022. Whereas the FRB is projecting

a number of price hikes in 2022 primarily based on its December 2021 coverage assembly, on-going

document ranges of liquidity, present and anticipated pricing

stress/competitors and different financial components, equivalent to inflation, present

causes for warning. Additional, the timing of forgiveness related to the

remaining excellent PPP portfolio will proceed to have an effect on mortgage yields and

NIM, significantly within the first half of 2022.
? Web mortgage development, excluding the PPP portfolio, is a serious focus for Bancorp in

2022. This can be impacted by developments surrounding the on-going pandemic,

competitors, prevailing rates of interest, financial situations, line of credit score

utilization and mortgage prepayments. Bancorp believes there’s continued

alternative for mortgage development in all of its markets, together with the not too long ago

entered Central Kentucky market. The pending acquisition of Commonwealth

Bancshares, Inc. solely serves to bolster these prospects. Bancorp’s potential to

ship enticing mortgage development over the long-term is linked to Bancorp’s

  general success.
? The continued integration and growth of the central Kentucky market

stays a high precedence for 2022 as effectively. The acquisition of KB in 2021 expanded

Bancorp’s presence in central and jap Kentucky and will permit Bancorp to

present broader product choices, elevated lending capabilities and an

expanded department supply system to present and potential prospects alike,

creating stable development alternatives and a bigger platform for future growth.

Prioritizing the event of the central Kentucky market, together with development

of the WM&T enterprise on this market, will play a serious position in delivering

robust working ends in the approaching 12 months.
? Bancorp derives vital non-interest revenue from WM&T providers. Most of

these charges are primarily based upon the market worth of AUM at respective interval ends. To

proceed development of this revenue supply, Bancorp should appeal to new prospects and

retain present prospects. Bancorp believes there’s alternative for development in

all of its markets, significantly by the newly entered Central Kentucky

market and the pending acquisition of Commonwealth Bancshares, Inc., the latter

of which can serve to develop our WM&T buyer base considerably. Progress in

market values of AUM and charges relies upon constructive returns within the general

capital markets, which ended 2021 close to document highs. Bancorp has no management

over market volatility.
? Aggressive components surrounding the growing pattern of monetary establishments

lowering or eliminating sure deposit account charges, significantly

overdraft-related charges, presents a major problem to rising

deposit-related non-interest revenue sooner or later and doubtlessly threatens a

income stream that has been in an industry-wide, regulation-driven decline for

a number of years. Strategic choices surrounding this pattern could influence not solely

deposit-related revenue, but in addition deposit relationships typically, significantly

for retail prospects, as shopper use of these financial institution deposit providers continues

to evolve. Steady monitoring of these tendencies and analysis of any

potential modifications to our deposit service price construction will play a key position in

the expansion of Bancorp’s non-interest revenue.
? Technological advances are constantly offering alternatives for Bancorp to

think about potential new merchandise and supply channels. Bancorp’s

prospects’ demand for revolutionary and related merchandise and providers is predicted

to pattern together with altering know-how. Bancorp might want to proceed to make

prudent investments in know-how whereas managing related dangers in order to

stay aggressive with different monetary service suppliers, particularly as

Bancorp’s continued growth raises the extent of expectation from prospects.
? Over the previous a number of years, Bancorp’s asset high quality metrics have trended

inside a slender vary, exceeding benchmarks and reaching traditionally robust

ranges. Bancorp realizes that current asset high quality metrics are constructive and,

recognizing the cyclical nature of the lending enterprise, Bancorp anticipates

this pattern will doubtless normalize over time.
? Working outcomes for 2020 and 2021 had been considerably impacted by the pandemic

and efforts to comprise each the virus and its financial influence will proceed to

weigh on the economic system, the banking {industry} and Bancorp. As such, any future

regulatory and legislative actions taken in response to associated developments

  might have a major influence on future working outcomes.




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Results of Operations



Web Curiosity Revenue – Overview


As is the case with most banks, Bancorp's main income sources are web
curiosity revenue and price revenue from numerous monetary providers supplied to
prospects. Web curiosity revenue is the distinction between curiosity revenue earned
on loans, funding securities and different curiosity incomes belongings much less curiosity
expense on deposit accounts and different curiosity bearing liabilities. Mortgage quantity
and rates of interest earned on these loans are crucial to general profitability.
Equally, deposit quantity is essential to funding loans and charges paid on deposits
straight influence profitability. New enterprise quantity is influenced by quite a few
financial components together with market rates of interest, enterprise spending, liquidity,
shopper confidence and numerous aggressive situations throughout the market.
The dialogue that follows is predicated on totally tax-equivalent curiosity knowledge.



Comparative info concerning web curiosity revenue follows:

As of and for the Years                                                               Variance
Ended December 31,
({dollars} in hundreds)             2021           2020           2019        2021 / 2020    2020 / 2019

Web curiosity revenue            $    171,074   $    135,921   $    125,348        26 %              8 %
Web curiosity revenue (FTE)*          171,508        136,133        125,571        26 %              8 %
Web curiosity unfold                   3.16%          3.22%          3.50%       (6) bps         (28) bps
Web curiosity margin                   3.22%          3.39%          3.82%      (17) bps         (43) bps
Common incomes belongings         $  5,318,968   $  4,019,336   $  3,290,345        32 %             22 %
5 12 months Treasury be aware price          1.26%          0.36%          1.69%        90 bps        (133) bps
at 12 months finish
Common 5 12 months Treasury            0.86%          0.53%          1.95%        33 bps        (142) bps
be aware price
Prime price at 12 months finish                3.25%          3.25%          4.75%         - bps        (150) bps
Common Prime                         3.25%          3.53%          5.29%      (28) bps        (176) bps
One month LIBOR at 12 months finish           0.10%          0.14%          1.76%       (4) bps        (162) bps
Common one month LIBOR               0.10%          0.52%          2.22%      (42) bps        (170) bps



*See desk titled, “Common Stability Sheets and Curiosity Charges (FTE)” for element
of Web curiosity revenue (FTE).


NIM and web curiosity unfold calculations above exclude the offered portion of
sure participation loans, which totaled $5 million, $10 million and $8
million for the years ended December 31, 2021, 2020 and 2019, respectively.
These offered loans are on Bancorp's steadiness sheet as required by GAAP as a result of
Bancorp retains some type of efficient management; nonetheless, Bancorp receives no
curiosity revenue on the offered portion. These participation loans offered are excluded
from NIM and unfold evaluation, as a result of Bancorp believes it gives a extra
correct depiction of mortgage portfolio efficiency.



Prime price, the 5 12 months Treasury be aware price and the one month LIBOR are
included within the desk above to offer a normal indication of the rate of interest
atmosphere during which Bancorp has operated through the previous three
years. Roughly $1.2 billion, or 30%, of Bancorp's loans are variable price
and are listed to both Prime or LIBOR, usually repricing as these charges
change. At inception, most of Bancorp's fastened price loans are priced in relation
to the 5 12 months Treasury price.



The rate of interest atmosphere has skilled a major decline over the
three 12 months interval referenced above. The FFTR started 2019 at a variety of
2.25-2.50%, and in flip, Prime started that very same 12 months at 5.50%, representing the
highest rates of interest skilled post-Nice Recession. Subsequent to hitting
these peak marks, the FRB lowered the FFTR 5 occasions for a complete of 225 bps,
the latest of which got here in March of 2020 and took the FFTR to a variety of
0-0.25% and Prime to three.25%, the place each remained as of December 31, 2020 and
December 31, 2021.



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Discussion of 2021 vs 2020:



Web curiosity unfold and NIM had been 3.16% and 3.22% for the 12 months ended December 31,
2021 in comparison with 3.22% and 3.39% for the 12 months ended December 31, 2020. NIM was
considerably impacted in 2021 by the next:



? A sustained low rate of interest atmosphere, pushed by the reducing of the FFTR

in March 2020 to a variety of 0% – 0.25%, which resulted in Prime dropping to

    3.25%, the place it has remained for the reason that first quarter of 2020.



? PPP originations, which started within the second quarter of 2020 and continued

by expiration of this system on Might 31, 2021, in addition to the associated

forgiveness exercise, which accelerates the popularity of price revenue on these

loans and continues to have a major impact on NIM. The PPP portfolio

contributed an 18 bps profit to NIM for the 12 months ended December 31, 2021 as a

outcome of forgiveness exercise, which drove the popularity of $18.1 million

in PPP-related price revenue. As compared, the PPP portfolio had a adverse

influence of Three bps on NIM for the 12 months finish December 31, 2020 because of the massive

    quantity of originations that occurred in 2020 and the have an effect on that the
    low-yielding, 1% said price of these notes had on NIM for the interval.



? General, extra steadiness sheet liquidity contributed roughly 25 bps of

NIM compression for the 12 months ended December 31, 2021. By comparability, extra

steadiness sheet liquidity contributed roughly 13 bps of NIM compression

for a similar interval of 2020. Basically, extra liquidity throughout the banking

system has led to a extremely aggressive mortgage price atmosphere over the previous two

    years.



? Substantial steadiness sheet development, each natural and acquisition-related, which

resulted in complete common incomes asset development of $1.Three billion, or 32%, and

common interest-bearing legal responsibility development of $773 million, or 30%, for the

    12 months ended December 31, 2021 in comparison with the identical interval of 2020.



? The reducing of deposit charges in tandem with FRB rate of interest actions and the

    profit of paying off all FHLB advances throughout 2021.




Web curiosity revenue (FTE) elevated $35.Four million, or 26%, for the 12 months ended
December 31, 2021 in comparison with the identical interval of 2020, on account of curiosity and price
revenue related to the PPP portfolio, substantial development within the non-PPP mortgage
portfolio and AFS debt securities portfolio, and the aforementioned reducing of
deposit charges.



Whole common curiosity incomes belongings elevated $1.30 billion, or 32%, to $5.32
billion for the 12 months ended December 31, 2021, as in comparison with the identical interval of
2020, with the common price earned on complete curiosity incomes belongings contracting
34 bps to three.34%.


? Common complete loans elevated $646 million, or 20%, for the 12 months ended

December 31, 2021 in comparison with the identical interval of 2020. Common non-PPP mortgage

balances grew $692 million, or 24%, for the 12 months ended December 31, 2021

in comparison with the identical interval of 2020, attributed to each the acquisition and

robust natural development. Common PPP mortgage balances decreased $45 million, or

10%, for the 12 months ended December 31, 2021 in comparison with the identical interval of 2020,

    in line with forgiveness exercise all through 2021.



? Common AFS debt securities grew $446 million, or 98%, for the 12 months ended

December 31, 2021 in comparison with the identical interval of 2020, which was attributed to

a mixture of strategically deploying extra liquidity by additional

    funding and the KB acquisition.



? Common FFS and curiosity bearing due from balances elevated $217 million, or

94%, for the 12 months ended December 31, 2021, in line with the elevated degree

    of deposits.




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Whole curiosity revenue (FTE) elevated $29.Four million, or 20%, to $177.5 million
for the 12 months ended December 31, 2021 as in comparison with the identical interval of 2020.

? Curiosity and price revenue on loans (FTE) elevated $26.6 million, or 19%, to

$164.Four million for the 12 months ended December 31, 2021 in comparison with the identical

interval of 2020, pushed by accelerated recognition of PPP price revenue constant

with forgiveness exercise, natural mortgage development and the contribution attributed

    to the KB acquisition.



? Vital development in common AFS debt securities drove a rise of $3.2

million, or 37%, for curiosity revenue (FTE) on the portfolio for the 12 months ended

December 31, 2021 in comparison with the identical interval of 2020. Nevertheless, the decrease

rate of interest atmosphere skilled over the previous twelve months weighed

closely on fastened revenue safety yields, which decreased 59 bps, or 31%.

? Regardless of the substantial improve skilled for common FFS and curiosity

bearing due from balances, corresponding curiosity revenue decreased $93,000, or

13%, for the 12 months ended December 31, 2021 in comparison with the identical interval of 2020

because of this of the FRB reducing the FFTR 150 bps in March 2020 to a variety of

    0-0.25%, the place it remained for the ultimate three quarters of 2020 and the
    entirety of 2021.




Whole common curiosity bearing liabilities elevated $773 million, or 30%, to
$3.39 billion for the 12 months ended December 31, 2021 in contrast with the identical interval
in 2020, with the full common price declining 28 bps to 0.18%.



? Common curiosity bearing deposits elevated $795 million, or 32%, for the 12 months

ended December 31, 2021 in comparison with the identical interval in 2020, with

interest-bearing demand deposits accounting for $500 million of the rise.

Curiosity bearing deposits added because of this of the KB acquisition together with

vital federal stimulus motion, equivalent to PPP funding, propelled deposit

balances to document ranges at December 31, 2021. Additional, normal financial

uncertainty surrounding the on-going pandemic has resulted within the buyer

base sustaining larger ranges of liquidity, just like buyer habits seen

    through the Nice Recession.



? In line with the upper curiosity bearing deposit balances famous above, as

effectively because the KB acquisition, common SSUAR balances elevated $22 million, or

55%, for the 12 months ended December 31, 2021 in comparison with the identical interval of 2020.


  ? Common FHLB advances decreased $45 million, or 73%, for the 12 months ended

December 31, 2021 in comparison with the identical interval of 2020, as advances continued

to mature with out renewal or substitute over the previous 12 months, together with $30

million of three month advances regarding money move hedge rate of interest

    swaps. As well as, Bancorp elected to pay down sure advances previous to
    their maturity through the first and second quarters of 2021, the latter of
    which resulted in an early-termination price of $474,000, recorded as a

part non-interest expense through the second quarter of 2021. Bancorp made

this choice on account of its extra liquidity pushed by the substantial deposit

development it achieved over the previous 12 months, mixed with the near-term outlook for

low rates of interest on the time of repay. As of December 31, 2021, Bancorp

    had no excellent FHLB advances.




Whole curiosity expense decreased $5.9 million, or 50%, for the 12 months ended
December 31, 2021 in comparison with the identical interval of 2020, a direct outcome of
deposit price reductions applied in response to the falling rate of interest
atmosphere and to a lesser extent, the discount in curiosity expense on FHLB
advances.


? Whole curiosity bearing deposit expense decreased $4.9 million, or 46%, driving

a 25 bps decline in the fee of common complete curiosity bearing deposits.

? Curiosity expense on FHLB advances declined $1.1 million, or 76%, because of this

of the substantial discount in common FHLB advances excellent. As famous

above, Bancorp had no excellent FHLB advances as of December 31, 2021.



Discussion of 2020 vs 2019:



Web curiosity unfold and NIM had been 3.22% and 3.39% for the 12 months ended December 31,
2020 in comparison with 3.50% and 3.82% for the 12 months ended December 31, 2019. NIM was
considerably impacted in 2020 by the next:



? The FFTR was lowered 225 bps between July 2019 and mid-March 2020, ensuing

in Prime dropping to three.25%. Common Prime declined considerably to three.53% for

    2020 in comparison with 5.29% for 2019.



? Treasury yields had been close to historic lows for a number of months in 2020, eroding

    NIM and mortgage yields.



? PPP mortgage originations, which boosted web curiosity revenue, had a adverse

    influence on NIM and mortgage yields.



? The strategic reducing of said deposit rates of interest and CD providing charges

    over the previous twelve months in tandem with FRB rate of interest actions.




  ? Robust common non-PPP mortgage development.




  ? Extra steadiness sheet liquidity and elevated deposit balances.




Bancorp originated roughly 3,400 PPP loans, equating to $637 million (web
of origination charges and prices) throughout 2020. Bancorp acknowledged $9.1 million in
web origination price revenue related to the PPP portfolio in 2020. Whereas this
had a constructive influence on curiosity and price revenue, in addition to web curiosity
revenue, the 1% said yield on the PPP portfolio negatively impacted the general
mortgage portfolio yield by 17 bps and NIM by Three bps for the 12 months ended December 31,
2020.



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Common FFS and curiosity bearing due from financial institution balances elevated considerably
for the 12 months ended December 31, 2020 in contrast with the identical interval in 2019.
Extra liquidity contributed to roughly 15 bps of NIM compression for the
12 months ended December 31, 2020 in comparison with 9 bps for the 12 months ended December 31,
2019.



Web curiosity revenue (FTE) elevated $10.6 million, or 8%, for the 12 months ended
December 31, 2020 in comparison with the identical interval of 2019, primarily attributed to
the reducing of said deposit charges in response to the altering rate of interest
atmosphere and the extra price revenue related to the PPP portfolio in
2020.



Whole common curiosity incomes belongings elevated $729 million, or 22%, to $4.02
billion for the 12 months ended December 31, 2020, with the common price earned on
complete curiosity incomes belongings contracting 82 bps to three.68%.



? Common loans elevated $602 million, or 22%, for the 12 months ended December 31,

2020 in comparison with the identical interval of 2019 with $443 million of the common

development attributed to the PPP portfolio. Along with the 2019 KSB

acquisition, Bancorp skilled robust natural development throughout all three

markets in 2020, which led to a $160 million improve in common non-PPP mortgage

    portfolio balances.



? Common FFS and curiosity bearing due from financial institution balances elevated $93 million

for the 12 months ended December 31, 2020 as in contrast with the identical interval of 2019,

    in line with the elevated degree of deposits.




Whole curiosity revenue (FTE) was flat, down $32,000 to $148.1 million for the
12 months ended December 31, 2020, as in contrast with the identical interval of 2019 regardless of
the drastic decline within the rate of interest atmosphere.



? Curiosity and price revenue on loans (FTE) elevated roughly $3.Three million,

or 2%, to $137.9 million, attributed to the PPP portfolio. Vital

rate of interest contraction in 2020 led to a $10.Four million decline in curiosity

    revenue on the non-PPP mortgage portfolio.



? With the exception of mortgage loans held on the market, curiosity revenue on the

remaining curiosity incomes asset portfolio was negatively impacted by the

modifications within the rate of interest atmosphere along with substantial common

    steadiness development.




Whole common curiosity bearing liabilities elevated $353 million, or 16%, to
$2.62 billion for the 12 months ended December 31, 2020, as in contrast with the identical
interval of 2019, with the common price lowering 54 bps to 0.46%.



? Common curiosity bearing deposits elevated $364 million, or 17%, for the 12 months

ended December 31, 2020 in comparison with the identical interval of 2019, with

interest-bearing demand deposits representing $257 million of the rise.

? Common FHLB advances declined $9 million, or 13%, for the 12 months ended December

31, 2020 in comparison with the identical interval of 2019, as matured advances weren’t

    changed or renewed in 2020.



Whole curiosity expense decreased $10.6 million, or 47%, for the 12 months ended
December 31, 2020, in comparison with the identical interval of 2019, a direct outcome of
said deposit price reductions applied in response to the altering curiosity
price atmosphere.

