Stock Yards Bancorp
SYBT
#4747
Rank
A$2.94 B
Marketcap
A$99.89
Share price
-0.08%
Change (1 day)
-11.37%
Change (1 year)

Stock Yards Bancorp - 10-Q quarterly report FY


Text size:
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2026

 

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 1-13661

 

syblogo.jpg

 

STOCK YARDS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

 

61-1137529

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1040 East Main Street, Louisville, Kentucky

 

40206

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (502) 582-2571

 

Securities registered pursuant to Section 12(b) of the Act: 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, no par value

SYBT

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes   ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒ 

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company  

Emerging growth company 

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☒ No

 

The number of shares outstanding of the registrant’s Common Stock, no par value, as of April 30, 2026, was 29,515,188.

 

  

 

TABLE OF CONTENTS

 

 

PART I FINANCIAL INFORMATION 
  
Item 1. Financial Statements.4
  
Condensed Consolidated Balance Sheets4
  
Condensed Consolidated Statements of Income5
  
Condensed Consolidated Statements of Comprehensive Income6
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity7
  
Condensed Consolidated Statements of Cash Flows8
  
Notes to Condensed Consolidated Financial Statements10
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.52
  
Item 3. Quantitative and Qualitative Disclosures about Market Risk.77
  
Item 4. Controls and Procedures.77
  
  
PART II OTHER INFORMATION 
  
Item 1. Legal Proceedings.77
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.78
  
Item 5. Other Information78
  
Item 6. Exhibits.79
  
  
Signatures80

 

  

 

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

 

The acronyms and abbreviations identified in alphabetical order below are used throughout this Report on Form 10-Q:

 

Acronym or Term

 

Definition

 

Acronym or Term

 

Definition

 

Acronym or Term

 

Definition

ACH

 

Automatic Clearing House

 

EPS

 

Earnings Per Share

 

Nasdaq

 

The Nasdaq Stock Market, LLC

AFS

 

Available for Sale

 

ESG

 

Environmental, Social and Governance

 

NIM

 

Net Interest Margin (FTE)

AI

 

Artificial intelligence

 

ETR

 

Effective Tax Rate

 

NPV

 

Net Present Value

APIC

 

Additional paid-in capital

 

EVP

 

Executive Vice President

 

Net Interest Spread

 

Net Interest Spread (FTE)

ACL

 

Allowance for Credit Losses

 

FASB

 

Financial Accounting Standards Board

 

NM

 

Not Meaningful

AOCI

 

Accumulated Other Comprehensive Income

 

FDIC

 

Federal Deposit Insurance Corporation

 

OAEM

 

Other Assets Especially Mentioned

ASC

 

Accounting Standards Codification

 

FFP

 

Federal Funds Purchased

 

OREO

 

Other Real Estate Owned

ASU

 

Accounting Standards Update

 

FFS

 

Federal Funds Sold

 

PV

 

Present Value

ATM

 

Automated Teller Machine

 

FFTR

 

Federal Funds Target Rate

 

PCD

 

Purchased Credit Deteriorated

AUM

 

Assets Under Management

 

FHA

 

Federal Housing Authority

 

PD

 

Probability of Default

Bancorp / the Company

 

Stock Yards Bancorp, Inc. 

 

FHC

 

Financial Holding Company

 

Prime

 

The Wall Street Journal Prime Interest Rate

Bank / SYB

 

Stock Yards Bank & Trust Company 

 

FHLB

 

Federal Home Loan Bank of Cincinnati

 

Provision

 

Provision for Credit Losses

BOLI

 

Bank Owned Life Insurance

 

FHLMC

 

Federal Home Loan Mortgage Corporation 

 

PSU

 

Performance Stock Unit

BP

 

Basis Point - 1/100th of one percent

 

FICA

 

Federal Insurance Contributions Act

 

ROA

 

Return on Average Assets

C&D

 

Construction and Land Development

 

FNMA

 

Federal National Mortgage Association

 

ROE

 

Return on Average Equity

Captive

 

SYB Insurance Company, Inc.