  ? Whole curiosity bearing deposit expense decreased $10.1 million, or 49%,
    driving a 54 bps lower in the fee of common complete curiosity bearing

liabilities to 0.42% as deposit charges had been reduce in tandem with FRB curiosity

    price actions.



? FHLB advance expense decreased $240,000 or 15%, as matured advances weren’t

    changed or renewed in 2020, leading to decrease curiosity expense.




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Common Stability Sheets and Curiosity Charges (FTE)

                                           2021                                        2020                                        2019
Years ended December
31, ({dollars} in             Common                      Common        Common                      Common        Common                      Common
hundreds)                  Stability       Curiosity        Charge          Stability       Curiosity        Charge          Stability       Curiosity        Charge
Curiosity incomes
belongings:
Federal funds offered and
curiosity bearing due
from banks                $   446,783     $     645          0.14 %   $   229,905     $     738          0.32 %   $   136,514     $   2,933          2.15 %
Mortgage loans held for
sale                           11,170           249          2.23          20,156           533          2.64           3,836           182          4.74
Accessible on the market debt
securities:
Taxable                       879,298        11,575          1.32         443,035         8,432          1.90         413,801         9,291          2.25
Tax-exempt                     19,636           340          1.73          10,047           265          2.64          22,710           570          2.51
Whole securities              898,934        11,915          1.33         453,082         8,697          1.92         436,511         9,861          2.26

Federal House Mortgage Financial institution
inventory                          10,824           262          2.42          11,284           253          2.24          10,858           548          5.05

SBA Paycheck Safety
Program (PPP) loans           397,282        22,044          5.55         442,510        13,636          3.08               -             -             -
Non-PPP loans               3,553,975       142,395          4.01       2,862,399       124,226          4.34       2,702,626       134,591          4.98
Whole loans                 3,951,257       164,439          4.16       3,304,909       137,862          4.17       2,702,626       134,591          4.98
Whole curiosity incomes
belongings                      5,318,968       177,510          3.34       4,019,336       148,083          3.68       3,290,345       148,115          4.50
Much less allowance for
credit score losses on loans         57,696                                      45,008                                      27,057
Non-interest incomes
belongings:
Money and due from banks        63,477                                      46,277                                      44,884
Premises and gear,
web                            69,483                                      57,474                                      63,197
Financial institution owned life
insurance coverage                      44,720                                      32,899                                      32,631
Accrued curiosity
receivable and different          187,934                                     106,615                                      76,998
Whole belongings              $ 5,626,886                                 $ 4,217,593                                 $ 3,480,998

Curiosity bearing
liabilities:
Deposits:
Curiosity bearing demand   $ 1,633,606     $   1,771          0.11 %   $ 1,133,308     $   1,776          0.16 %   $   875,897     $   4,951          0.57 %
Financial savings                       328,570            93          0.03         190,368            36          0.02         166,509           291          0.17
Cash market                  919,778           589          0.06         771,363         1,482          0.19         695,411         7,105          1.02
Time                          420,308         3,174          0.76         412,506         7,184          1.74         406,176         8,213          2.02
Whole curiosity bearing
deposits                    3,302,262         5,627          0.17       2,507,545        10,478          0.42       2,143,993        20,560          0.96

Securities offered underneath
agreements to
repurchase                     62,534            24          0.04          40,363            37          0.09          38,555           101          0.26
Federal funds bought        10,596            14          0.13           9,457            35          0.37          11,182           217          1.94
Federal House Mortgage Financial institution
advances                       16,317           337          2.07          61,483         1,400          2.28          70,755         1,640          2.32
Subordinated debt                   -             -             -               -             -             -             922            26          2.82


Whole curiosity bearing
liabilities                 3,391,709         6,002          0.18       2,618,848        11,950          0.46       2,265,407        22,544          1.00
Non-interest bearing
liabilities:
Non-interest bearing
demand deposits             1,578,795                                   1,100,942                                     765,103
Accrued curiosity
payable and different              83,121                                      77,684                                      63,925
Whole liabilities           5,053,625                                   3,797,474                                   3,094,435
Stockholders' fairness          573,261                                     420,119                                     386,563
Whole liabilities and
stockholder's fairness      $ 5,626,886                                 $ 4,217,593                                 $ 3,480,998
Web curiosity revenue                       $ 171,508                                   $ 136,133                                   $ 125,571
Web curiosity unfold                                          3.16 %                                      3.22 %                                      3.50 %
Web curiosity margin                                          3.22 %                                      3.39 %                                      3.82 %




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Supplemental Data – Whole Firm Common Stability Sheets and Curiosity
Charges (FTE)

? Common mortgage balances embrace the principal steadiness of non-accrual loans, as

effectively as unearned revenue equivalent to mortgage premiums, reductions, charges/prices and

exclude participation loans accounted for as secured borrowings. Participation

loans averaged $5 million, $Eight million and $9 million for the years ended

    December 31, 2021, 2020 and 2019, respectively.



? Curiosity revenue on a FTE foundation consists of further quantities of curiosity revenue

that might have been earned if investments in sure tax-exempt curiosity

incomes belongings had been made in belongings topic to federal taxes yielding the

identical after-tax revenue. Curiosity revenue on municipal securities and tax-exempt

loans has been calculated on a FTE foundation utilizing a federal revenue tax price of

21%. Approximate tax equal changes to curiosity revenue had been $434,000,

$212,000 and $224,000 for the years ended December 31, 2021, 2020 and 2019,

    respectively.



? Curiosity revenue consists of mortgage charges of $20.5 million ($18.1 million related

with the PPP), $10.6 million ($9.1 million related to the PPP) and $2.2

million for the years ended December 31, 2021, 2020 and 2019, respectively.

Curiosity revenue on loans could also be impacted by the extent of prepayment charges

    collected and accretion associated to loans bought.



? Web curiosity revenue, probably the most major factor of Bancorp’s earnings,

represents complete curiosity revenue much less complete curiosity expense. The extent of web

curiosity revenue is set by combine and quantity of curiosity incomes belongings,

curiosity bearing deposits and borrowed funds, and modifications in rates of interest.

? NIM represents web curiosity revenue on a FTE foundation as a proportion of common

    curiosity incomes belongings.



? Web curiosity unfold (FTE) is the distinction between taxable equal charges

    earned on curiosity incomes belongings much less the fee of curiosity bearing
    liabilities.



? The honest market worth adjustment on funding securities ensuing from ASC

320, Investments – Debt and Fairness Securities is included as a part of

    different belongings.




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The next desk illustrates the extent to which modifications in rates of interest
and modifications within the quantity of interest-earning belongings and interest-bearing
liabilities impacted Bancorp's curiosity revenue and curiosity expense through the
intervals indicated. Data is supplied in every class with respect to
(i) modifications attributable to modifications in quantity (modifications in quantity multiplied by
prior price), (ii) modifications attributable to modifications in price (modifications in price
multiplied by prior quantity) and (iii) web change. The modifications attributable to
the mixed influence of quantity and price have been allotted proportionately to
the modifications on account of quantity and the modifications on account of price. Tax-equivalent
changes are primarily based on a federal revenue tax price of 21%. The change in
curiosity on account of each price and quantity has been allotted to the change on account of
price and the change on account of quantity in proportion to the connection of the
absolute greenback quantities of the change in every.



Charge/Quantity Analysis (FTE)



                                    Yr ended December 31, 2021                          Yr ended December 31, 2020
                                             In comparison with                                           In comparison with
                                    Yr ended December 31, 2020                          Yr ended December 31, 2019
                          Whole Web          Enhance (Lower) As a result of         Whole Web          Enhance (Lower) As a result of
(in hundreds)              Change            Charge               Quantity           Change            Charge               Quantity

Curiosity revenue:
Federal funds offered and
curiosity bearing due
from banks                $      (93 )   $         (547 )     $         454     $   (2,195 )   $       (3,441 )     $       1,246
Mortgage loans held for
sale                            (284 )              (74 )              (210 )          351               (113 )               464
Securities out there
on the market:
Taxable                        3,143             (3,210 )             6,353           (859 )           (1,484 )               625
Tax-exempt                        75               (114 )               189           (305 )               28                (333 )
Federal House Mortgage Financial institution
inventory                              9                 20                 (11 )         (295 )             (316 )                21
SBA Paycheck Safety
Program (PPP) loans            8,408              9,928              (1,520 )       13,636                  -              13,636
Non-PPP Loans                 18,169            (10,096 )            28,265        (10,365 )          (18,000 )             7,635

Whole curiosity revenue         29,427             (4,093 )            33,520            (32 )          (23,326 )            23,294

Curiosity expense:
Deposits:
Curiosity bearing demand           (5 )             (647 )               642         (3,175 )           (4,326 )             1,151
Financial savings                           57                 23                  34           (255 )             (292 )                37
Cash market                    (893 )           (1,136 )               243         (5,623 )           (6,324 )               701
Time                          (4,010 )           (4,143 )               133         (1,029 )           (1,155 )               126
Whole curiosity bearing
deposits                      (4,851 )           (5,903 )             1,052        (10,082 )          (12,097 )             2,015

Securities offered underneath
agreements to
repurchase                       (13 )              (28 )                15            (64 )              (69 )                 5
Federal funds bought          (21 )              (25 )                 4           (182 )             (153 )               (29 )
Federal House Mortgage Financial institution
advances                      (1,063 )             (119 )              (944 )         (240 )              (28 )              (212 )
Subordinated debt                  -                  -                   -            (26 )                -                 (26 )

Whole curiosity expense        (5,948 )           (6,075 )               127        (10,594 )          (12,347 )             1,753

Web curiosity revenue       $   35,375     $        1,982       $      33,393     $   10,562     $      (10,979 )     $      21,541




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Asset/Legal responsibility Administration and Curiosity Charge Danger


Managing rate of interest danger is prime for the monetary providers {industry}.
The first goal of rate of interest danger administration is to neutralize results
of rate of interest modifications on web revenue. By contemplating each on and off-balance
sheet monetary devices, administration evaluates rate of interest sensitivity with
the objective of optimizing web curiosity revenue throughout the constraints of prudent
capital adequacy, liquidity wants, market alternatives and buyer
necessities.



Curiosity Charge Simulation Sensitivity Analysis


Bancorp makes use of an earnings simulation mannequin to estimate and consider the influence of
a direct change in rates of interest on earnings in a one-year forecast. The
simulation mannequin is designed to mirror dynamics of curiosity incomes belongings and
curiosity bearing liabilities. By estimating results of rate of interest
fluctuations, the mannequin can approximate rate of interest danger publicity. This
simulation mannequin is utilized by administration to gauge approximate outcomes given a
particular change in rates of interest at a given cut-off date. The mannequin is
due to this fact a instrument to point earnings tendencies in given rate of interest situations
and could not point out precise or anticipated outcomes.



Bancorp's rate of interest simulation sensitivity evaluation particulars that will increase
in rates of interest of 100 and 200 bps would have a adverse impact on web
curiosity revenue, respectively. These outcomes are attributed to over half of the
variable price mortgage portfolio being at present at or close to flooring charges, as these
yields is not going to improve till short-term charges exceed these flooring charges. For
instance, a good portion of the variable price mortgage portfolio is tied to
Prime, with flooring charges of 4.00%. Given Prime is at 3.25% as of December 31,
2021, short-term charges must improve over 75 bps for these loans to
transfer above their flooring charges.



The lower in web curiosity revenue within the rising price situations is primarily
on account of variable price loans and short-term investments repricing slower than
deposits and short-term borrowings. Asset balances topic to rapid
repricing trigger an estimated decline in web curiosity revenue within the down 100 bps
state of affairs, as charges on non-maturity deposits can't be lowered sufficiently to
offset declining curiosity revenue. These estimates of the summarized under.



                                                                   Change in Charges
                                             -200              -100              +100               +200
                                         Foundation Factors      Foundation Factors      Foundation Factors       Foundation Factors
% Change from base web curiosity revenue
at December 31, 2021                          NA                   -2.18 %           -2.84 %             4.50 %




Bancorp's rate of interest danger profile is usually impartial. The outcomes of the
rate of interest sensitivity evaluation carried out as of December 31, 2021 recommend a
barely legal responsibility delicate profile because of this of the long-term, conservative
assumptions Bancorp makes use of within the mannequin, significantly in relation to deposit
betas, which measure how responsive administration's deposit repricing could also be to
modifications in market charges. Nevertheless, given the historic ranges of liquidity
at present held by Bancorp and within the banking system usually, the Firm
anticipates precise deposit betas will stay effectively under long-term averages
by 2022 regardless of forecasted rate of interest hikes from the FRB. In a state of affairs
the place deposit betas are effectively under long-term averages, Bancorp's rate of interest
danger profile shifts to a barely asset delicate place, however stays
usually impartial.



Bancorp's mortgage portfolio is at present composed of roughly 70% fastened and
30% variable price loans, with the fastened price portion pricing (excluding PPP
loans) usually primarily based on a selection to the five-year treasury curve on the time
of origination and the variable portion pricing primarily based on an on-going unfold to
Prime (roughly 66%) or one month LIBOR (roughly 34%). Bancorp's mortgage
portfolio (excluding PPP loans) at December 31, 2020 was composed of
roughly 69% fastened and 31% variable price loans.



In July 2017, the Financial Conduct Authority (the "FCA"), the authority
regulating LIBOR, together with numerous different regulatory our bodies, introduced that
LIBOR would doubtless be discontinued on the finish of 2021. Subsequent to that
announcement, in November 2020, the FCA introduced that many tenors of LIBOR
would proceed to be revealed by June 2023. Subsequent to this, Financial institution
regulators instructed banks to discontinue new originations referencing LIBOR as
quickly as attainable, however no later than December 2021. Efficient December 31, 2021,
Libor will now not be used to challenge new loans within the U.S. It's anticipated to be
changed primarily by the Secured In a single day Financing Charge (SOFR), which many
specialists think about a extra correct and safer pricing benchmark. To
facilitate the transition course of, administration has instituted an enterprise-wide
program to determine, assess, and monitor dangers related to the anticipated
discontinuance or unavailability of LIBOR.



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Administration has targeted on operational readiness, in addition to instituting
processes and methods to validate that contract danger is clearly recognized and
understood. New originations and any modifications or renewals of LIBOR-based
contracts contained fallback language to help in an orderly transition to an
different reference price. For Financial institution contracts which have a length past
December 31, 2021, and that reference LIBOR, all fallback provisions and
variations are at present being recognized and sorted into classifications primarily based
upon these provisions. Upon classification, the contracts are monitored and
presumably remediated if fallback provisions usually are not deemed sufficiently strong.
The Financial institution realizes that remediating sure contracts listed to LIBOR could
require consent from the counterparties, which may very well be troublesome and expensive to
acquire in sure restricted circumstances.



As of December 31, 2021, the Firm had roughly $425 million in loans and
rate of interest spinoff contracts of $123 million (notional quantity) that
reference LIBOR. Every of the LIBOR-referenced quantities mentioned above will range
in future intervals as present contracts expire with potential substitute
contracts utilizing both LIBOR or an alternate reference price. The Firm, and
different {industry} contributors, proceed to evaluation different reference charges that
may very well be utilized as a substitute for LIBOR. The Firm had 7 loans totaling
$24 million that had been listed to SOFR at December 31, 2021.



Periodically, Bancorp enters into rate of interest swap transactions with debtors
who need to hedge publicity to rising rates of interest, whereas on the identical time
getting into into an offsetting rate of interest swap, with considerably matching
phrases, with one other accredited impartial counterparty. These are undesignated
spinoff devices and are acknowledged on the steadiness sheet at honest worth,
with modifications in honest worth recorded in different non-interest revenue as curiosity
charges fluctuate. As a result of of matching phrases of offsetting contracts, as well as
to collateral provisions which mitigate the influence of non-performance danger,
modifications in honest worth subsequent to preliminary recognition have a minimal impact on
earnings, and are due to this fact not included within the simulation evaluation outcomes
above. For added info see the Footnote titled "Property and
Liabilities Measured and Reported at Honest Worth."



As well as, Bancorp periodically makes use of spinoff monetary devices as half
of its rate of interest danger administration, together with rate of interest swaps. These
rate of interest swaps are designated as money move hedges as described within the
Footnote titled "Spinoff Financial Devices." For these derivatives, the
efficient portion of positive aspects or losses is reported as a part of OCI, and is
subsequently reclassified into earnings as an adjustment to curiosity expense in
intervals during which the hedged forecasted transaction impacts earnings. As of
December 31, 2021, Bancorp had no excellent rate of interest swaps designated as
money move hedges.



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Provision for Credit score Losses



Provision for credit score losses for the years ended December 31, 2021 and 2020
represents the quantity of expense that, primarily based on Management's judgment, is
required to keep up the ACL on loans at an acceptable degree underneath the CECL
mannequin. Years previous to 2020 had been traditionally calculated underneath the incurred loss
mannequin. The dedication of the quantity of the ACL on loans is complicated and
entails a excessive diploma of judgment and subjectivity. See the footnote titled
"Abstract of Vital Accounting Insurance policies" for detailed dialogue concerning
Bancorp's ACL on loans methodology by mortgage portfolio section.



An evaluation of the modifications within the ACL on loans, together with provision, and
chosen ratios comply with:


Years ended December 31, ({dollars} in
hundreds)                                      2021             2020             2019

Starting steadiness                           $     51,920     $     26,791     $     25,534
KB acquisition - PCD loans (goodwill
adjustment)                                        6,757                -                -
CECL - cumulative adjustment                           -            9,856                -
Adjusted starting steadiness                        58,677           36,647           25,534

Provision for credit score losses on loans              (6,000 )         16,918   

1,000

Provision for credit score losses on loans - KB
acquisition                                        7,397                -                -
Whole provision for credit score losses on
loans                                              1,397           16,918            1,000

Whole charge-offs                                 (7,681 )         (2,101 )           (684 )
Whole recoveries                                   1,505              456              941
Web mortgage (charge-offs) recoveries                 (6,176 )         (1,645 )            257
Ending steadiness                              $     53,898     $     51,920     $     26,791
Common complete loans                         $  3,951,257     $  3,304,909     $  2,702,626
Provision for credit score losses on loans to
common loans                                       0.04 %           0.51 %           0.04 %
Web mortgage (charge-offs) recoveries to
common loans                                      -0.16 %          -0.05 %           0.01 %
ACL on loans to complete loans                         1.29 %           1.47 %           0.94 %
ACL on loans to complete loans (excluding
PPP) (1)                                            1.34 %           1.74 %              -
ACL on loans to common loans                       1.36 %           1.57 %           0.99 %



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


Discussion of 2021 vs 2020:



The ACL on loans totaled $54 million as of December 31, 2021 in comparison with $52
million at December 31, 2020, representing an ACL to complete loans ratio of 1.29%
and 1.47% for these intervals, respectively. The ACL to complete loans (excluding PPP
loans) was 1.34% at December 31, 2021 in comparison with 1.74% at December 31, 2020,
the lower stemming from mortgage development that was offset by forgiveness exercise
throughout the PPP portfolio and a decrease ACL. Based mostly on the 100% SBA assure of the
PPP mortgage portfolio, which totaled $141 million (web of unamortized deferred
charges) at December 31, 2021 and $550 million at December 31, 2020, Bancorp did
not document a normal reserve for potential losses for these loans throughout the
ACL. See the part titled "Non-GAAP Financial Measures" for reconcilement of
non-GAAP to GAAP measures.