 

FRB

 

Federal Reserve Bank

 

RSA

 

Restricted Stock Award

C&I

 

Commercial and Industrial

 

FTE

 

Fully Tax Equivalent

 

RSU

 

Restricted Stock Unit

CB

 

Commonwealth Bancshares, Inc. and Commonwealth Bank & Trust Company

 

GAAP

 

United States Generally Accepted Accounting Principles

 

SAR

 

Stock Appreciation Right

CD

 

Certificate of Deposit

 

GLB

 

Gramm-Leach-Bliley Act

 

SBA

 

Small Business Administration

CDI

 

Core Deposit Intangible

 

GNMA

 

Government National Mortgage Association

 

SEC

 

Securities and Exchange Commission

CECL

 

Current Expected Credit Loss (ASC-326)

 

HELOC

 

Home Equity Line of Credit

 

SOFR

 

Secured Overnight Financing Rate

CEO

 

Chief Executive Officer

 

HTM

 

Held to Maturity

 

SSUAR

 

Securities Sold Under Agreements to Repurchase

CFO

 

Chief Financial Officer

 

ICS

 

Insured Cash Sweep

 

SVP

 

Senior Vice President

CFPB

 

Consumer Financial Protection Bureau

 

ITM

 

Interactive Teller Machine

 

TBA

 

To Be Annouced

CLI

 

Customer List Intangible

 

KB

 

Kentucky Bancshares, Inc. and Kentucky Bank

 

TBOC

 

The Bank Oldham County

CRA

 

Community Reinvestment Act

 

KSB

 

King Bancorp, Inc. and King Southern Bank

 

TCE

 

Tangible Common Equity

CRE

 

Commercial Real Estate

 

LGD

 

Loss Given Default

 

TPS

 

Trust Preferred Securities

DCF 

 

Discounted Cash Flow

 

Loans

 

Loans and Leases

 

VA

 

U.S. Department of Veterans Affairs

DTA

 

Deferred Tax Asset

 

MBS

 

Mortgage Backed Securities

 

WM&T

 

Wealth Management and Trust

DTL

 

Deferred Tax Liability

 

MSA

 

Metropolitan Statistical Area

    

Dodd-Frank Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act

 

MSRs

 

Mortgage Servicing Rights

    

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

March 31, 2026 (unaudited) and December 31, 2025 (in thousands, except share data)

 

  

March 31,

  

December 31,

 
  

2026

  

2025

 

Assets

        

Cash and due from banks

 $85,596  $70,061 

Federal funds sold and interest bearing due from banks

  581,123   816,315 

Total cash and cash equivalents

  666,719   886,376 
         

Mortgage loans held for sale, at fair value

  5,758   6,247 
Available for sale debt securities (amortized cost of $773,658 in 2026 and $801,371 in 2025, respectively)  692,798   722,111 

Held to maturity debt securities (fair value of $175,255  in 2026 and $181,203 in 2025, respectively)

  192,956   198,946 

Federal Home Loan Bank stock, at cost

  20,717   20,717 

Loans

  7,226,429   7,041,310 

Allowance for credit losses on loans

  (93,596)  (91,867)

Net loans

  7,132,833   6,949,443 
         

Premises and equipment, net

  119,856   118,698 

Premises held for sale

  896   1,678 

Bank owned life insurance

  92,517   91,885 

Accrued interest receivable

  28,579   28,783 

Goodwill

  194,074   194,074 

Core deposit intangible

  6,193   6,688 

Customer list intangible

  5,168   5,472 

Other assets

  307,792   305,006 

Total assets

 $9,466,856  $9,536,124 
         

Liabilities

        

Deposits:

        

Non-interest bearing

 $1,456,324  $1,435,846 

Interest bearing

  6,300,912   6,355,291 

Total deposits

  7,757,236   7,791,137 

Securities sold under agreements to repurchase

  87,513   112,476 

Federal funds purchased

  7,345   7,289 

Subordinated debentures

  26,806   26,806 

Federal Home Loan Bank advances

  300,000   300,000 

Accrued interest payable

  1,706   1,740 

Other liabilities

  183,315   220,979 

Total liabilities

  8,363,921   8,460,427 
         

Commitments and contingent liabilities (Footnote 12)

        
         

Stockholders equity

        

Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding

      

Common stock, no par value. Authorized 40,000,000 shares; issued and outstanding 29,516,000 and 29,476,000 shares in 2026 and 2025, respectively

  59,222   59,090 

Additional paid-in capital

  406,774   402,820 

Retained earnings

  698,139   675,062 

Accumulated other comprehensive loss

  (61,200)  (61,275)

Total stockholders equity

  1,102,935   1,075,697 

Total liabilities and equity

 $9,466,856  $9,536,124 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

 

For the three months ended March 31, 2026 and 2025 (in thousands, except per share data)

 

  

Three months ended

 
  

March 31,

 
  

2026

  

2025

 

Interest income:

        