Upon adoption of ASC 326 efficient January 1, 2020, Bancorp recorded a rise
of $8.2 million to the ACL on loans and a corresponding lower to retained
earnings, web of the DTA influence. As well as, non-accretable yield marks of $1.6
million associated to previously categorised PCI loans had been reclassed between the
amortized price foundation of loans and corresponding ACL on loans, which had been
subsequently charged-off within the third quarter of 2020 with no ensuing influence
to provision expense. The adjustment upon adoption of ASC 326 raised the
starting steadiness of the ACL on loans to $37 million on January 1, 2020.
Moreover, with the adoption of CECL, provision expense could also be extra risky
on account of modifications within the CECL mannequin assumptions of credit score high quality, macroeconomic
components and situations, and mortgage composition.



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As a result of continued enchancment within the unemployment forecast, updates to Bancorp's
CECL modeling and robust historic credit score metrics, a web profit (excluding
acquisition-related exercise) of $6.Zero million was recorded for the 12 months ended
December 31, 2021. Offsetting this profit was credit score loss expense on loans
related to the non-PCD mortgage portfolio added because of this of the KB
acquisition, which was recorded through the second quarter of 2021 and totaled
$7.Four million.



In complete, provision for credit score losses on loans decreased $15.5 million for the
12 months ended December 31, 2021 in comparison with the identical interval of 2020. The
considerably larger expense recorded for the 12 months ended December 31, 2020 was
the outcome of adopting of CECL efficient January 1, 2020 and the next
pandemic-related developments skilled shortly thereafter, significantly
elevated unemployment forecasts.



Along with the non-PCD provision exercise beforehand mentioned for the 12 months
ended December 31, 2021, the ACL on loans was additionally elevated $6.Eight million as a
outcome of the PCD mortgage portfolio added by the KB acquisition through the
second quarter, with the corresponding offset recorded to goodwill. Partially
offsetting this improve was web cost off exercise of $6.2 million for the
12 months ended December 31, 2021, respectively, serving to cut back the ACL on loans.
Web cost off exercise for 2021 was pushed by the cost off of two CRE
relationships totaling $4.Four million. These charged off quantities had been totally
reserved and had no revenue assertion influence for the 12 months ended December 31,
2021. As well as, there was a $555,000 restoration of a be aware that was totally
charged off in 2020.



Whereas separate from the ACL on loans and recorded in different liabilities on the
consolidated steadiness sheets, the ACL for off steadiness sheet credit score exposures additionally
skilled a lower between December 31, 2020 and December 31, 2021. A web
profit of $2.2 million was recorded for the 12 months ended December 31, 2021, as
almost all relevant mortgage segments skilled declines of their reserve loss
percentages in line with usually enhancing mannequin components and enchancment in
line of credit score utilization, most notably throughout the C&I portfolio. As well as,
the ACL for off steadiness sheet credit score exposures was elevated $250,000 as a
outcome of out there credit score added by the KB acquisition through the second
quarter, with the corresponding offset recorded to goodwill. The ACL for off
steadiness sheet credit score exposures stood at $3.5 million as of December 31, 2021
in comparison with $5.Four million as of December 31, 2020.



Bancorp's mortgage portfolio is diversified with no vital concentrations of
credit score. Geographically, most loans are prolonged to debtors in Louisville,
central, jap and northern Kentucky, in addition to the Indianapolis, Indiana and
Cincinnati, Ohio metropolitan markets. The adequacy of the allowance is
monitored on an ongoing foundation and it's the opinion of administration that the
steadiness of the allowance at December 31, 2021 is sufficient to soak up possible
losses inherent within the mortgage portfolio as of the monetary assertion date.



Discussion of 2020 vs 2019:



Upon adoption of ASC 326 efficient January 1, 2020, Bancorp recorded a rise
of $8.2 million to the ACL on loans and a corresponding lower to retained
earnings, web of the DTA influence. As well as, non-accretable yield marks of $1.6
million associated to previously categorised PCI loans had been reclassed between the
amortized price foundation of loans and corresponding ACL. The adjustment upon
adoption of ASC 326 elevated the ACL on loans steadiness to $37 million efficient
of January 1, 2020.



The ACL on loans totaled $52 million at December 31, 2020 in comparison with $27
million at December 31, 2019, representing an ACL to complete loans ratio of 1.47%
and 0.94% for these intervals, respectively. The ACL to complete loans (excluding PPP
loans) was 1.74% at December 31, 2020. Based mostly on the 100% SBA assure of the
PPP mortgage portfolio, which totaled $550 million (web of unamortized deferred
charges) at December 31, 2020, Bancorp didn't document a normal reserve for
potential losses for this portfolio. See the part titled "Non-GAAP Financial
Measures" for reconcilement of non-GAAP to GAAP measures.



Regardless of general robust credit score metrics, Bancorp recorded provision for credit score
losses $16.9 million for the 12 months ended December 31, 2020, as in contrast with $1.0
million for a similar interval of 2019, the latter of which was decided underneath
the incurred mortgage loss mannequin. Credit score loss provisioning for 2020 was
considerably impacted by the financial disaster because of the pandemic, its
corresponding influence on unemployment forecast changes throughout the CECL mannequin,
mortgage development, particular reserve additions and qualitative issue changes. The
forecasted change within the unemployment price coupled with the qualitative issue
changes resulted in roughly $12.Four million of the full provision for
credit score loss expense recorded for the 12 months ended December 31, 2020. As well as,
Bancorp recorded $2.Eight million in provision for credit score losses in 2020 associated to
web mortgage development which was closely concentrated within the fourth quarter. In the course of the
second quarter of 2020, a big CRE relationship was positioned on non-accrual
standing and allotted a $2 million particular reserve throughout the ACL on loans. An
further $1 million particular reserve was added to this relationship through the
fourth quarter.



In the course of the third quarter of 2020, the Firm recorded charge-offs totaling $1.6
million associated to loans that had been acquired within the prior 12 months acquisition and
totally allotted for by buy accounting changes on the time of
acquisition. Whereas these are mirrored as charge-offs, there was no influence to
the availability for credit score losses, nor to the revenue assertion, related to
these loans and charge-off exercise for the 12 months ended December 31, 2020 was
in any other case minimal.



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Non-Curiosity Revenue



                                                                                    Variance
({dollars} in hundreds)                                                2021 / 2020              2020 / 2019

Years Ended December 31, 2021 2020 2019 $

       %            $           %

Wealth administration and
belief providers             $ 27,613     $ 23,406     $ 22,643     $  4,207          18 %   $    763           3 %

Deposit service fees 5,852 4,161 5,193 1,691

         41       (1,032 )       (20 )
Debit and bank card
revenue                       13,456        8,480        8,123        4,976          59          357           4

Treasury administration charges 6,912 5,407 4,992 1,505

         28          415           8
Mortgage banking revenue       4,724        6,155        2,934       (1,431 )       (23 )      3,221         110
Web funding merchandise
gross sales commissions and
charges                          2,553        1,775        1,498          778          44          277          18
Financial institution owned life
insurance coverage                       914          693        1,031          221          32         (338 )       (33 )
Different                         3,826        1,822        3,014        2,004         110       (1,192 )       (40 )
Whole non-interest
revenue                     $ 65,850     $ 51,899     $ 49,428     $ 13,951          27 %   $  2,471           5 %




Discussion of 2021 vs 2020:



Whole non-interest revenue elevated $14.Zero million, or 27%, for the 12 months ended
December 31, 2021 in comparison with the identical interval of 2020. Non-interest revenue
comprised 27.8% of complete income, outlined as web curiosity revenue and
non-interest revenue, for the 12 months ended December 31, 2021 in comparison with 27.6% for
the identical interval of 2020, respectively. WM&T providers comprised 41.9% of complete
non-interest revenue for the 12 months ended December 31, 2021 in comparison with 45.1% for
the identical interval of 2020, respectively. The KB acquisition accounted for a
significant improve in complete non-interest revenue for the 12 months ended December 31,
2021, concentrated most notably in deposit service fees, debit and credit score
card revenue, and mortgage banking revenue.



WM&T Providers:



The magnitude of WM&T income distinguishes Bancorp from different group banks
of related asset dimension. WM&T income elevated $4.2 million, or 18%, for the 12 months
ended December 31, 2021 as in contrast with the identical interval of 2020. Inventory market
appreciation, coupled with document web new enterprise growth and to a lesser
extent, the KB acquisition, drove the substantial income improve for 2021.



Recurring charges earned for managing accounts are primarily based on a proportion of market
worth of AUM and are usually assessed on a month-to-month foundation. Recurring charges,
which usually comprise the overwhelming majority of WM&T income, elevated $4.4
million, or 20%, for the 12 months ended December 31, 2021, as in contrast with the identical
interval of 2020, because of this of vital inventory market appreciation skilled
along with each natural and acquisition-related development in web new enterprise.



A portion of WM&T income, most notably executor and sure worker profit
plan-related charges, are non-recurring in nature and the timing of these revenues
usually correspond with the associated administrative actions. For this
motive, such charges are topic to higher interval over interval fluctuation. Whole
non-recurring charges decreased $211,000, or 26%, for the 12 months ended December 31,
2021, as in contrast with the identical interval of 2020. The lower from prior 12 months was
pushed primarily by a big property price recorded within the first quarter of 2020.



AUM, said at market worth, totaled $4.80 billion at December 31, 2021 in contrast
to $3.85 billion at December 31, 2020. The big improve in AUM is attributed
to vital inventory market appreciation skilled along with document web
new enterprise development and AUM of roughly $250 million added by the KB
acquisition.



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Contracts between WM&T and their prospects don't allow performance-based charges
and accordingly, none of the WM&T income is efficiency primarily based. Administration
believes the WM&T division will proceed to issue considerably in Bancorp's
monetary outcomes and present strategic range to income streams.



Element of WM&T Service Revenue by Account Sort:

(in hundreds)
Years Ended December 31,             2021         2020         2019

Funding advisory                $ 12,003     $  9,747     $  9,072
Private belief                        7,569        7,027        7,164

Private funding retirement 5,168 4,319 3,821
Firm retirement

                    1,798        1,457        1,503
Basis and endowment                797          589          559
Custody and safekeeping                 146          129          130
Brokerage and insurance coverage providers         78           45           52
Different                                    54           93          342

Whole WM&T providers revenue         $ 27,613     $ 23,406     $ 22,643




The previous desk demonstrates that WM&T price income is concentrated inside
funding advisory and private belief accounts. WM&T charges are predominantly
primarily based on AUM and tailor-made for particular person/firm accounts and/or relationships
with price constructions custom-made primarily based on account kind and different components with
bigger relationships paying a decrease proportion of AUM in charges. For instance,
recurring AUM price constructions are in place for funding administration, irrevocable
and revocable trusts, revocable trusts, private funding retirement accounts
and accounts holding solely fastened revenue securities. Firm retirement plan
providers can consist of a one-time conversion price with recurring AUM charges to
comply with. Whereas there are additionally price constructions for property settlements, revenue
obtained is commonly non-recurring in nature. Payment constructions are agreed upon on the
time of account opening and any subsequent revisions are communicated in writing
to the client. WM&T charges earned usually are not performance-based nor are they primarily based
on funding technique or transactions.



Property Below Administration by Account Sort:

Whole AUM (not included on steadiness sheet) elevated from $3.85 billion at
December 31, 2020 to $4.80 billion at December 31, 2021 as follows:

                                           December 31, 2021                                     December 31, 2020
(in hundreds)               Managed        Non-managed (1)         Whole          Managed        Non-managed (1)         Whole
Funding advisory        $ 1,919,593     $          34,879     $ 1,954,472     $ 1,547,742     $          72,696     $ 1,620,438
Private belief                 939,703               150,221       1,089,924         721,150               112,053         833,203
Private funding
retirement                     620,312                 3,478         623,790         506,005                 3,241         509,246
Firm retirement              35,234               599,129         634,363          40,006               481,222         521,228
Basis and endowment       368,572                 1,532         370,104         281,986                 2,532         284,518

Subtotal                   $ 3,883,414     $         789,239     $ 4,672,653     $ 3,096,889     $         671,744     $ 3,768,633
Custody and safekeeping              -               128,178         128,178               -                83,004          83,004

Whole                      $ 3,883,414     $         917,417     $ 4,800,831     $ 3,096,889     $         754,748     $ 3,851,637



(1) Non-managed belongings characterize these for which the WM&T division doesn’t
maintain funding discretion.


As of December 31, 2021 and 2020, roughly 81% and 80%, respectively, of
complete AUM had been actively managed. Firm retirement plan accounts primarily
consist of participant-directed belongings. The quantity of custody and safekeeping
accounts are insignificant.



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Managed Belief AUM by Class of Funding:

                                                         December 31,      December 31,
(in hundreds)                                               2021              2020

Curiosity bearing deposits                                $     173,603     $     168,344
Treasury and authorities company obligations                      39,736      

31,719

State, county and municipal obligations                        110,795           119,344
Cash market mutual funds                                        7,299            58,493
Fairness mutual funds                                            944,500           752,476
Different mutual funds - fastened, balanced and municipal             612,913           441,275
Different notes and bonds                                          171,087           165,828
Widespread and most well-liked shares                                  1,681,006         1,238,973
Actual property mortgages                                                -               190
Actual property                                                     58,344            51,682
Different miscellaneous belongings (1)                                  84,131            68,565

Whole managed belongings                                     $   3,883,414     $   3,096,889



(1) Contains consumer directed devices together with rights, warrants, annuities,
insurance coverage insurance policies, unit funding trusts, and oil and fuel rights.


Managed belongings are invested in devices for which market values may be
readily decided, the bulk of that are delicate to market fluctuations
and consist of roughly 68% in equities and 32% in fastened revenue securities
as of December 31, 2021 in comparison with 64% and 36% as of December 31, 2020. This
composition has been comparatively constant from interval to interval and the WM&T
Division holds no proprietary mutual funds.



Extra Sources of Non-interest revenue:


Deposit service fees, which consist of non-sufficient funds fees and to a
lesser extent, different exercise primarily based fees, elevated $1.7 million, or 41%, for
the 12 months ended December 31, 2021, as in contrast with the prior 12 months, because of this
of a significant contribution from the KB acquisition and a restoration from the
subdued pandemic-induced exercise skilled within the prior 12 months. In line with
the {industry}, buyer habits and transaction quantity in 2020 was considerably
impacted by the pandemic and continued authorities efforts to attenuate its influence
on the economic system, equivalent to stimulus funds, PPP funding and extra profitable
unemployment compensation, which led to significantly lowered overdraft exercise.
Bancorp anticipates that future development of this income stream can be
considerably impacted by altering {industry} practices, as many bigger monetary
establishments have opted to significantly cut back, or utterly remove, sure
deposit service fees, significantly overdraft-related charges. Bancorp can be
confronted with strategic choices surrounding deposit-related fees within the
future, which can negatively influence the contributions made by this income
stream to complete non-interest revenue.



Debit and bank card revenue consists of interchange income, ancillary charges and
incentives obtained from card processors. Debit and bank card income
elevated $5.Zero million, or 59%, for the 12 months ended December 31, 2021, as
in contrast with the identical interval of 2020, because of this of elevated transaction
quantity and continued growth of the client bases, each organically and
by acquisition-related exercise. Whole debit card revenue elevated $3.6
million, or 61%, and complete bank card revenue elevated $1.Four million, or 54%,
for the 12 months ended December 31, 2021 in contrast the 12 months ended December 31, 2020.
Bancorp expects this income stream will proceed to extend with growth of
the client base and additional growth of the debit and bank card
companies.



Treasury administration charges primarily consist of charges earned for money administration
providers supplied to industrial prospects. This class continues to face out
as a constant, rising supply of income for Bancorp and elevated $1.5
million, or 28%, for the 12 months ended December 31, 2021 in comparison with the prior
12 months, complemented by robust new product gross sales and buyer base growth.
Demand for Bancorp's treasury merchandise elevated all through the pandemic, as
these merchandise permit prospects to function extra effectively in a decentralized
atmosphere. As well as, gross sales efforts involving present prospects has led to
will increase in on-line providers, reporting, ACH origination, distant deposit and
fraud mitigation providers throughout 2021. Bancorp anticipates this revenue class
will proceed to extend primarily based on continued buyer base development and the
increasing suite of providers provided inside Bancorp's treasury administration
platform.



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Mortgage banking revenue primarily consists of positive aspects on gross sales of mortgage loans and
mortgage servicing revenue offset by MSR amortization. Bancorp's mortgage banking
division predominantly originates residential mortgage loans to be offered within the
secondary market, primarily to FNMA and FHLMC. Rates of interest on the mortgage
loans offered are locked with the borrower and investor previous to mortgage closing, thus
Bancorp bears no rate of interest danger associated to loans held on the market. Bancorp
presents standard, VA and FHA financing for purchases and refinances, as effectively
as applications for first-time homebuyers. Rates of interest on mortgage loans straight
affect the quantity of enterprise transacted by the mortgage-banking division.
Mortgage banking income decreased $1.Four million, or 23%, for the 12 months ended
December 31, 2021, as in contrast with the prior 12 months.



The sustained low long-term price atmosphere that started in 2020 incentivized
refinancing and buying exercise, which resulted in elevated mortgage banking
revenue over the course of 2020 and the primary half of 2021. Nevertheless, as anticipated,
quantity began normalizing throughout 2021 because the pool of potential prospects who
have but to refinance shrank, normal housing stock remained restricted and
rates of interest started to rise above absolutely the low ranges skilled throughout
2020. Mortgage charges are usually correlated with the 10 12 months treasury price,
which has fluctuated extensively in recent times, averaging 2.14% in 2019, plummeting
to 0.89% in 2020 and sparking the rise in exercise described above and
subsequently rising to a mean of 1.45% throughout 2021.



Starting within the fourth quarter of 2020, the Financial institution elected to retain a choose
portion of certified secondary market single household residential actual property mortgage
manufacturing from the mortgage banking division on steadiness sheet in an effort to
deploy a portion of extra liquidity in lieu of shopping for mortgage-backed
securities throughout the AFS debt securities portfolio. Roughly $72 million
and $31 million in 15/30 12 months fastened price loans had been retained for the years ended
December 31, 2021 and 2020, respectively, as half of this technique, forgoing
achieve on sale that might usually have been acknowledged in mortgage banking
revenue for these years.