Loans, including fees

 $106,459  $99,600 

Federal funds sold and interest bearing due from banks

  5,030   2,001 

Mortgage loans held for sale

  70   77 

Federal Home Loan Bank stock

  392   532 

Investment securities:

        

Taxable

  5,243   8,495 

Tax-exempt

  448   461 

Total interest income

  117,642   111,166 

Interest expense:

        

Deposits

  35,462   34,581 

Securities sold under agreements to repurchase

  401   814 

Federal funds purchased and other short-term borrowings

  65   70 

Federal Home Loan Bank advances

  2,927   4,741 

Subordinated debentures

  366   408 

Total interest expense

  39,221   40,614 

Net interest income

  78,421   70,552 

Provision for credit losses

  1,625   900 

Net interest income after provision expense

  76,796   69,652 

Non-interest income:

        

Wealth management and trust services

  11,335   10,647 

Deposit service charges

  2,156   2,079 

Debit and credit card income

  4,638   4,508 

Treasury management fees

  2,988   2,673 

Mortgage banking income

  930   917 

Net investment product sales commissions and fees

  1,061   1,010 

Bank owned life insurance

  632   622 

Gain on sale of premises and equipment

  479   - 

Other

  375   540 

Total non-interest income

  24,594   22,996 

Non-interest expenses:

        

Compensation

  29,166   25,932 

Employee benefits

  6,169   5,785 

Net occupancy and equipment

  4,320   4,123 

Technology and communication

  5,335   4,828 

Debit and credit card processing

  1,922   1,819 

Marketing and business development

  1,278   1,515 

Postage, printing and supplies

  913   969 

Legal and professional

  876   907 

FDIC insurance

  1,146   1,223 

Capital and deposit based taxes

  878   700 

Intangible amortization

  799   914 

Other

  2,440   2,312 

Total non-interest expenses

  55,242   51,027 

Income before income tax expense

  46,148   41,621 

Income tax expense

  9,553   8,350 

Net income

 $36,595  $33,271 

Net income per share - basic

 $1.25  $1.13 

Net income per share - diluted

 $1.24  $1.13 

Weighted average outstanding shares

        

Basic

  29,387   29,349 

Diluted

  29,502   29,501 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

For the three months ended March 31, 2026 and 2025 (in thousands)

 

  

Three months ended

 
  

March 31,

 
  

2026

  

2025

 

Net income

 $36,595  $33,271 

Other comprehensive income (loss):

        

Change in unrealized gain (loss) on AFS debt securities

  (1,600)  18,515 

Change in fair value of derivatives used in cash flow hedge

  1,691   (3,497)

Total other comprehensive income (loss) before income tax effect

  91   15,018 

Income tax effect

  16   3,707 

Total other comprehensive income (loss) net of tax

  75   11,311 

Comprehensive income

 $36,670  $44,582 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)

For the three months ended March 31, 2026 and 2025 (in thousands, except per share data)

 

                  

Accumulated

     
  

Common stock

  

Additional

      

other

  

Total

 
  

Shares

      

paid-in

  

Retained

  

comprehensive

  

stockholders'

 
  

outstanding

  

Amount

  

capital

  

earnings

  

loss

  

equity

 
                         

Balance, January 1, 2026

  29,476  $59,090  $402,820  $675,062  $(61,275) $1,075,697 
                         

Activity for three months ended March 31, 2026:

                        

Net income

           36,595      36,595 

Other comprehensive income

              75   75 

Stock compensation expense

        1,287         1,287 

Stock issued for share-based awards, net of withholdings to satisfy employee taxobligations

  42   140   2,812   (4,232)     (1,280)

Cash dividends declared, $0.32 per share

           (9,439)     (9,439)

Shares cancelled

  (2)  (8)  (145)  153       

Balance, March 31, 2026

  29,516  $59,222  $406,774  $698,139  $(61,200) $1,102,935 

 

 

                  

Accumulated

     
  

Common stock

  

Additional

      

other

  

Total

 
  

Shares

      

paid-in

  

Retained

  

comprehensive

  

stockholders'

 
  

outstanding

  

Amount

  

capital

  

earnings

  

loss

  

equity

 
                         

Balance, January 1, 2025

  29,431  $58,939  $395,081  $577,607  $(91,151) $940,476 
                         

Activity for three months ended March 31, 2025:

                        

Net income

           33,271      33,271 

Other comprehensive income

              11,311   11,311 

Stock compensation expense

        1,153         1,153 

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations

  40   133   2,881   (4,622)     (1,608)

Cash dividends declared, $0.31 per share

           (9,130)     (9,130)