Web funding product gross sales commissions and charges are generated totally on
inventory, bond and mutual fund gross sales, in addition to wrap charges on brokerage accounts.
Wrap charges characterize fees for funding applications that bundle collectively a set
of providers, equivalent to brokerage, advisory, analysis and administration and are primarily based
on a proportion of belongings. Bancorp deploys its monetary advisors primarily
by its department community through an association with a 3rd occasion broker-dealer,
whereas bigger managed accounts are serviced by Bancorp's WM&T Division. Web
funding product gross sales commissions and charges elevated $778,000, or 44%, for
the 12 months ended December 31, 2021, as in contrast with the prior 12 months because of the KB
acquisition and elevated buying and selling exercise.



BOLI belongings characterize the money give up worth of life insurance coverage insurance policies on
sure energetic and non-active staff who've supplied consent for Bancorp to
be the beneficiary for a portion of such insurance policies. The associated change in money
give up worth of insurance policies and any dying advantages obtained underneath the insurance policies
are recorded as non-interest revenue. This revenue serves to offset the fee of
numerous worker advantages. BOLI revenue elevated $221,000, or 32%, for the 12 months
ended December 31, 2021 in comparison with the prior 12 months attributed nearly solely to
the contribution of the KB acquisition.



Different non-interest revenue elevated $2.Zero million for the 12 months ended December 31,
2021 as in contrast with the prior 12 months. The rise was pushed by a plethora of
exercise, most notably a dying profit of $523,000 on an insurance coverage coverage
outdoors of conventional BOLI, stronger market returns on such insurance coverage insurance policies,
the addition of the Captive and positive aspects on OREO offered.



Discussion of 2020 vs 2019:



Whole non-interest revenue elevated $2.5 million, or 5%, for the 12 months ended
December 31, 2020 in comparison with the identical interval in 2019. Non-interest revenue
comprised 28% of complete income for each the 12 months ended December 31, 2020 and
2019. WM&T providers comprised 45% of Bancorp's complete non-interest revenue for the
12 months ended December 31, 2020 in comparison with 46% for a similar interval in 2019.



WM&T income elevated $763,000, or 3%, to $23.Four million for the 12 months ended
December 31, 2020, as in contrast with the identical interval of 2019. Whereas inventory market
volatility related to the COVID-19 pandemic had a major influence on the
WM&T division, significantly within the second quarter of 2020, robust market
efficiency within the latter half of the 12 months, document new enterprise development and a
massive non-recurring property price from the primary quarter of 2020 led to WM&T revenue
of $23.Four million.



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Deposit service fees decreased $1.Zero million, or 20%, for the 12 months ended
December 31, 2020, as in contrast with the identical interval in 2019. The regular decline
within the quantity of charges earned on overdrawn checking accounts skilled over the
years previous to 2019 was considerably exacerbated by the pandemic with declines
in transaction quantity and paper examine presentments starting in April 2020.
Stimulus checks, extensions of tax fee due dates, extra profitable
unemployment compensation, diminished pandemic spend and PPP funding all
impacted shopper habits in 2020.



Debit and bank card income elevated $357,000 or 4%, for the 12 months ended
December 31, 2020, as in contrast with the identical interval in 2019 regardless of
pandemic-related hurdles, because of this of development within the buyer bases. Whole
debit card revenue elevated $85,000, or 1%, whereas complete bank card revenue
elevated $272,000, or 11%. Just like deposit service fees above, Bancorp
noticed vital enchancment in transaction quantity within the latter of half of 2020
as statewide exercise restrictions because of the pandemic in Bancorp's markets
applied earlier in 12 months had been eased and/or lifted.



Treasury administration charges elevated $415,000, or 8%, for the 12 months ended December
31, 2020 in comparison with 2019, as Bancorp's was capable of overcome the numerous
decline in pandemic associated transaction quantity with new product gross sales and
growth of its buyer base (partially attributable to the PPP). The demand
for Bancorp's treasury merchandise elevated through the pandemic, as these merchandise
allowed prospects to function extra effectively in a decentralized atmosphere.



Mortgage banking income elevated $3.2 million, or 110%, for the 12 months ended
December 31, 2020 as in contrast with the identical interval of 2019, as sustained low
long-term charges incentivized refinancing exercise and resulted in document
mortgage banking revenue. In September 2020, the Financial institution elected to start out retaining
a portion of certified secondary market single household residential actual property
mortgage manufacturing from the mortgage banking division on steadiness sheet in an
effort to deploy extra liquidity. Roughly $31 million in 15/30 12 months fastened
price loans had been retained by December 31, 2020, forgoing roughly
$845,000 in achieve on gross sales of loans that might usually have been acknowledged in
mortgage banking revenue.



Web funding product gross sales commissions and charges elevated $277,000, or 18%,
for the 12 months December 31, 2020, as in contrast with the identical interval of 2019, as
market volatility throughout 2020 led to elevated buyer buying and selling exercise.



Primarily because of this of a $296,000 dying profit obtained within the third quarter
of 2019, BOLI revenue decreased $338,000, for the 12 months ended December 31, 2020
in comparison with the prior 12 months.



Different non-interest revenue decreased $1.2 million, or 40%, for the 12 months ended
December 31, 2020 as in contrast with the identical interval of 2019. This lower was
pushed by a plethora of non-recurring exercise that occurred in 2019 together with
swap price revenue of $374,000, a $212,000 achieve on the sale of VISA Class B inventory
initially acquired in a 2013 acquisition, proceeds of $142,000 related to
life insurance coverage insurance policies outdoors of the normal BOLI program and a $126,000
banking middle relocation incentive.



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Non-interest bills



                                                                                      Variance
                                                                        2021 / 2020              2020 / 2019
Years Ended December 31,
({dollars} in hundreds)       2021          2020          2019          $            %           $            %

Compensation               $  63,034     $  51,368     $ 49,882     $ 11,666          23 %   $  1,486           3 %
Worker advantages             13,479        11,064       10,691        2,415          22          373           3
Web occupancy and
gear                      9,688         8,182        8,159        1,506          18           23           -
Know-how and
communication                 11,145         8,732        7,318        2,413          28        1,414          19
Debit and bank card
processing                     4,494         2,606        2,493        1,888          72          113           5
Advertising and enterprise
growth                    4,150         2,383        3,627        1,767          74       (1,244 )       (34 )
Postage, printing and
provides                       2,213         1,778        1,652          435          24          126           8
Authorized and skilled         2,583         2,392        2,138          191           8          254          12
FDIC insurance coverage                 1,847         1,217          245          630          52          972         397
Amortization of
investments in tax
credit score partnerships              367         3,096        1,078       (2,729 )       (88 )      2,018         187
Capital and deposit
primarily based taxes                    2,090         4,386        3,870       (2,296 )       (52 )        516          13
Merger bills               19,025             -        1,313       19,025         100       (1,313 )      (100 )
Federal House Mortgage Financial institution
early termination
penalty                          474             -            -          474         100            -           -
Different                          7,691         4,455        5,650        3,236          73       (1,195 )       (21 )
Whole non-interest
bills                   $ 142,280     $ 101,659     $ 98,116     $ 40,621          40 %   $  3,543           4 %




Discussion of 2021 vs 2020:



Whole non-interest bills elevated $40.6 million, or 40%, for the 12 months ended
December 31, 2021 in comparison with the prior 12 months. Compensation and worker advantages
comprised 54% of complete non-interest bills for the 12 months ended December 31,
2021, in comparison with 61% for the 12 months ended December 31, 2020. Excluding merger
bills, compensation and worker advantages comprised 62% of complete non-interest
bills for the 12 months ended December 31, 2021.



Compensation, which incorporates salaries, incentives, bonuses and inventory primarily based
compensation, elevated $11.7 million, or 23%, for the 12 months ended December 31,
2021 in comparison with the prior 12 months. The will increase had been attributed to development in full
time equal staff, annual merit-based wage will increase and larger
incentive compensation expense. Web full time equal staff totaled 820
at December 31, 2021 in comparison with 641 at December 31, 2020. The big improve
in comparison with prior intervals was attributed to the addition of 184 FTEs because of this
of growth into the Central Kentucky market (by the acquisition of KB).



Worker advantages consists of all personnel-related expense not included in
compensation, with probably the most vital objects being medical insurance, payroll
taxes and worker retirement plan contributions. Worker advantages elevated
$2.Four million, or 22%, for the 12 months ended December 31, 2021 in comparison with the prior
12 months, in line with the general improve in full time equal staff
famous above.



Web occupancy and gear bills primarily embrace depreciation, hire,
property taxes, utilities and upkeep. Prices of capital asset additions move
by the assertion of revenue over the lives of the belongings within the type of
depreciation expense. Web occupancy elevated $1.5 million, or 18%, for the 12 months
ended December 31, 2021 in comparison with the prior 12 months. The KB acquisition resulted
within the addition of 19 areas and was the first driver of the rise over
the prior 12 months.



Know-how and communication bills embrace pc software program amortization,
gear depreciation and expenditures associated to investments in know-how
wanted to keep up and enhance the standard of buyer supply channels,
info safety and inside sources. Know-how expense elevated $2.4
million, or 28%, for the 12 months ended December 31, 2021 in comparison with the prior
12 months, attributed primarily to the acquisition, because the core system conversion did
not happen till late August.



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Bancorp outsources processing for debit and industrial bank card operations,
which generate vital income for the Firm. These bills fluctuate
in line with transaction volumes. Debit and bank card processing expense
elevated $1.9 million, or 72%, for the 12 months ended December 31, 2021,
correlating partly with the rise in transaction quantity and buyer base
growth ensuing from each natural and acquisition-related development that served
to extend debit and bank card non-interest revenue.



Advertising and enterprise growth bills embrace all prices related to
selling Bancorp together with group assist, retaining prospects and buying
new enterprise. Advertising and enterprise growth bills elevated $1.8
million, or 74%, for the 12 months ended December 31, 2021 in comparison with the prior
12 months. In line with the Firm's strategic plan, a major funding was
made to promote and promote the Financial institution within the Central Kentucky market
post-acquisition shut. The Firm additionally elevated its contribution to the
Financial institution's basis established to assist numerous group initiatives, on account of
robust 2021 operational outcomes. Additional, pandemic-related restrictions throughout
2020 considerably muted journey and leisure spending, leading to decrease
expense final 12 months.


Postage, printing and provides expense elevated $435,000, or 24%, for the 12 months
ended December 31, 2021 in comparison with the prior 12 months, the rise being
attributed nearly solely to the KB acquisition and elevated buyer
communication.

Authorized and skilled charges elevated $191,000, or 8%, for the 12 months ended
December 31, 2021 in comparison with the prior 12 months. The rise over prior 12 months was
pushed largely by elevated assortment exercise in 2021.


FDIC insurance coverage elevated $630,000, or 52%, for the 12 months ended December 31, 2021
in comparison with the prior 12 months. The rise was associated to the acquisition and
PPP-driven bigger steadiness sheet along with the primary quarter of 2020
benefitting from the final portion of small establishment credit first issued by
the FDIC in 2019.



Tax credit score partnerships generate federal revenue tax credit, and for every of
Bancorp's investments in tax credit score partnerships, the tax profit, web of
associated bills, ends in a constructive impact upon web revenue. Quantities of
credit and corresponding bills can range extensively relying upon the timing and
magnitude of the underlying investments. Amortization expense related to
these investments decreased $2.7 million for the 12 months ended December 31, 2021
in comparison with the prior 12 months on account of a big tax credit score deal accomplished within the
fourth quarter of 2020.



Capital and deposit primarily based taxes decreased $2.Three million, or 52%, for the 12 months
ended December 31, 2021, in line with the state of Kentucky transitioning
monetary establishments from a capital-based franchise tax to the Kentucky
company revenue tax efficient January 1, 2021.



Merger bills characterize non-recurring bills related to completion of
the KB acquisition and consist primarily of funding banker charges, authorized charges,
numerous compensation-related bills, early termination charges regarding
numerous contracts and system conversion bills. Merger bills totaling
$525,000 had been recorded for the 12 months ended December 31, 2021 associated to the
pending Commonwealth acquisition.



An early termination price of $474,000 was incurred through the second quarter of
2021 in relation to the pre-payment of FHLB advances totaling $14 million prior
to their respective contractual maturities. Bancorp selected to payoff these time period
advances, with a weighted common price of 2.03%, on account of its extra liquidity
pushed by the substantial deposit development it achieved over the previous 12 months,
mixed with the near-term outlook for low rates of interest on the time of pay
off. Bancorp had no FHLB advances excellent as of December 31, 2021.



Different non-interest bills elevated $3.2 million, or 73%, for the 12 months ended
December 31, 2021. These will increase had been pushed by a quantity of components, together with
$1.1 million of expense attributed to the KB acquisition, together with amortization
of the CDI associated to KB's deposit portfolio, bills related to the
addition of the Captive and different miscellaneous bills, equivalent to debit and
bank card rewards and card losses. Additional, massive credit to expense had been
recorded within the prior 12 months related to a achieve on a bank-owned property offered
and the reversal of an accrual associated to a possible IRS penalty that was
dismissed.



Bancorp's effectivity ratio (FTE) for 2021 of 59.94% elevated from 54.06% in
2020 because of the one-time merger-related bills. Excluding these non-recurring
bills and amortization of investments in tax credit score partnerships, the
adjusted effectivity ratio, a non-GAAP measure, would have been 51.77% and 52.42%
for 2021 and 2020. See the part titled "Non-GAAP Financial Measures" for
reconcilement of non-GAAP to GAAP measures.



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Discussion of 2020 vs 2019:


Whole non-interest bills elevated $3.5 million, or 4%, in 2020 in comparison with
2019. Compensation and worker advantages comprised 61% and 62% of Bancorp’s
complete non-interest bills for 2020 and 2019, respectively.

Compensation elevated $1.5 million, or 3%, for 2020 in comparison with 2019. The
improve was attributed to annual merit-based wage will increase, larger
incentive-related compensation and a rise in full time equal
staff, which grew from 591 in the beginning of 2019 to 641 at December 31,
2020
boosted by the 2019 KSB acquisition and the addition of gross sales
professionals.

Worker advantages elevated $373,000, or 3%, in 2020 in contrast with 2019
attributed to development in FTEs.


Web occupancy elevated $23,000 for 2020 in contrast with 2019. Three new areas
had been added within the second quarter of 2019 as half of the KSB acquisition and an
further department location was added within the Louisville market through the third
quarter of 2019. In 2020, Bancorp opened an extra department within the Cincinnati
MSA, in addition to one other location in Louisville. As of December 31, 2020, Bancorp
had 44 full service banking middle areas.



Know-how expense elevated $1.Four million, or 19%, in 2020 in comparison with 2019
in line with increasing customer-facing software program and system performance, as
effectively as elevated licensing/upkeep expense, larger mortgage mortgage processing
bills, treasury administration buyer growth and the migration to a hosted
core atmosphere through the third quarter of 2020.



Debit and bank card processing expense elevated $113,000, or 5%, for 2020 as
in contrast with 2019, in line with the correlated improve skilled for
debit and bank card revenue.


Advertising and enterprise growth bills decreased $1.2 million, or 34%, for
the 12 months ended December 31, 2020, as in comparison with the identical interval of 2019. The
onset of the pandemic resulted in much less bodily buyer interplay as well as
to decrease promoting expense. Bancorp dedicated to pay $116,000 to the Financial institution's
basis, established to assist numerous group initiatives, as of December
31, 2020 in comparison with $600,000 as of December 31, 2019.



Postage, printing and provide bills elevated $126,000, or 8%, in 2020
in comparison with 2019, because of this of banking middle/buyer growth coupled with
changing transaction-based types all through the Financial institution in relation to the
migration to a hosted core atmosphere, which occurred within the third quarter of
2020.



Authorized and skilled charges elevated $254,000, or 12%, for 2020 in comparison with
2019, because of this of numerous consulting engagements and litigation prices arising
by the conventional course of enterprise.



FDIC insurance coverage elevated $972,000 for the 12 months ended December 31, 2020, as
in comparison with the identical interval of 2019. Because of this of the nationwide FDIC Reserve
Ratio reaching 1.38% in 2019, the FDIC launched credit to small establishments in
the prior 12 months. Because of this, Bancorp recorded no FDIC insurance coverage expense for
the third and fourth quarters of 2019, and incurred solely a portion of the
assessed expense within the first quarter of 2020, as these credit had been depleted.
FDIC insurance coverage expense normalized within the second quarter of 2020 and in the end
elevated within the third and fourth quarters because of this of a better leverage
ratio attributed to a PPP-driven bigger steadiness sheet.



Amortization of investments in tax credit score partnership elevated $2.Zero million
from 2020 to 2019 because of this of a big tax credit score deal accomplished within the fourth
quarter of 2020.


Capital and deposit primarily based taxes elevated $516,000, or 13%, in 2020 in comparison with
2019 in line with general steadiness sheet development.


Merger bills recorded for the 12 months ended December 31, 2019 characterize
non-recurring bills related to completion of the KSB acquisition and
consisted primarily of consulting charges, authorized charges, numerous compensation-related
bills and system conversion bills. No such expense was recorded for the
12 months ended December 31, 2020.



Different non-interest bills decreased $1.2 million, or 21%, for 2020 in comparison with
2019 pushed by the sale of a bank-owned property recorded as an off-set to
non-interest expense within the second quarter of 2020 together with elevated 2019
expense that included the write off of belongings totaling $347,000 in connection
with signing the contract emigrate to the hosted core processing answer and
elevated fraud and robbery-related losses.



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Bancorp's effectivity ratio (FTE) of 54.06% for 2020 improved from 56.07% in
2019. Excluding amortization of investments in tax credit score partnerships and
non-recurring merger associated bills, the adjusted effectivity ratio, a non-GAAP
measure, would have been 52.42% and 54.70% for 2020 and 2019. See the part
titled "Non-GAAP Financial Measures" for reconcilement of non-GAAP to GAAP
measures.



Revenue Taxes


A comparability of revenue tax expense and ETR follows:

Years Ended December 31, ({dollars} in hundreds) 2021 2020

2019

Revenue earlier than revenue tax expense                  $ 95,397     $ 67,743     $ 75,660
Revenue tax expense                                  20,752        8,874        9,593
Efficient tax price                                   21.75 %      13.10 %      12.68 %




Discussion of 2021 vs 2020:


Fluctuations within the ETR are primarily attributed to the next:

? Bancorp invests in sure partnerships that yield federal revenue tax credit.

Taken as a complete, the tax profit of these investments exceeds amortization

expense, leading to a constructive influence on web revenue. The timing and

magnitude of these transactions could range extensively from interval to interval. The ETR

for 2020 included the total 12 months profit of a big historic tax credit score mission

that was accomplished within the fourth quarter of final 12 months, serving to cut back the

    ETR by 5.5% for the 12 months.



? The state of Kentucky handed laws in 2019 that required monetary

establishments to transition from a capital primarily based franchise tax to the Kentucky

company revenue tax efficient January 1, 2021 and permits entities submitting a

mixed Kentucky revenue tax return to share sure tax attributes, together with

web working loss carryforwards. These modifications served to extend the ETR

    3.5% for the 12 months ended December 31, 2021.



? An insurance coverage captive was acquired because of this of the KB acquisition. The

Captive gives insurance coverage towards sure dangers for which insurance coverage could not

at present be out there or economically possible to Bancorp and SYB, in addition to

a gaggle of third-party insurance coverage captives. The tax benefits of the Captive,

together with the tax-deductible nature of premiums paid to the Captive in addition to

the tax-exemption for premiums obtained by the Captive, serve to cut back revenue

tax expense. For the 12 months ended December 31, 2021, the addition of the Captive

    lowered the ETR 0.2%.



? The stock-based compensation part of the ETR fluctuates in line with

the extent of SAR train exercise. The ETR was lowered by 1.1% and 0.7% for

    the years ended December 31, 2021 and 2020, respectively.




The CARES Act consists of a number of vital provisions for companies together with
growing the quantity of deductible curiosity underneath part 163(j), permitting
firms to carryback sure web working losses, and growing the quantity
of web working loss that firms can use to offset revenue. These modifications
didn't have a major influence on Bancorp's revenue taxes for the years ended
December 31, 2021 and 2020.



Discussion of 2020 vs 2019:


Fluctuations within the ETR are primarily attributed to the next:

? The ETR for 2020 benefitted from the influence of a big historic tax credit score

    mission that was accomplished through the fourth quarter of 2020.



? In March 2019, the Kentucky Legislature handed HB354 requiring monetary

establishments to transition from a capital primarily based franchise tax to the Kentucky

company revenue tax starting in 2021. Traditionally, the franchise tax, a

part of non-interest bills, was assessed at 1.1% of web capital and

has averaged $2.5 million yearly over the prior two year-end intervals. The

Kentucky company revenue tax can be assessed at 5% of Kentucky taxable

revenue and can be included as a part of present and deferred state

revenue tax expense. Related to this modification, predominantly through the

first quarter of 2019, Bancorp established a Kentucky state DTA associated to

present non permanent variations estimated to reverse after the efficient date

of the legislation change. Bancorp recorded a corresponding state tax profit, web of

federal tax influence of $1.2 million, or roughly $0.06 per diluted share

    for 2019.



? In April 2019, the Kentucky Legislature handed HB458 permitting entities submitting

a mixed Kentucky revenue return to share sure tax attributed, together with

web working loss carryforwards. The mixed submitting, starting in 2021, will

permit Bancorp’s Holding Firm web working loss carryforwards to offset

towards web income generated by the Financial institution as much as 50% of the Financial institution’s Kentucky

taxable revenue and cut back Bancorp’s tax legal responsibility. Bancorp recorded a state

tax profit, web of federal tax influence of $2.7 million, predominantly within the

second quarter of 2019, or roughly $0.12 per diluted share for 2019.



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Financial Condition – December 31, 2021 In comparison with December 31, 2020


Overview



Whole belongings elevated $2.04 billion, or 44%, to $6.65 billion at December 31,
2021 from $4.61 billion at December 31, 2020. Whole belongings of $1.27 billion had been
added on Might 31, 2021 because of this of the KB acquisition, together with loans of $755
million (together with PPP) and complete AFS debt securities of $396 million. In
addition, goodwill of $123 million was recorded in relation to the transaction.
Whole loans (excluding loans added by the acquisition and the PPP
portfolio) grew $291 million, or 10%, between December 31, 2020 and December 31,
2021.



Whole liabilities elevated $1.80 billion, or 43%, to $5.97 billion at December
31, 2021 from $4.17 billion at December 31, 2020. Whole liabilities of $1.16
billion had been assumed on Might 31, 2021 because of this of the KB acquisition,
together with complete deposits of $1.04 billion. Excluding deposits assumed by
the acquisition, deposit balances ended at document ranges as of December 31,
2021, rising $760 million, or 19%, since December 31, 2020, as federal stimulus
efforts have bolstered deposits and uncertainty surrounding the pandemic has
resulted in Bancorp's buyer base sustaining larger balances typically over
the previous 12 months.



Money and Money Equivalents



Money and money equivalents elevated $643 million to $961 million as of December
31, 2021. Bancorp maintained larger ranges of liquidity in 2021 attributable to
the PPP, document ranges of deposits and acquisition-related development.



AFS Debt Securities



AFS debt securities embrace securities that could be offered in response to modifications
in rates of interest, resultant prepayment danger and different components associated to
rate of interest and prepayment danger modifications and are carried at honest worth with
unrealized positive aspects or losses, web of tax impact, included in stockholders' fairness.



The first objective of the AFS debt securities portfolio is to offer one other
supply of curiosity revenue, in addition to a instrument for liquidity administration. In
managing the composition of the steadiness sheet, Bancorp seeks a steadiness between
earnings sources and credit score and liquidity issues.



All of Bancorp's debt securities are categorised as AFS. Carrying worth is
summarized as follows:



                                                                                 Variance
December 31, (in hundreds)                   2021           2020        $ Change       % Change
U.S. Treasury and different U.S. Authorities
obligations                                $   122,501     $       -     $ 122,501            100 %
Authorities sponsored enterprise
obligations                                    135,021       138,078        (3,057 )           -2 %
Mortgage-backed securities - authorities
companies                                       846,624       437,585       409,039             93 %
Obligations of states and political
subdivisions                                    75,075        11,315        63,760            563 %
Different                                            1,077             -         1,077            100 %

Whole out there on the market debt securities $ 1,180,298 $ 586,978 $ 593,320

            101 %




AFS debt securities elevated $593 million to $1.18 billion at December 31, 2021
in comparison with $587 million at December 31, 2020. AFS debt securities totaling $396
million had been added because of this of the KB acquisition, roughly $91 million
of which had been offered shortly after acquisition. As well as, Bancorp continued to
actively spend money on the securities portfolio throughout 2021 in an effort to deploy a
portion of extra liquidity, a method enacted within the latter half of 2020, by
buying $505 million of AFS debt securities for the 12 months ended December 31,
2021. Partially offsetting development related to buying exercise was
scheduled amortization and elevated prepayment exercise, largely throughout the MBS
portfolio, in addition to market depreciation stemming from an upward transfer within the
rate of interest atmosphere skilled by most of 2021. Because of this of the
exercise above, common AFS debt securities grew $446 million, or 98%, over the
previous twelve months.



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Maturity distribution and weighted common yields of the AFS debt securities
portfolio follows:



December 31,                                       Due after one however           Due after 5 however
2021                 Due inside one 12 months           inside 5 years            inside ten years            Due after ten years
({dollars} in
hundreds)           Quantity          Yield        Quantity         Yield        Quantity          Yield         Quantity          Yield

U.S. Treasury
and different U.S.
Authorities
obligations             4,011          0.06 %       118,490        0.50 %   $         -            - %   $          -            - %
Authorities
sponsored
enterprise
obligations               972          1.68          12,007        0.52          13,817         1.47          108,225         2.04
MBS - authorities
companies                  916         -0.17          20,995        1.07          67,263         1.59          757,450         1.29
Obligations of
states and
political
subdivisions              415          3.88           9,044        1.38          13,866         1.46           51,750         1.80
Different                     120             -               -                         957         2.19                -

                   $    6,434          0.52 %   $   160,536        0.63 %   $    95,903         1.56 %   $    917,425         1.41 %



Precise maturities for mortgage-backed securities could differ from contractual
maturities on account of prepayments on underlying collateral.

Loans


Composition of loans by main mortgage portfolio class follows:

Variance

December 31, ({dollars} in hundreds)      2021            2020          $ 

Change % Change

Industrial actual property - non-owner
occupied                              $ 1,128,244     $   833,470     $  294,774              35 %
Industrial actual property - proprietor
occupied                                  678,405         508,672        169,733              33 %
Whole industrial actual property            1,806,649       1,342,142        464,507              35 %

Industrial and industrial – time period 596,710 525,776 70,934

              13 %
Industrial and industrial - time period -
PPP                                       140,734         550,186       (409,452 )           -74 %
Industrial and industrial - strains
of credit score                                 370,312         249,378        120,934              48 %

Whole industrial and industrial 1,107,756 1,325,340 (217,584 )

           -16 %

Residential actual property - proprietor
occupied                                  400,695         239,191        161,504              68 %
Residential actual property - non-owner
occupied                                  281,018         140,930        140,088              99 %
Whole residential actual property             681,713         380,121        301,592              79 %

Building and land growth         299,206         291,764          7,442               3 %
House fairness strains of credit score               138,976          95,366         43,610              46 %
Client                                  104,294          71,874         32,420              45 %
Leases                                     13,622          14,786         (1,164 )            -8 %
Bank cards                               17,087          10,203          6,884              67 %
Whole Loans (1)                       $ 4,169,303     $ 3,531,596     $  637,707              18 %



(1) Whole loans are offered inclusive of premiums, reductions and web mortgage
origination charges and prices.


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The composition of loans is offered under by main mortgage portfolio class and
bifurcated between Bancorp’s legacy mortgage portfolio and the mortgage portfolio
attributed to the Central Kentucky market entered because of this of the KB
acquisition. This composition is offered to offer element of the Central
Kentucky
market’s mortgage portfolio and its contribution to the full mortgage
composition of Bancorp at December 31, 2021.

                                                          As of December 31, 2021
({dollars} in hundreds)                           Legacy        Central Kentucky         Whole

Industrial actual property – non-owner occupied $ 910,065 $ 218,179 $ 1,128,244
Industrial actual property – proprietor occupied

            579,599                98,806         678,405
Whole industrial actual property                     1,489,664               

316,985 1,806,649

Industrial and industrial - time period                   535,923                60,787         596,710
Industrial and industrial - time period - PPP             135,004                 5,730         140,734
Industrial and industrial - strains of credit score        327,269                43,043         370,312
Whole industrial and industrial                    998,196               

109,560 1,107,756

Residential actual property - proprietor occupied           312,817                87,878         400,695
Residential actual property - non-owner occupied       120,981               160,037         281,018
Whole residential actual property                      433,798               

247,915 681,713

Building and land growth                  281,054                18,152         299,206
House fairness strains of credit score                         91,882                47,094         138,976
Client                                            89,352                14,942         104,294
Leases                                              13,622                     -          13,622
Credit playing cards                                       15,475                 1,612          17,087
Whole loans (1)                                $ 3,413,043     $         756,260     $ 4,169,303



(1) Whole loans are offered inclusive of premiums, reductions, and web mortgage
origination charges and prices.


Whole loans elevated $638 million, or 18%, from December 31, 2020 to December
31, 2021, pushed by the addition of $756 million in loans related to
growth into the Central Kentucky market. Whereas natural development was
substantial, vital forgiveness-related contraction was skilled inside
the PPP portfolio between December 31, 2020 and December 31, 2021.



Excluding the mortgage portfolio attributed to the Central Kentucky market, mortgage
contraction of $119 million, or 3%, was skilled between December 31, 2020
and December 31, 2021, because the aforementioned forgiveness exercise resulted in
PPP portfolio balances declining $409 million throughout 2021. Partially offsetting
the massive decline in PPP balances was natural development of $291 million, or 10%,
almost half of which, or $146 million, was attributed to robust mortgage manufacturing
throughout the CRE portfolio. Additional, step by step enhancing line of credit score
utilization and the strategic retention of a portion of certified secondary
market single household residential actual property mortgage manufacturing from the mortgage
banking division helped drive development of $78 million and $54 million within the C&I
line of credit score and residential actual property portfolios, respectively.



After hitting a pandemic-era low at March 31, 2021, complete line of credit score
utilization improved in every subsequent quarter of 2021, led by C&I line
utilization enhancing to 31.8% at December 31, 2021 from 26.1% at December 31,
2020. Nevertheless, line of credit score utilization remained effectively under pre-pandemic ranges
all year long, as the provision of the extra favorable PPP lending
facility usually disparaged utilization till this system expired on Might 31,
2021.



Bancorp originated $637 million PPP loans ($657 million gross of unamortized
charges and prices) as half of spherical one of this system, which expired in August of
2020. As of December 31, 2021, 98% of the {dollars} originated in spherical one had
been forgiven. All however $52,000 of the $19.6 million in price revenue obtained for
spherical one originations has been acknowledged life so far.



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Bancorp originated $250 million ($261 million gross of unamortized deferred charges
and prices) as half of spherical two of the PPP program, which expired Might 31, 2021.
As of December 31, 2021, 49% of the {dollars} originated had been forgiven and 61%
of the charges obtained for the second spherical of this system had been acknowledged
life so far. As second spherical debtors usually are not required to make funds for 16
months, it's possible that a good portion of the borrowing base will
search forgiveness in early to mid-2022 in reference to their tax return
preparation.



PPP loans of $141 million ($146 million gross of unamortized deferred charges and
prices) had been excellent at December 31, 2021, together with $6 million excellent
associated to the KB acquisition, in comparison with $550 million at December 31, 2020.
Bancorp has $4.6 million in web unrecognized charges associated to the PPP as of
December 31, 2021, that are acknowledged over the life of the respective loans
and accelerated when the loans are paid off or forgiven.



In accordance with Part 4013 of the CARES Act and in response to requests
from debtors who skilled enterprise interruptions associated to the pandemic,
Bancorp prolonged fee deferrals for these affected debtors. Relying on
the demonstrated want of the client, Bancorp deferred both the total mortgage
fee or the principal-only portion of respective mortgage funds for 90 or 180
days for some debtors straight impacted by the pandemic. As of December 31,
2021 excellent full fee mortgage deferrals totaled simply $169,000, down from
$37 million, or 1.24% of complete loans (excluding PPP loans), at December 31,
2020.



Bancorp's credit score publicity is diversified with secured and unsecured loans to
people and companies. No particular {industry} focus exceeds 10% of
loans excellent. Whereas Bancorp has a diversified mortgage portfolio, a buyer's
potential to honor contracts is considerably dependent upon the financial stability
and/or {industry} during which that buyer does enterprise. Loans excellent and
associated unfunded commitments are primarily concentrated inside Bancorp's present
market areas, which embody Louisville, Kentucky, central and jap
Kentucky, Indianapolis, Indiana and Cincinnati, Ohio.



Bancorp often enters into mortgage participation agreements with different banks
to diversify credit score danger. For sure participation loans offered, Bancorp has
retained efficient management of the loans, usually by proscribing the
collaborating establishments from pledging or promoting their possession share of the
mortgage with out permission from Bancorp. GAAP requires the participated portion of
these loans to be recorded as secured borrowings. These participated loans are
included within the C&I and CRE mortgage portfolio segments with a corresponding
legal responsibility recorded in different liabilities. At December 31, 2021 and December 31,
2020, the full participated portion of loans of this nature totaled $5 million
and $10 million, respectively.



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The next desk presents the maturity distribution and price sensitivity of
the mortgage portfolio at December 31, 2021:

                                           Maturity
December 31,                     After one        After 5          Ater
2021 (in         Inside one      however inside       however inside         fifteen
hundreds)          12 months         5 years      fifteen years        years           Whole         % of Whole

Industrial
actual property -
non-owner
occupied
Mounted price       $   40,076     $    453,597     $     232,958     $   147,088     $   873,719               77 %
Variable price        44,499          116,374            92,146           1,506         254,525               23 %
Whole            $   84,575     $    569,971     $     325,104     $   148,594     $ 1,128,244              100 %
Industrial
actual property -
owner-occupied
Mounted price       $   29,328     $    281,473     $     239,829     $    56,115     $   606,745               89 %
Variable price        12,017           23,278            34,715           1,650          71,660               11 %
Whole            $   41,345     $    304,751     $     274,544     $    57,765     $   678,405              100 %

Industrial and
industrial -
time period
Mounted price       $   11,414     $    247,254     $     133,499     $    16,356     $   408,523               68 %
Variable price        31,081          120,111            36,995               -         188,187               32 %
Whole            $   42,495     $    367,365     $     170,494     $    16,356     $   596,710              100 %
Industrial and
industrial -
time period - PPP
Mounted price       $    8,018     $    132,716     $           -     $         -     $   140,734              100 %
Variable price             -                -                 -               -               -                0 %
Whole            $    8,018     $    132,716     $           -     $         -     $   140,734              100 %
Industrial and
industrial -
strains of
credit score
Mounted price       $    6,514     $     16,262     $      25,377     $         -     $    48,153               13 %
Variable price       242,891           76,931             2,337               -         322,159               87 %
Whole            $  249,405     $     93,193     $      27,714     $         -     $   370,312              100 %

Residential
actual property -
proprietor occupied
Mounted price       $    5,062     $     13,255     $      72,247     $   303,978     $   394,542               98 %
Variable price         1,836            2,272             1,181             864           6,153                2 %
Whole            $    6,898     $     15,527     $      73,428     $   304,842     $   400,695              100 %
Residential
actual property -
non-owner
occupied
Mounted price       $    9,684     $     70,844     $      70,852     $   120,262     $   271,642               97 %
Variable price         4,522            2,037             2,817               -           9,376                3 %
Whole            $   14,206     $     72,881     $      73,669     $   120,262     $   281,018              100 %

Building
and land
growth
Mounted price       $   20,107     $     31,636     $      54,827     $     9,392     $   115,962               39 %
Variable price        65,523           76,028            40,890             803         183,244               61 %
Whole            $   85,630     $    107,664     $      95,717     $    10,195     $   299,206              100 %

House fairness
strains of
credit score
Mounted price       $        -     $          -     $           -     $         -     $         -                0 %
Variable price         6,276           33,645            69,939          29,116         138,976              100 %
Whole            $    6,276     $     33,645     $      69,939     $    29,116     $   138,976              100 %




(continued)



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(continued)                                         Maturity
                                       After one however      After 5 however        Ater
December 31, 2021 (in   Inside one      inside 5       inside fifteen       fifteen
hundreds)                 12 months            years              years             years           Whole         % of Whole
Client
Mounted price              $    5,437     $       25,582     $        8,847     $       934     $    40,800               39 %
Variable price               51,855             11,259                380               -          63,494               61 %
Whole                   $   57,292     $       36,841     $        9,227     $       934     $   104,294              100 %

Leases
Mounted price              $      605     $        9,701     $        3,316     $         -     $    13,622              100 %
Variable price                    -                  -                  -               -               -                0 %
Whole                   $      605     $        9,701     $        3,316     $         -     $    13,622              100 %

Credit score Playing cards
Mounted price              $        -     $            -     $            -     $         -     $         -                0 %
Variable price               17,087                  -                  -               -          17,087              100 %
Whole                   $   17,087     $            -     $            -     $         -     $    17,087              100 %

Whole Loans
Mounted price              $  136,245     $    1,282,320     $      841,752     $   654,125     $ 2,914,442               70 %
Variable price              477,587            461,935            281,400          33,939       1,254,861               30 %
Whole                   $  613,832     $    1,744,255     $    1,123,152     $   688,064     $ 4,169,303              100 %



Within the occasion the place Bancorp constructions a mortgage with a maturity exceeding 5
years (usually CRE loans), an computerized price adjustment will usually be set
in place at 5 years from origination date to restrict rate of interest sensitivity.