Shares cancelled

  (2)  (6)  (111)  117       

Balance, March 31, 2025

  29,469  $59,066  $399,004  $597,243  $(79,840) $975,473 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

For the three months ended March 31, 2026 and 2025 (in thousands)

 

  2026  2025 

Cash flows from operating activities:

        

Net income

 $36,595  $33,271 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Provision for credit losses

  1,625   900 

Depreciation, amortization and accretion, net

  2,989   1,254 

Deferred income tax expense

  1,203   584 

Gain on sale of mortgage loans held for sale

  (642)  (554)

Origination of mortgage loans held for sale

  (32,087)  (29,997)

Proceeds from sale of mortgage loans held for sale

  33,218   29,040 

Bank owned life insurance income

  (632)  (622)

Gain on the sale of premises and equipment

  (479)   

Stock compensation expense

  1,287   1,153 

Excess tax benefit from share-based compensation arrangements

  (126)  (380)

Net change in accrued interest receivable and other assets

  (3,599)  6,853 

Net change in accrued interest payable and other liabilities

  (27,103)  (21,719)

Net cash provided by operating activities

  12,249   19,783 

Cash flows from investing activities:

        

Proceeds from maturities and paydowns of available for sale debt securities

  127,295   223,533 

Purchases of available for sale debt securities

  (99,579)  (247,468)

Proceeds from maturities and paydowns of held to maturity debt securities

  5,943   157,796 

Purchases of FHLB stock

     (15,972)

Proceeds from redemption of FHLB stock

     8,260 

Net change in loans

  (184,890)  (124,832)

Purchases of premises and equipment

  (2,741)  (1,943)

Proceeds from sale or disposal of premises and equipment

  1,257    

Other investment activities

  (9,591)  (11,756)

Net cash used in investing activities

  (162,306)  (12,382)

Cash flows from financing activities:

        

Net change in deposits

  (33,901)  127,565 

Net change in securities sold under agreements to repurchase and federal funds purchased

  (24,907)  (11,528)

Proceeds from FHLB advances

  300,000   300,000 

Repayments of FHLB advances

  (300,000)  (300,000)

Repurchase of common stock

  (1,280)  (1,608)

Cash dividends paid

  (9,512)  (9,114)

Net cash (used in) provided by financing activities

  (69,600)  105,315 

Net change in cash and cash equivalents

  (219,657)  112,716 

Beginning cash and cash equivalents

  886,376   291,020 

Ending cash and cash equivalents

 $666,719  $403,736 

 

(continued)

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

 

For the three months ended March 31, 2026 and 2025 (in thousands)

 

 

 

2026

  

2025

 
Supplemental cash flow information:        

Interest paid

 $39,255  $40,553 

Income taxes paid, net of refunds

  11,200   6,085 

Cash paid for operating lease liabilities

  1,138   1,138 
         

Supplemental non-cash activity:

        

Change in unfunded commitments in tax credit investments

 $  $16,000 

Dividends payable to stockholders

  198   185 

Loans transferred to OREO

     75 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

(1)

Summary of Significant Accounting Policies

 

The accompanying condensed consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly owned subsidiary, Stock Yards Bank & Trust Company. The condensed consolidated financial statements in this report have not been audited by the Company’s independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair statement of results for the interim period. All such adjustments are of a normal, recurring nature and all intercompany accounts and transactions have been eliminated.

 

To prepare the condensed consolidated financial statements, management must make estimates and assumptions that may require difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Actual results could differ significantly from those estimates, and the results of operations for the three month period ended March 31, 2026 do not necessarily indicate the results that Bancorp will achieve for the year ended December 31, 2026, or any other interim period.

 

The condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations for Form 10-Q as adopted by the SEC. Accordingly, the condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with Bancorp’s most recent Annual Report on Form 10-K, which contain the latest audited consolidated financial statements and notes thereto. In the opinion of management, all adjustments considered necessary to present the results for interim periods fairly have been included.

 

Reclassifications Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or stockholder’s equity.

 

Use of Estimates – To prepare financial statement in conformity with GAAP, management must make estimates and assumptions that require difficult, complex of subjective judgements, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgements include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

 

Adoption of New Accounting Guidance In November 2025, the FASB issued ASU 2025-08, “Financial Instruments Credit Losses (Topic 326): Purchased Loans.” ASU 2025-08 expands the scope of the “gross up” method, formerly applicable only to PCD assets, to include acquired non-PCD loans that meet certain criteria, now referred to as “purchased seasoned loans,” (PSLs). Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit-loss expense previously required for non-PCD assets. PSLs are defined as non-PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination, when the acquirer was not involved in origination. As permitted, Bancorp has elected to early adopt the amended guidance on January 1, 2026 on a prospective basis.