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Non-performing Loans and Property

Data summarizing non-performing loans and belongings follows:

December 31, ({dollars} in
hundreds)                          2021          2020          2019          2018          2017

Non-accrual loans                 $   6,712     $  12,514     $  11,494     $   2,611     $   6,511
Troubled debt restructurings             12            16            34            42           869
Loans overdue 90 days or extra
and nonetheless accruing                      684           649           535           745             2
Whole non-performing loans            7,408        13,179        12,063         3,398         7,382
Different actual property owned               7,212           281           493         1,018         2,640
Whole non-performing belongings       $  14,620     $  13,460     $  12,556     $   4,416     $  10,022

Non-performing loans to complete
loans                                  0.18 %        0.37 %        0.42 %        0.13 %        0.31 %
Non-peforming loans to complete
loans (excluding PPP) (1)              0.18 %        0.44 %           -             -             -
Non-performing belongings as to
complete belongings                           0.22 %        0.29 %        0.34 %        0.13 %        0.31 %
Allowance to non-performing
loans                                   728 %         394 %         222 %         751 %         337 %



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


Non-performing loans to complete loans had been 0.18% at December 31, 2021 in comparison with
0.37% at December 31, 2020. Non-performing loans to complete loans (excluding PPP
loans) had been 0.18% at December 31, 2021 in comparison with 0.44% at December 31, 2020.



Non-performing belongings elevated $1 million to $15 million at December 31, 2021
in comparison with December 31, 2020, primarily on account of foreclosures on a big CRE
relationship that was in non-accrual standing at December 31, 2020 and shifted to
OREO at December 31, 2021.



In complete, non-performing belongings as of December 31, 2021 had been comprised of 103
loans ranging in particular person quantities as much as $950,000, one nominal accruing TDR
mortgage and foreclosed actual property held on the market. Foreclosed actual property held at
December 31, 2021 included two CRE properties and two residential actual property
properties.



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The next desk presents the main classifications of non-accrual loans by
portfolio:


December 31, (in hundreds)                     2021         2020

Industrial actual property – non-owner occupied $ 720 $ 10,278
Industrial actual property – proprietor occupied 1,748 1,403
Whole industrial actual property

                     2,468       11,681

Industrial and industrial - time period                   670            6
Industrial and industrial - strains of credit score        228           88
Whole industrial and industrial                    898           94

Residential actual property – proprietor occupied 1,997 413
Residential actual property – non-owner occupied 293 101
Whole residential actual property

                    2,290          514

Building and land growth                    -            -
House fairness strains of credit score                        646          221
Client                                           410            4
Leases                                               -            -
Bank cards                                         -            -
Whole non-accrual loans                        $ 6,712     $ 12,514




Loans are positioned in a non-accrual revenue standing when prospects for recovering
each principal and accrued curiosity are thought-about uncertain or when a default of
principal or curiosity has existed for 90 days or extra, until such a mortgage is
well- secured and within the course of of assortment or renewal. Curiosity revenue
recorded on non-accrual loans as principal funds was $312,000, $350,000, and
$552,000 for 2021, 2020, and 2019. Curiosity revenue that might have been recorded
if non-accrual loans had been on a present foundation in accordance with their unique
phrases was $359,000, $457,000, and $491,000 for 2021, 2020, and 2019.



Along with non-performing loans mentioned above, there have been loans, that are
accruing curiosity, for which funds had been present or lower than 90 days overdue
the place debtors are experiencing elevated monetary difficulties. These
potential downside loans totaled roughly $40 million and $26 million at
December 31, 2021 and 2020. These relationships are monitored carefully for
attainable future inclusion in non-performing loans. Administration believes it has
adequately mirrored credit score publicity in these loans in its dedication of the
allowance.



Loans accounted for as TDRs embrace modifications from unique phrases equivalent to
these on account of chapter proceedings, sure modifications to amortization intervals or
prolonged suspension of principal funds on account of buyer monetary
difficulties. To the extent that Bancorp chooses to work with debtors by
offering affordable concessions quite than initiating assortment, this might
end in a rise in loans accounted for as TDRs. TDRs which can be in
non-accrual standing are reported as non-accrual loans. Loans accounted for as
TDRs are individually evaluated for impairment and are reported as
non-performing loans.



On March 2020, the CARES Act was signed into legislation. Part 4013 of the CARES Act,
"Non permanent Reduction from Troubled Debt Restructurings," gives banks the choice
to briefly droop sure necessities underneath GAAP associated to TDRs for a
restricted interval of time to account for the results of COVID-19. To qualify for
Part 4013 of the CARES Act, debtors should have been present at December 31,
2019. All modifications are eligible so long as they're executed between March
1, 2020 and the sooner of (i) December 31, 2020, or (ii) the 60th day after the
finish of the COVID-19 nationwide emergency declared by the President of the United
States. A number of modifications of the identical credit are allowed and there isn't a
cap on the length of the modification. On December 21, 2020, sure
provisions of the CARES Act, together with the non permanent suspension of sure
necessities associated to TDRs, had been prolonged by December 31, 2021.



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Additionally in March 2020, numerous regulatory companies, together with the Board of
Governors of the Federal Reserve System and the Federal Deposit Insurance coverage
Company, issued an interagency assertion on mortgage modifications and reporting
for monetary establishments working with prospects affected by the pandemic. The
interagency assertion was efficient instantly and impacted accounting for mortgage
modifications. Below Accounting Requirements Codification 310-40, "Receivables -
Troubled Debt Restructurings by Collectors," ("ASC 310-40"), a restructuring of
debt constitutes a TDR if the creditor, for financial or authorized causes associated to
the debtor's monetary difficulties, grants a concession to the debtor that it
wouldn't in any other case think about. The companies confirmed with the workers of the FASB
that short-term modifications made on  religion foundation in response to COVID-19
to debtors who had been present previous to any reduction, are to not be thought-about
TDRs. This consists of short-term modifications equivalent to fee deferrals, price
waivers, extensions of reimbursement phrases, or different delays in fee which can be
insignificant. Debtors thought-about present are these which can be lower than 30 days
overdue on their contractual funds on the time a modification program is
applied.


At each December 31, 2021 and December 31, 2020, Bancorp had one mortgage categorised
as a TDR, the steadiness of which was $12,000 and $16,000, respectively, as of
these dates.


Delinquent Loans



Delinquent loans (consisting of all loans 30 days or extra overdue) totaled $11
million at December 31, 2021 in comparison with $17 million at December 31, 2020.
Delinquent loans complete loans had been 0.26% and 0.48% at December 31, 2021 and
December 31, 2020. Delinquent loans to complete loans (excluding PPP loans) had been
0.27% and 0.57% at December 31, 2021 and December 31, 2020. See the part
titled "Non-GAAP Financial Measures" for reconcilement of non-GAAP to GAAP
measures.



Allowance for Credit score Losses on Loans


The ACL is a valuation allowance for loans estimated at every steadiness sheet date
in accordance with GAAP. When Bancorp deems all or a portion of a mortgage to be
uncollectible, the suitable quantity is written off and the ACL is lowered by
the identical quantity. Subsequent recoveries, if any, are credited to the ACL when
obtained. See the footnote titled "Abstract of Vital Accounting Insurance policies"
for dialogue of Bancorp's ACL methodology on loans. Allocations of the ACL could
be made for particular loans, however all the ACL on loans is out there for any
mortgage that, in Bancorp's judgment, must be charged-off.



The next desk units forth the ACL by class of mortgage:

                                      December 31, 2021                                   December 31, 2020
                                                             ACL on
                                                            loans to
({dollars} in              Allotted       % of Whole ACL       Whole        Allotted       % of Whole ACL      ACL on loans
hundreds)               Allowance          on loans        Loans (1)      Allowance          on loans        to Whole Loans
Industrial actual
property - non-owner
occupied                $     15,960                 30 %        1.41 %   $     19,396                 37 %             2.33 %
Industrial actual
property - proprietor
occupied                       9,595                 18 %        1.41 %          6,983                 13 %             1.37 %
Whole industrial actual
property                        25,555                 48 %        1.41 %         26,379                 50 %             1.97 %

Industrial and
industrial - time period (1)          8,577                 16 %        1.44 %          8,970                 17 %             1.71 %
Industrial and
industrial - strains of
credit score                         4,802                  9 %        1.30 %          3,614                  7 %             1.45 %
Whole industrial and
industrial                    13,379                 25 %        1.38 %         12,584                 24 %             1.62 %

Residential actual
property - proprietor
occupied                       4,316                  8 %        1.08 %          3,389                  7 %             1.42 %
Residential actual
property - non-owner
occupied                       3,677                  7 %        1.31 %          1,818                  3 %             1.29 %
Whole residential
actual property                    7,993                 15 %        1.17 %          5,207                 10 %             1.37 %

Building and land
growth                    4,789                  9 %        1.60 %          6,119                 12 %             2.10 %
House fairness strains of
credit score                         1,044                  2 %        0.75 %            895                  2 %             0.94 %
Client                         772                  1 %        0.74 %            340                  1 %             0.47 %
Leases                           204                  0 %        1.50 %            261                  1 %             1.77 %
Bank cards                     162                  0 %        0.95 %            135                  0 %             1.32 %
Whole                   $     53,898                100 %        1.34 %   $     51,920                100 %             1.74 %



(1) Excludes the PPP mortgage portfolio at December 31, 2021 and December 31, 2020,
which was not reserved for primarily based on the 100% SBA assure.

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The adoption of CECL and the next starting of the pandemic had a fabric
influence on Bancorp's quarterly ACL on loans calculations for 2020. Upon adoption
of ASC 326 on January 1, 2020, Bancorp recorded a rise of $8.2 million to
the ACL on loans and a corresponding lower to retained earnings, web of the
DTA influence. The adjustment upon adoption of ASC 326 raised the ACL on loans
steadiness to $37 million efficient January 1, 2020.



Bancorp's ACL on loans was $54 million as of December 31, 2021 in comparison with $52
million as of December 31, 2020. The change within the ACL on loans was pushed by a
quantity of competing components, which resulted within the $2.Zero million, or 4%, improve
skilled for the 12 months ended December 31, 2021. Acquisition-related exercise
was liable for a complete improve to the ACL on loans of $14.2 million,
comprised of a $6.Eight million day one adjustment for particular reserves positioned on
acquired PCD loans (offset to goodwill) and $7.Four million of provision expense
associated to the remaining acquired non-PCD mortgage portfolio. Partially offsetting
the acquisition-related will increase was a web discount of the ACL on loans of
$6.Zero million for the 12 months ended December 31, 2021 stemming from an improved
unemployment forecast, normal enchancment in different underlying CECL mannequin
components in comparison with current intervals and updates to Bancorp's CECL mannequin. Additional
lowering the ACL on loans had been web cost offs of $6.2 million for the 12 months,
which had been pushed by the cost off of two massive CRE relationships totaling $4.4
million. Each relationships had been totally reserved and the cost off had no revenue
assertion influence for the 12 months ended December 31, 2021. Partially offsetting
these cost offs was a $555,000 restoration of a be aware that was totally charged off
in 2020.



Excellent mortgage balances (excluding PPP) grew $1.05 billion, or 35%, between
December 31, 2020 and December 31, 2021, because of this of the mortgage portfolio added
by the KB acquisition and robust natural mortgage development. This development and
associated modifications within the general mortgage combine contributed $16.Eight million of provision
expense for the 12 months ended December 31, 2021. Nevertheless, a web profit of $15.4
million stemming from the advance within the unemployment forecast and
underlying CECL mannequin components talked about above considerably offset the
growth-related expense.



The FRB's forecast of the Seasonally Adjusted Nationwide Civilian Unemployment
Charge is the first loss driver inside Bancorp's CECL mannequin. The precise price
steadily improved over the previous 12 months after spiking to 14.8% in April of 2020,
standing at 3.9% as of December 31, 2021, which precipitated the forecast to enhance
considerably all year long. Adjustments within the unemployment forecast
contributed a web profit to provision for credit score losses on loans of
roughly $6 million for the 12 months ended December 31, 2021 in comparison with a web
reserve construct of roughly $11 million for the 12 months ended December 31, 2020.



The pandemic has had a fabric influence on Bancorp's quarterly ACL on loans
calculations. Whereas Bancorp has not but skilled credit score high quality points
leading to charge-offs associated to the pandemic, the ACL on loans calculation
and ensuing credit score loss expense is considerably impacted by modifications in
forecasted financial situations. Ought to the forecast for financial situations
worsen, Bancorp might expertise additional will increase in its required ACL on loans
and document further credit score loss expense. Whereas the execution of fee
deferrals underneath the CARES ACT has assisted credit score high quality ratios, it's attainable
that asset high quality might worsen at future measurement intervals if the results of
the pandemic are extended.



Whereas separate from the ACL on loans and recorded in Different Liabilities on
Bancorp's consolidated steadiness sheets, the ACL for off steadiness sheet credit score
exposures decreased $1.9 million, or 35%, to $3.5 million at December 31, 2021.
Reductions of the ACL for off steadiness sheet credit score exposures totaling $2.2
million had been recorded for the 12 months ended December 31, 2021, because of this of
continued enchancment in line of credit score utilization, attributed largely to the
C&I portfolio, and improved CECL mannequin components. C&I line of credit score utilization
improved to 31.8% at December 31, 2021 in comparison with 26.1% at December 31, 2020.
Whereas utilization improved considerably throughout 2021, it nonetheless stays effectively
under pre-pandemic ranges. Partially offsetting these reductions was the mortgage
portfolio added by the KB acquisition, which resulted in a $250,000
improve within the ACL for off steadiness sheet credit score exposures at acquisition date
with no corresponding influence on earnings.



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Abstract of Exercise within the ACL on Loans

The desk under displays exercise within the ACL associated to loans for the years
ended December 31, 2021 and 2020:

(in hundreds)                                Preliminary          Provision for
Yr ended December 31,    Starting        Allowance on       Credit score Losses
2021                        Stability          PCD Loans           on Loans  

Cost-offs Recoveries Ending Stability

Industrial actual property
- non-owner occupied      $     19,396     $        1,491     $        (2,031 )   $      (3,065 )   $        169     $        15,960
Industrial actual property
- proprietor occupied                 6,983              2,112               1,826            (1,909 )            583               9,595
Whole industrial actual
property                          26,379              3,603                (205 )          (4,974 )            752              25,555

Industrial and
industrial - time period                8,970              1,022                (112 )          (1,337 )             34               8,577
Industrial and
industrial - strains of
credit score                           3,614              1,755                (567 )               -                -               4,802
Whole industrial and
industrial                      12,584              2,777                (679 )          (1,337 )             34              13,379

Residential actual property
- proprietor occupied                 3,389                142               1,134              (383 )             34               4,316
Residential actual property
- non-owner occupied             1,818                 88               1,766                 -                5               3,677
Whole residential actual
property                           5,207                230               2,900              (383 )             39               7,993

Building and land
growth                      6,119                  -              (1,333 )               -                3               4,789
House fairness strains of
credit score                             895                147                   1                 -                1               1,044
Client                           340                  -                 743              (987 )            676                 772
Leases                             261                  -                 (57 )               -                -                 204
Bank cards                       135                  -                  27                 -                -                 162
Whole                     $     51,920     $        6,757     $         1,397     $      (7,681 )   $      1,505     $        53,898




                                                                 Preliminary ACL on
                                                  Affect of      Loans Bought

Yr ended December 31, 2020 Starting Adopting with Credit score Provision for

                                         Ending
(in hundreds)                    Stability          ASC 326        Deterioration      Credit score Losses      Cost-offs       Recoveries       Stability

Industrial actual property -
non-owner occupied              $      5,235     $     2,946     $           152     $      11,194     $        (143 )   $         12     $  19,396
Industrial actual property -
proprietor occupied                         3,327           1,542               1,350             2,115            (1,351 )              -         6,983
Whole industrial actual property           8,562           4,488               1,502            13,309            (1,494 )             12        26,379

Industrial and industrial -
time period                                   6,782             365                   -             1,832               (18 )              9         8,970
Industrial and industrial -
strains of credit score                        5,657          (1,528 )                 -              (515 )               -                -         3,614
Whole industrial and
industrial                            12,439          (1,163 )                 -             1,317               (18 )              9        12,584

Residential actual property -
proprietor occupied                         1,527           1,087                  99               737               (79 )             18         3,389
Residential actual property -
non-owner occupied                       947             429                   -               442                (2 )              2         1,818
Whole residential actual property          2,474           1,516                  99             1,179               (81 )             20         5,207

Building and land
growth                            2,105           3,056                   -               902                 -               56         6,119
House fairness strains of credit score              728             114                   -                53                 -                -           895
Client                                 100             264                  34                91              (508 )            359           340
Leases                                   237              (4 )                 -                28                 -                -           261
Bank cards - industrial                146             (50 )                 -                39                 -                -           135
Whole web mortgage (charge-offs)
recoveries                      $     26,791     $     8,221     $         1,635     $      16,918     $      (2,101 )   $        456     $  51,920




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The desk under displays exercise within the ACL associated to loans for the 12 months ended
December 31, 2019, offered in accordance with ASC 310 previous to the adoption of
ASC 326:


Yr ended December 31, 2019 Starting Provision for
(in hundreds)

                      Stability        Credit score Losses       

Cost-offs Recoveries Ending Stability

Actual property mortgage              $     10,681     $        1,021     $         (38 )   $        100     $        11,764
Industrial and industrial               11,965                684               (94 )            267              12,822
Building and growth             1,760               (644 )               -              203               1,319
Undeveloped land                           752                 34                 -                -                 786
Client                                   376                (95 )            (552 )            371                 100
Whole                             $     25,534     $        1,000     $        (684 )   $        941     $        26,791



The desk under particulars web charge-offs to common loans excellent by class
of mortgage for the years ended December 31, 2021 and 2020:

                                                   2021                                                     2020
                                                                   Web (cost                                              Web (cost
                                                                      offs)/                                                   offs)/
                             Web (cost                            recoveries        Web (cost                            recoveries
Yr ended December 31,        offs)/                               to common          offs)/                               to common

({dollars} in hundreds) recoveries Common Loans loans

recoveries Common Loans loans

Industrial actual property -
non-owner occupied         $        (2,896 )   $     1,027,405            -0.28 %   $          (131 )   $       798,085            -0.02 %
Industrial actual property -
proprietor occupied                      (1,326 )           592,577            -0.22 %            (1,351 )           481,057            -0.28 %
Whole industrial actual
property                              (4,222 )         1,619,982            -0.26 %            (1,482 )         1,279,142            -0.12 %

Industrial and
industrial - time period                   (1,303 )           550,101            -0.24 %                (9 )           500,571             0.00 %
Industrial and
industrial - time period - PPP                  -             397,282             0.00 %                 -             442,510             0.00 %
Industrial and
industrial - strains of
credit score                                   -             290,231             0.00 %                 -             264,777             0.00 %
Whole industrial and
industrial                          (1,303 )         1,237,614            -0.11 %                (9 )         1,207,858             0.00 %

Residential actual property
- proprietor occupied                      (349 )           334,718            -0.10 %               (61 )           218,998            -0.03 %
Residential actual property
- non-owner occupied                     5             221,214             0.00 %                 -             137,470             0.00 %
Whole residential actual
property                                (344 )           555,932            -0.06 %               (61 )           356,468            -0.02 %

Building and land
growth                              3             290,705             0.00 %                56             259,283             0.02 %
House fairness strains of
credit score                                   1             121,276             0.00 %                 -             100,616             0.00 %
Client                              (311 )            98,093            -0.32 %              (149 )            77,082            -0.19 %
Leases                                   -              13,770             0.00 %                 -              14,897             0.00 %
Bank cards                             -              13,885             0.00 %                 -               9,563             0.00 %
Whole                      $        (6,176 )   $     3,951,257            -0.16 %   $        (1,645 )   $     3,304,909            -0.05 %




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Chosen ratios regarding the allowance comply with:

Years Ended December 31,                      2021              2020              2019

Provision for credit score losses to common
loans                                              0.04 %            0.51 %            0.04 %
Web (charge-offs)/recoveries to common
loans                                             -0.16 %           -0.05 %            0.01 %
Allowance for credit score losses to common
loans                                              1.36 %            1.57 %            0.99 %
Allowance for credit score losses to complete
loans                                              1.29 %            1.47 %            0.94 %
Allowance for credit score losses to complete
loans (excluding PPP) (1)                          1.34 %            1.74 %               -



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

Premises and Tools



Premises and gear are offered on the consolidated steadiness sheets web of
associated depreciation on the respective belongings in addition to honest worth changes
related to buy accounting. Premises and gear elevated $19
million, or 33%, between December 31, 2020 and December 31, 2021 because of this of
the KB acquisition, which added 19 areas. As of December 31, 2021, Bancorp
has 63 full service banking middle areas; 33 within the Louisville MSA, 19 in
central and jap Kentucky, 6 within the Cincinnati MSA and 5 within the Indianapolis
MSA.



BOLI



Financial institution-owned life insurance coverage belongings elevated $20 million, or 60%, to $53 million
at December 31, 2021, in comparison with $33 million at December 31, 2020, the rise
stemming straight from life insurance coverage belongings added because of this of the KB
acquisition.



Goodwill



At December 31, 2021, Bancorp had $136 million in goodwill recorded on its
steadiness sheet, together with $123 million recorded in affiliation with the
acquisition of KB. As permitted underneath GAAP, administration has as much as 12 months
following the date of acquisition to finalize the honest values of the acquired
belongings and assumed liabilities associated to the KB acquisition. Throughout this
measurement interval, Bancorp could document subsequent changes to goodwill for
provisional quantities recorded on the acquisition date.



Occasions that will set off goodwill impairment embrace deterioration in financial
situations, a decline in market-dependent multiples or metrics (i.e. inventory worth
falling under tangible ebook worth), adverse tendencies in general monetary
efficiency and regulatory motion. At September 30, 2021, Bancorp elected to
carry out a qualitative evaluation to find out if it was more-likely-than-not
that the honest worth of the Industrial Banking reporting unit exceeded its
carrying worth, together with goodwill. The qualitative evaluation indicated that it
was not more-likely-than-not that the carrying worth of the reporting unit
exceeded its honest worth.



Core Deposit Intangibles (CDI)


CDI belongings arising from enterprise acquisitions are initially measured at honest
worth and are then amortized on an accelerated methodology of their helpful lives. CDI
belongings elevated $Four million as of December 31, 2021 in comparison with December 31,
2020, solely because of this of belongings added by the KB acquisition.



Different Property and Different Liabilities


Different belongings elevated $15 million, or 21%, as of December 31, 2021 in comparison with
December 31, 2020 whereas different liabilities elevated $9 million, or 10%, for the
identical respective intervals.



The rise in Different Property between December 31, 2020 and December 31, 2021 was
attributed primarily to the addition of a big CRE OREO property, development in MSR
belongings stemming from the KB acquisition, elevated values of insurance coverage insurance policies
outdoors of conventional BOLI, further funding in tax credit score partnerships
and normal will increase in different belongings associated to the KB acquisition. Partially
offsetting the general improve was a discount in rate of interest swap belongings.



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The rise for Different Liabilities between December 31, 2020 and December 31,
2021 was pushed by the accrual of an AFS debt safety buy that may settle
in early 2022 and larger accrued worker incentive compensation related to
document working outcomes. These will increase had been offset by the discount of
numerous accrued liabilities, together with tax credit score partnership obligations, the
ACL for off steadiness sheet credit score exposures and rate of interest swap liabilities.



Market worth modifications on rate of interest swap transactions maintained for sure
mortgage prospects performed a job within the fluctuations of each Different Asset and Different
Liabilities, as famous above. Bancorp enters into these rate of interest swap
transactions with debtors who need to hedge publicity to rising curiosity
charges, whereas on the identical time getting into into an offsetting rate of interest swap,
with considerably matching phrases, with one other accredited impartial
counterparty. These are undesignated spinoff devices and are acknowledged
on the steadiness sheet at honest worth through each an asset and a associated legal responsibility as
Bancorp has an settlement with the borrower (the asset) and the counterparty (the
legal responsibility). As a result of of matching phrases of offsetting contracts and collateral
provisions mitigating any non-performance danger, modifications in honest worth have an
offsetting impact on the associated asset and legal responsibility. Because of this, the
market worth modifications over the previous 12 months stemming from the declining
rate of interest atmosphere have resulted in will increase to each the asset and
legal responsibility related to these transactions. For added info, see
the footnote titled "Spinoff Financial Devices."



Deposits



Whole deposits elevated $1.80 billion, or 45%, from December 31, 2020 to
December 31, 2021. Deposits totaling $1.04 billion had been assumed because of this of
the KB acquisition. Deposit balances attributed to the acquired portfolio and
associated market elevated barely to $1.08 billion as of December 31, 2021.
Excluding the deposits attributed to the Central Kentucky market, deposits grew
$718 million, or 18%. Common deposit balances have elevated $1.27 billion, or
35%, over the previous 12 months, as federal applications such because the PPP, stimulus
checks and enhanced unemployment advantages drove each ending and common deposit
balances to document ranges as of December 31, 2021 along with deposits added
because of this of the acquisition.



({dollars} in hundreds)                                                               Variance
December 31,                                   2021            2020          $ Change        % Change

Non-interest bearing demand deposits        $ 1,755,754     $ 1,187,057     $   568,697              48 %

Curiosity bearing deposits:
Curiosity bearing demand                       2,131,928       1,355,985         775,943              57 %
Financial savings                                         415,258         208,774         206,484              99 %
Cash market                                  1,050,352         844,414         205,938              24 %

Time deposit accounts of $250,000 or extra 89,745 73,065

     16,680              23 %
Different time deposits                             344,477         319,339          25,138               8 %
Whole time deposits                             434,222         392,404          41,818              11 %

Whole curiosity bearing deposits               4,031,760       2,801,577       1,230,183              44 %

Whole deposits (1)                          $ 5,787,514     $ 3,988,634     $ 1,798,880              45 %



(1) Contains $5 million and $25 million in brokered deposits as of December 31,
2021
and December 31, 2020, respectively.

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The composition of deposits, bifurcated between Bancorp's legacy deposit
portfolio and the deposit portfolio acquired by growth into the Central
Kentucky market by the KB acquisition, is offered under. This composition
is offered to offer element of the Central Kentucky market's deposit
portfolio and its contribution to the full deposit composition of Bancorp at
December 31, 2021.



                                                           As of December 31, 2021
({dollars} in hundreds)                         Legacy          Central Kentucky          Whole

Non-interest bearing demand deposits        $   1,533,188     $          222,566     $   1,755,754

Curiosity bearing deposits:
Curiosity bearing demand                         1,628,598                503,330         2,131,928
Financial savings                                           258,032                157,226           415,258
Cash market                                      961,579                 88,773         1,050,352

Time deposit accounts of $250,000 or extra          66,045                 23,700            89,745
Different time deposits(1)                            259,636                 84,841           344,477
Whole time deposits                               325,681                108,541           434,222

Whole curiosity bearing deposits                 3,173,890                857,870         4,031,760

Whole deposits                              $   4,707,078     $        1,080,436     $   5,787,514




Regardless of the sharp common steadiness improve skilled over the previous twelve
months, Bancorp has skilled vital profit from decrease deposit charges.
The typical price of curiosity bearing deposits declined 25 bps to 0.17% between
December 31, 2020 and December 31, 2021, whereas the general price of deposits
(together with non-interest bearing deposits) declined 14 bps to 0.15% over the identical
interval.


Common deposit balances and common charges paid on such deposits for the years
indicated are summarized as follows:

                                              2021                                     2020                                     2019

Years Ended December 31,
({dollars} in hundreds) Common steadiness Common price Common steadiness Common price Common steadiness Common price

Non-interest bearing demand
deposits                      $       1,578,795                  - %   $       1,100,942                  - %   $         765,103                  - %
Curiosity bearing demand
deposits                              1,633,606               0.11             1,133,308               0.16               875,897               0.57
Financial savings deposits                        328,570               0.03               190,368               0.02               166,509               0.17
Cash market deposits                   919,778               0.06               771,363               0.19               695,411               1.02
Time deposits                           420,308               0.76               412,506               1.74               406,176               2.02

Whole Common Deposits        $       4,881,057                        $       3,608,487                        $       2,909,096




Maturities of time deposits of $250,000 or extra at December 31, 2021 are
summarized as follows:



(in hundreds)

Three months or much less           $ 16,561
Over Three by 6 months      13,215
Over 6 by 12 months     35,753
Over 12 months               24,216
Whole                      $ 89,745




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Securities Bought Below Settlement to Repurchase

Data concerning SSUAR follows:


December 31, ({dollars} in hundreds)                 2021         2020
Excellent steadiness at finish of interval              $ 75,466     $ 47,979

Weighted common rate of interest at finish of interval 0.04 % 0.05 %



Years Ended December 31, ({dollars} in
hundreds)                                      2021             2020       

2019

Common excellent steadiness through the
interval                                      $     62,534     $     40,363     $     38,555
Common rate of interest through the interval             0.04 %           0.09 %           0.26 %
Most excellent at any month finish
through the interval                           $     81,964     $     47,979     $     52,599




SSUARs are collateralized by securities and are handled as financings;
accordingly, the securities concerned with the agreements are recorded as belongings
and are held by a safekeeping agent and the obligations to repurchase the
securities are mirrored as liabilities. All securities underlying the
agreements are underneath the Financial institution's management. The bulk of SSUARs are listed to
instantly repricing indices such because the FFTR.



SSUARs totaled $75 million and $48 million at December 31, 2021 and December 31,
2020, respectively, as SSUARs totaling $11 million had been assumed as half of the
KB acquisition. The remaining improve in SSUAR is in line with the overall
pattern of prospects sustaining elevated deposit balances.



Federal Funds Bought and Different Brief-Time period Borrowing

FFP and different short-term borrowing balances decreased $1 million, or 10%,
between December 31, 2020 and December 31, 2021. At December 31, 2021, FFP
relate solely to extra liquidity held by downstream correspondent financial institution
prospects of Bancorp.

FHLB Advances



FHLB advances decreased $32 million between December 31, 2020 and December 31,
2021 on account of maturing advances not being renewed or changed along with
elective pay offs, leading to Bancorp having no excellent FHLB advances at
December 31, 2021. In the course of the first quarter of 2021, Bancorp elected to pay down
sure advances previous to maturity with out incurring pre-payment penalties.
In the course of the second quarter of 2021, Bancorp paid off $14 million of time period
advances, with a weighted common price of 2.03%, previous to their maturity
incurring an early-termination price of $474,000. Bancorp primarily based this choice on
its extra liquidity place pushed by the substantial deposit development it
achieved over the previous 12 months, mixed with consideration for the fee of the
advances and a break-even evaluation.



Because of this of the KB acquisition, FHLB advances totaling $91 million had been
assumed and paid off instantly upon acquisition primarily based on present ranges of
extra liquidity. Early termination penalties totaling $2.5 million had been
incurred because of this of the payoffs, however had no revenue assertion influence for the
12 months ended December 31, 2021 because of the honest worth adjustment recorded by
goodwill at acquisition.



Liquidity



The position of liquidity administration is to make sure funds can be found to fulfill
depositors' withdrawal and debtors' credit score calls for whereas on the identical time
maximizing profitability. That is completed by balancing modifications in demand
for funds with modifications in provide of these funds. Liquidity is supplied by
short-term belongings that may be transformed to money, AFS debt securities, numerous
strains of credit score out there to Bancorp, and the flexibility to draw funds from
exterior sources, principally deposits. Administration believes it has the flexibility
to extend deposits at any time by providing charges barely larger than market
price.



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Bancorp's Asset/Legal responsibility Committee is comprised of senior administration and has
direct oversight duty for Bancorp's liquidity place and profile. A
mixture of experiences supplied to administration particulars inside liquidity
metrics, composition and degree of the liquid asset portfolio, timing variations
in short-term money move obligations, and publicity to contingent attracts on
Bancorp's liquidity.



For the years ended December 31, 2020 and 2021, Bancorp didn't expertise any
vital funding points associated to the PPP or the pandemic typically. A
good portion of the PPP borrowings have remained within the type of
industrial deposits and have usually been sluggish to outflow, as prospects have
utilized the funds to strengthen their steadiness sheets. As well as, federal
stimulus checks and extra profitable unemployment advantages have additionally contributed
to larger than regular deposit balances, leading to document ranges of liquidity.
If a liquidity challenge arose, Bancorp would make the most of in a single day funds from the FHLB
(the bottom costing supply), during which ­­­­­­Bancorp has out there credit score of
$1.00 billion as of December 31, 2021.



Bancorp's most liquid belongings are comprised of money and due from banks, FFS and
AFS debt securities. FFS and curiosity bearing deposits totaled $899 million and
$275 million at December 31, 2021 and December 31, 2020, respectively. FFS
usually have in a single day maturities whereas interest-bearing deposits in banks are
accessible on demand. These investments are used for normal every day liquidity
functions. The honest worth of the AFS debt safety portfolio was $1.18 billion
and $587 million at December 31, 2021 and December 31, 2020, respectively. The
funding portfolio consists of scheduled maturities of $6 million and anticipated
money flows on amortizing AFS debt securities of roughly $185 million
(primarily based on scheduled funds and assumed pre-payment speeds as of December 31,
2021) over the subsequent 12 months. Mixed with FFS and curiosity bearing deposits
from banks, AFS debt securities supply substantial sources to fulfill both mortgage
development or reductions in Bancorp's deposit funding base. Bancorp pledges parts
of its funding securities portfolio to safe public funds, money balances of
sure WM&T accounts and SSUAR. At December 31, 2021, complete funding
securities pledged for these functions comprised 75% of the AFS debt securities
portfolio, leaving roughly $301 million of unpledged AFS debt securities.



Bancorp's deposit base consists primarily of core deposits, outlined as time
deposits lower than or equal to $250,000, demand, financial savings, cash market deposit
accounts and excludes public funds and brokered deposits. At December 31, 2021,
such deposits totaled $5.05 billion and represented 87% of Bancorp's complete
deposits, as in contrast with $3.54 billion, or 89% of complete deposits at December
31, 2020. As a result of these core deposits are much less risky and are sometimes tied to
different merchandise of Bancorp by lengthy lasting relationships, they don't place
undue stress on liquidity. Nevertheless, many of Bancorp's particular person depositors
are at present sustaining traditionally excessive balances. These extra balances could
be extra delicate to market charges, with potential decreases presumably straining
Bancorp's liquidity place.



As of December 31, 2021 and December 31, 2020, Bancorp held brokered deposits
totaling $5 million and $25 million, respectively. The $5 million of brokered
deposits excellent at December 31, 2021 was solely attributed to deposits
added by the KB acquisition.



Included in complete deposit balances at December 31, 2021 and 2020 had been $645
million
and $355 million, respectively, of public funds usually comprised of
accounts from native authorities companies and public college districts within the
markets during which Bancorp operates. The big improve stems from deposit
relationships added by growth into the Central Kentucky market.


Bancorp is a member of the FHLB of Cincinnati. As a member of the FHLB, Bancorp
has entry to credit score merchandise of the FHLB. Bancorp views these borrowings as a
potential low price different to brokered deposits. At December 31, 2021 and
December 31, 2020, out there credit score from the FHLB totaled $1.00 billion and $804
million, respectively. The rise in out there credit score throughout 2021 resulted
from a rise in eligible loans (these pledged for collateral-based borrowing
capability) and the maturity or elective payoff of all FHLB borrowings. See the
footnote titled "FHLB Advances" for extra element.  Moreover, Bancorp
had unsecured out there FFP strains with correspondent banks totaling $80 million
at each December 31, 2021 and December 31, 2020.



In the course of the regular course of enterprise, Bancorp enters into sure types of
off-balance sheet transactions, together with unfunded mortgage commitments and letters
of credit score. These transactions are managed by Bancorp's numerous danger
administration processes. Administration considers each on-balance sheet and off-balance
sheet transactions in its analysis of Bancorp's liquidity.



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Bancorp's principal supply of money income is dividends paid to it as the only real
shareholder of the Financial institution. As mentioned within the footnote titled "Commitments and
Contingent Liabilities," as of January 1st of any 12 months, the Financial institution could pay
dividends in an quantity equal to the Financial institution's web revenue of the prior two years
much less any dividends paid for a similar two years. At December 31, 2021, the Financial institution
could pay an quantity equal to $53 million in dividends to Bancorp with out
regulatory approval topic to ongoing capital necessities of the Financial institution.



Sources and Makes use of of Money



Money move is supplied primarily by financing actions of Bancorp, which
embrace elevating deposits and borrowing funds from institutional sources equivalent to
advances from the FHLB and FFP, in addition to scheduled mortgage repayments and money
flows from AFS debt securities. These funds are primarily used to facilitate
funding actions of Bancorp, which embrace making loans and buying
securities for the funding portfolio. One other vital supply of money is web
revenue of the Financial institution from working actions.  For additional element concerning the
sources and makes use of of money, see the "Consolidated Statements of Money Flows" in
Bancorp's consolidated monetary statements.



Commitments



Within the regular course of enterprise, Bancorp is occasion to actions that comprise
credit score, market and operational danger that aren't mirrored in entire or partly
in Bancorp's consolidated monetary statements. Such actions embrace
conventional off-balance sheet credit-related monetary devices, commitments
underneath working leases and long-term debt.



Bancorp gives prospects with off-balance sheet credit score assist by mortgage
commitments and standby letters of credit score. Unused mortgage commitments elevated
$300 million as of December 31, 2021 in comparison with December 31, 2020 constant
with the KB acquisition.



Commitments to increase credit score are an settlement to lend to a buyer so long as
collateral is out there as agreed upon and there isn't a violation of any
situation established within the contract. Commitments usually have fastened
expiration dates or different termination clauses. Since some of the commitments are
anticipated to run out with out being drawn upon, the full dedication quantities don't
essentially characterize future money necessities. Bancorp makes use of the identical credit score and
collateral insurance policies in making commitments and conditional ensures as for
on-balance sheet devices. Bancorp evaluates every buyer's creditworthiness
on a case-by-case foundation. The quantity of collateral obtained is predicated on
administration's credit score analysis of the client. Collateral held varies, however could
embrace accounts receivable, stock, securities, gear and actual property.
Nevertheless, ought to the commitments be drawn upon and ought to our prospects default
on their ensuing obligation to us, our most publicity to credit score loss,
with out consideration of collateral, is represented by the contractual quantity of
these devices.



Extra element concerning credit-related monetary devices, together with each
commitments to increase credit score and letters of credit score at December 31, 2021 are as
follows:



                                         Quantity of dedication expiration per interval
                            Lower than         1-3           3-5         Over 5
(in hundreds)                1 12 months         years         years         years          Whole

Unused mortgage commitments     $  929,296     $ 365,662     $ 113,717     $ 251,698     $ 1,660,373
Standby letters of credit score       30,265           480            34             -          30,779



See the footnote titled “Commitments and Contingent Liabilities” for extra
element.


At December 31, 2021 and December 31, 2020, Bancorp had accrued $3.5 million and
$5.Four million, respectively, in different liabilities for its estimate of inherent
dangers associated to unfunded credit score commitments. The lower is in line with
enchancment in each line of credit score utilization and the underlying CECL mannequin
components.


Standby letters of credit score are conditional commitments issued by Bancorp to
assure the efficiency of a buyer to a 3rd occasion beneficiary. These
ensures are primarily issued to assist industrial transactions. Standby
letters of credit score usually have maturities of one to 2 years.

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Along with owned banking services, Bancorp has entered into long-term
leasing preparations for sure department services. Bancorp additionally has required
future funds for a non-qualified outlined profit retirement plan, time
deposit maturities and different obligations.


Required funds underneath such commitments at December 31, 2021 are as follows:



                                                      Funds due by interval
                                  Lower than        1-3          3-5        Over 5
(in hundreds)                      1 12 months        years        years        years        Whole

Time deposit maturities           $  320,741     $ 96,422     $ 16,977     $    82     $ 434,222
Working leases (1)                   2,634        5,081        3,532       7,699        18,946
Outlined profit retirement plan            -          137          356       2,785         3,278
Different (2)                              1,616        1,865        1,588       2,673         7,742



(1) Contains assumed renewals.
(2) Consists primarily of contractual necessities regarding tax credit score
investments and group sponsorships.

Capital


Data pertaining to Bancorp’s capital balances and ratios follows:


Years ended December 31, ({dollars} in
hundreds, besides per share knowledge)                 2021            2020            2019

Stockholders' fairness                           $   675,869     $   440,701     $   406,297
Dividends per share                            $      1.10     $      1.08     $      1.04
Dividend payout ratio, primarily based on fundamental EPS            36.67 %         41.38 %         35.62 %




Bancorp elevated its money dividends declared to stockholders throughout 2021 to an
annual dividend of $1.10, from $1.08 per share in 2020 and $1.04 in 2019. This
represents a payout ratio of 36.67% primarily based on fundamental EPS and an annual dividend
yield of 1.72% primarily based upon the year-end closing inventory worth.



At December 31, 2021, stockholders' fairness totaled $676 million, representing an
improve of $235 million, or 53%, in comparison with December 31, 2020. The big
improve throughout 2021 was attributed primarily to inventory issued in relation to the KB
acquisition, which totaled $205 million. Additional, web revenue of $74.6 million
was partially offset by a bigger adverse change in AOCI and dividends declared
for the 12 months ended December 31, 2021. AOCI consists of web unrealized positive aspects or
losses on AFS debt securities and a minimal pension legal responsibility, every web of
revenue taxes. AOCI declined $17 million from December 31, 2020 to December 31,
2021, with the fluctuation stemming from the altering rate of interest atmosphere
and corresponding valuation of the AFS debt securities portfolio. See the
"Consolidated Assertion of Adjustments in Stockholders' Fairness" for additional element
of modifications in fairness.



In Might 2021, Bancorp's Board of Administrators prolonged its share repurchase program
authorizing the repurchase of as much as 1 million shares, or roughly 4% of
Bancorp's complete widespread shares excellent at inception. The plan, which can
expire in Might 2023 until in any other case prolonged or accomplished at an earlier date,
doesn't obligate Bancorp to repurchase any particular greenback quantity or quantity of
shares previous to the plan's expiration. Based mostly on financial developments over the
previous 12 months, the elevated significance of capital preservation and the announcement
of two acquisitions, no shares had been repurchased in 2020 nor 2021. Roughly
741,00Zero shares stay eligible for repurchase underneath the present repurchase plan.



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Financial institution holding firms and their subsidiary banks are required by regulators to
meet risk-based capital requirements. These requirements, or ratios, measure the
relationship of capital to a mixture of steadiness sheet and off-balance sheet
dangers. The worth of each steadiness sheet and off-balance sheet objects are adjusted
to mirror credit score dangers. See the footnote titled "Regulatory Issues" for
further element concerning regulatory capital necessities, in addition to capital
ratios of Bancorp and the Financial institution. The Financial institution exceeds regulatory capital ratios
required to be well-capitalized. Regulatory framework doesn't outline effectively
capitalized for holding firms. Administration considers the results of development on
capital ratios because it contemplates plans for growth.



The next desk units forth consolidated Bancorp's and the Financial institution's danger primarily based
capital ratios:



December 31,                                   2021        2020

Whole risk-based capital (1)
Consolidated                                    12.79 %     13.36 %
Financial institution                                            12.42       12.99

Widespread fairness tier 1 risk-based capital (1)
Consolidated                                    11.94       12.23
Financial institution                                            11.56       11.85

Tier 1 risk-based capital (1)
Consolidated                                    11.94       12.23
Financial institution                                            11.56       11.85

Leverage (2)
Consolidated                                     8.86        9.57
Financial institution                                             8.57        9.26




(1)  Below banking companies' risk-based capital tips, belongings and
credit-equivalent quantities of derivatives and off-balance sheet credit score exposures
are assigned to broad danger classes. The mixture greenback quantity in every danger
class is multiplied by the related danger weight of the class. Weighted
values are added collectively, leading to Bancorp's complete risk-weighted belongings.
These ratios are computed in relation to common belongings.

(2) Ratio is computed in relation to common belongings.


Capital ratios for the 12 months ended December 31, 2021 decreased in comparison with the
prior 12 months because of this of substantial common asset and risk-weighted asset
development, pushed by each natural and acquisition-related exercise. Whereas stress
was positioned on risk-based capital and leverage ratios on account of this development, Bancorp
continues to exceed the regulatory necessities for all calculations. Bancorp
and the Financial institution intend to keep up a capital place that meets or exceeds the
"well-capitalized" necessities as outlined by the FRB and the FDIC, as well as
to the capital conservation buffer.



Banking regulators have categorized the Financial institution as well-capitalized. To fulfill the
definition of well-capitalized for immediate corrective motion necessities, a financial institution
should have a minimal 6.5% Widespread Fairness Tier 1 Danger-Based mostly Capital ratio, 8.0%
Tier 1 Danger-Based mostly Capital ratio, 10.0% Whole Danger-Based mostly Capital ratio and 5.0%
Tier 1 Leverage ratio.



Moreover, to be able to keep away from limitations on capital distributions, together with
dividend funds and sure discretionary bonus funds to govt
officers, Bancorp and the Financial institution should maintain a 2.5% capital conservation buffer
composed of Widespread Fairness Tier 1 Danger-Based mostly Capital above the minimal risk-based
capital necessities for the Widespread Fairness Tier 1 Danger-Based mostly Capital ratio, Tier
1 Danger-Based mostly Capital ratio and Whole Danger-Based mostly Capital ratio essential to be
thought-about adequately-capitalized. At December 31, 2021, the
adequately-capitalized minimums, together with the capital conservation buffer, had been
a 6.0% Widespread Fairness Tier 1 Danger-Based mostly Capital ratio, 8.5% Tier 1 Danger-Based mostly
Capital ratio and 10.5% Whole Danger-Based mostly Capital ratio.



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As permitted by the interim ultimate rule issued on March 27, 2020 by the federal
banking regulatory companies, Bancorp elected the choice to delay the estimated
influence on regulatory capital associated to the adoption of ASC 326 "Financial
Devices - Credit score Losses," or CECL, which was efficient January 1, 2020. The
preliminary influence of adoption of ASC 326, in addition to 25% of the quarterly will increase
within the ACL subsequent to adoption of ASC 326 (collectively the "transition
changes") had been declared to be delayed for 2 years. After two years, the
cumulative quantity of the transition changes will turn into fastened and can be
phased out of the regulatory capital calculations evenly over a three-year
interval, with 75% acknowledged in 12 months three, 50% acknowledged in 12 months 4 and 25%
acknowledged in 12 months 5. After 5 years, the non permanent regulatory capital
advantages can be totally reversed. Had Bancorp not elected to defer the regulatory
capital influence of CECL, the publish ASC 326 adoption capital ratios of Bancorp and
the Financial institution would have exceeded the well-capitalized degree.



Honest Worth Measurements



Bancorp follows the provisions of authoritative steering for honest worth
measurements. This steering is definitional and disclosure oriented and
addresses how firms ought to method measuring honest worth when required by
GAAP. It prescribes numerous disclosures about monetary assertion classes and
quantities that are measured at honest worth, if such disclosures usually are not already
specified elsewhere in GAAP.



Authoritative steering defines honest worth as the worth that might be obtained to
promote an asset or paid to switch a legal responsibility in an orderly transaction between
contributors on the measurement date. The steering requires honest worth
measurements to be categorised as Degree 1 (quoted costs), Degree 2 (primarily based on
observable inputs) or Degree 3 (primarily based on vital unobservable,
internally-derived inputs).



Bancorp's AFS debt securities and rate of interest swaps are recorded at honest worth
on a recurring foundation. Different accounts together with mortgage loans held on the market,
MSRs, impaired loans and OREO could also be recorded at honest worth on a non-recurring
foundation, usually within the software of decrease of price or market changes or
write-downs of particular belongings.



The AFS debt securities portfolio is comprised of U.S. Treasury and different U.S.
authorities obligations, debt securities of U.S. government-sponsored
firms (together with mortgage-backed securities), and obligations of state
and political subdivisions. U.S. Treasury securities are priced utilizing quoted
costs of equivalent securities in an energetic market. These measurements are
categorised as Degree 1 within the hierarchy above. All different securities are priced
utilizing customary {industry} fashions or matrices with numerous assumptions equivalent to
yield curves, volatility, prepayment speeds, default charges, time worth, credit score
ranking and market costs for related devices. These assumptions are
usually observable available in the market place and may be derived from or supported by
observable knowledge. These measurements are categorised as Degree 2 within the hierarchy
above.



Rate of interest swaps are valued utilizing primarily Degree 2 inputs. Honest worth
measurements usually primarily based on benchmark ahead yield curves and different
related observable market knowledge. For functions of potential valuation changes
to spinoff positions, Bancorp evaluates the credit score danger of its counterparties
in addition to its personal credit score danger. Up to now, Bancorp has not realized any losses due
to a counterparty's incapability to carry out and the change in worth of spinoff
belongings and liabilities attributable to credit score danger was not vital throughout
2019, 2020 and 2021.



MSRs, carried in different belongings and recorded at honest worth upon capitalization,
are amortized to correspond with estimated servicing revenue and are periodically
assessed for impairment primarily based on honest worth on the reporting date. Honest worth is
primarily based on a valuation mannequin that calculates the current worth of estimated web
servicing revenue. The mannequin incorporates assumptions that market contributors
would use in estimating future web servicing revenue. These measurements are
categorised as Degree 3. At December 31, 2021 and 2020, there was no valuation
allowance for MSRs, as honest worth exceeded carrying worth.



Loans thought-about to be collateral dependent are measured for impairment and, if
indicated, a particular allocation is established primarily based on the worth of underlying
collateral. Collateral dependent loans embrace non-accrual loans and loans
accounted for as TDRs. For collateral dependent loans, honest worth quantities
characterize solely these loans with particular valuation allowances and loans charged
all the way down to their carrying worth. At December 31, 2021 and December 31, 2020, the
carrying worth of collateral dependent loans measured at honest worth on a
non-recurring foundation was $7 million and $Eight million. These measurements are
categorised as Degree 3.



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OREO, which is carried in different belongings on the decrease of price or honest worth, is
periodically assessed for impairment primarily based on honest worth on the reporting date.
Honest worth is often primarily based on current actual property value determinations or valuations
carried out by inside or exterior events which use judgments and assumptions
which can be property-specific and delicate to modifications within the general financial
atmosphere. Value determinations could also be additional discounted primarily based on administration's
historic information and/or modifications in market situations from the date of the
most up-to-date appraisal. Many of these inputs usually are not observable and, accordingly,
these measurements are categorised as Degree 3. OREO is the same as the carrying
worth of solely parcels of OREO for which carrying worth equals appraised worth.
If a parcel of OREO has a carrying worth under its appraised worth, it's not
thought-about to be carried at honest worth. The losses characterize write-downs which
occurred through the interval indicated. At December 31, 2021 and 2020, the
carrying worth of OREO was $7 million and $281,000.



See the Footnote titled “Property and Liabilities Measured and Reported at Honest
Worth,” for extra element concerning honest worth measurements.

Non-GAAP Financial Measures


The next desk gives a reconciliation of complete stockholders' fairness in
accordance with GAAP to tangible stockholders' fairness (TCE), a non-GAAP
disclosure. Bancorp gives the TCE per share, a non-GAAP measure, as well as
to these outlined by banking regulators, primarily based on its widespread use by buyers
as a way to guage capital adequacy:



December 31, ({dollars} in hundreds, besides per share
knowledge)

                                                      2021             

2020

Whole stockholders' fairness - GAAP (a)                  $     675,869     $     440,701
Much less: Goodwill                                              (135,830 )         (12,513 )
Much less: Core deposit intangible                                 (5,596 )          (1,962 )
Tangible widespread fairness - Non-GAAP (c)                  $     534,443     $     426,226

Whole belongings - GAAP (b)                                $   6,646,025     $   4,608,629
Much less: Goodwill                                              (135,830 )         (12,513 )
Much less: Core deposit intangible                                 (5,596 )          (1,962 )
Tangible belongings - Non-GAAP (d)                         $   6,504,599     $  

4,594,154

Whole stockholders' fairness to complete belongings - GAAP
(a/b)                                                          10.17 %            9.56 %
Tangible widespread fairness to tangible belongings - Non-GAAP
(c/d)                                                           8.22 %            9.28 %

Whole shares excellent (e)                                  26,596            22,692

E-book worth per share - GAAP (a/e)                      $       25.41     $  

19.42

Tangible widespread fairness per share - Non-GAAP (c/e)              20.09             18.78




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ACL on loans to complete non-PPP loans represents the ACL on loans, divided by
complete loans much less PPP loans. Non-performing loans to complete non-PPP loans
represents non-performing loans, divided by complete loans much less PPP loans.
Delinquent loans to complete non-PPP loans represents delinquent loans (consisting
of all loans 30 days or extra overdue), divided by complete loans much less PPP loans.
Bancorp believes these non-GAAP disclosures are vital as a result of they supply
comparable ratios after eliminating PPP loans, that are totally assured by the
SBA and haven't been allotted for throughout the ACL and usually are not in danger of
non-performance.



December 31, ({dollars} in hundreds)                           2021            2020

Whole loans - GAAP (a)                                     $ 4,169,303     $ 3,531,596
Much less: PPP loans                                               (140,734 )      (550,186 )
Whole non-PPP loans - Non-GAAP (b)                         $ 4,028,569     

$ 2,981,410

Allowance for credit score losses on loans (c)                   $    53,898     $    51,920
Non-performing loans (d)                                         7,408          13,179
Delinquent loans (e)                                            11,036          16,939

Allowance for credit score losses on loans to complete loans –
GAAP (c/a)

                                                        1.29 %    

1.47 %
Allowance for credit score losses on loans to complete loans –
Non-GAAP (c/b)

                                                    1.34 %    

1.74 %

Non-performing loans to complete loans - GAAP (d/a)                  0.18 %          0.37 %
Non-performing loans to complete loans - Non-GAAP (d/b)              0.18 %    

0.44 %

Delinquent loans to complete loans - GAAP (e/a)                      0.26 %          0.48 %
Delinquent loans to complete loans - Non-GAAP (e/b)                  0.27 %          0.57 %




The effectivity ratio, a non-GAAP measure, equals complete non-interest bills
divided by the sum of web curiosity revenue FTE and non-interest revenue. The ratio
excludes web positive aspects (losses) on gross sales, calls, and impairment of funding
securities, if relevant. Along with the effectivity ratio, Bancorp
considers an adjusted effectivity ratio. Bancorp believes it's important as a result of
it gives a comparable ratio after eliminating the fluctuation in non-interest
bills associated to amortization of investments in tax credit score partnerships.



Web curiosity revenue on a FTE foundation consists of the extra quantity of curiosity
revenue that might have been earned if investments in sure tax-exempt curiosity
incomes belongings had been made in belongings topic to federal, state and native taxes
yielding the identical after-tax revenue.



Years ended December 31, ({dollars} in
hundreds)                                        2021            2020      

2019

Whole non-interest bills – GAAP (a) $ 142,280 $ 101,659

    $    98,116
Much less: Non-recurring merger bills                (19,025 )             -          (1,313 )
Much less: Amortization of investments in tax
credit score partnerships                                   (367 )        (3,096 )        (1,078 )
Whole non-interest bills - Non-GAAP (c )    $   122,888     $    98,563  

$ 95,725

Whole web curiosity revenue, FTE                 $   171,508     $   136,133     $   125,571
Whole non-interest revenue                           65,850          51,899  

49,428

Much less: Acquire/loss on sale of securities                    -               -               -
Whole income - GAAP (b)                       $   237,358     $   188,032     $   174,999

Effectivity ratio - GAAP (a/b)                        59.94 %         54.06 %         56.07 %
Effectivity ratio - Non-GAAP (c/b)                    51.77 %         52.42 %         54.70 %




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