 

Accounting Standards Updates In November 2024, the FASB issued ASU 2024-03, “Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update requires disaggregated disclosure of income statement expenses for public business entities. New financial statement disclosures are required in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Bancorp is evaluating the impact this ASU will have on our financial statements.

 

  

 

(2)

Investment Securities

 

AFS Debt Securities

 

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of Bancorp’s AFS debt securities portfolio:

 

(in thousands)

 

Amortized

  

Unrealized

  

 

 
March 31, 2026 cost  

Gains

  

Losses

  Fair value 
                 

Government sponsored agency obligations

 $72,672  $108  $(2,700) $70,080 

Mortgage backed securities

  582,582   113   (68,352)  514,343 

Obligations of states and political subdivisions

  117,864   5   (9,996)  107,873 

Other

  540   -   (38)  502 
                 

Total available for sale debt securities

 $773,658  $226  $(81,086) $692,798 
                 

December 31, 2025

                
                 

Government sponsored agency obligations

 $75,459  $97  $(2,737) $72,819 

Mortgage backed securities

  602,261   322   (67,576)  535,007 

Obligations of states and political subdivisions

  123,083   10   (9,339)  113,754 

Other

  568   -   (37)  531 
                 

Total available for sale debt securities

 $801,371  $429  $(79,689) $722,111 

 

HTM Debt Securities

 

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

 

(in thousands)

 

Carrying

  

Unrecognized

  

 

 
March 31, 2026 value  

Gains

  

Losses

  

Fair value

 
                 

U.S. Treasury and other U.S. Government obligations

 $1,999  $-  $(3) $1,996 

Government sponsored agency obligations

  20,958   -   (1,252)  19,706 

Mortgage backed securities

  169,999   4   (16,450)  153,553 
                 

Total held to maturity debt securities

 $192,956  $4  $(17,705) $175,255 
                 

December 31, 2025

                

U.S. Treasury and other U.S. Government obligations

 $1,994  $-  $(12) $1,982 

Government sponsored agency obligations

  22,957   -   (1,112)  21,845 

Mortgage backed securities

  173,995   5   (16,624)  157,376 
                 

Total held to maturity debt securities

 $198,946  $5  $(17,748) $181,203 

 

All investment securities classified as HTM by Bancorp as of March 31, 2026 are obligations of the U.S. Government and/or are issued by government-sponsored enterprises and have an explicit government guarantee or have a credit rating on par with the U.S. government and are generally considered risk-free. Therefore, no ACL has been recorded for Bancorp’s HTM securities as of March 31, 2026. Further, as of March 31, 2026, none of Bancorp’s HTM securities were in non-accrual or past due status.

 

 

Debt Securities by Contractual Maturity

 

A summary of AFS and HTM debt securities by contractual maturity as of March 31, 2026 follows:

 

  

AFS Debt Securities

  

HTM Debt Securities

 

(in thousands)

 

 

Amortized cost

  

Fair value

  

Carrying value

  

Fair value

 
                 

Due within one year

 $6,609  $6,585  $2,535  $2,532 

Due after one year but within five years

  41,172   39,678   175   174 

Due after five years but within 10 years

  84,549   76,051   19,928   18,684 

Due after 10 years

  58,746   56,141   319   312 

Mortgage backed securities

  582,582   514,343   169,999   153,553 

Total

 $773,658  $692,798  $192,956  $175,255 

 

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without prepayment penalties. The investment portfolio includes MBS, which are guaranteed by agencies such as FHLMC, FNMA and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral.

 

Accrued interest on the investment securities portfolio (AFS and HTM) totaled $3 million and $4 million at March 31, 2026 and December 31, 2025, respectively. Accrued interest receivable on the investment securities portfolios is included in the condensed consolidated balance sheets.

 

Securities with a carrying value of $645 million and $707 million were pledged at March 31, 2026 and December 31, 2025, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits and uninsured cash balances for WM&T accounts.

 

Based on an evaluation of available information including security type, counterparty credit quality, past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability, Bancorp has concluded that it expects to receive all contractual cash flows from each security held in its AFS and HTM debt securities portfolio. As such, no allowance or impairment was recorded with respect to investment securities as of March 31, 2026 and December 31, 2025.

 

 

Unrealized and Unrecognized Loss Analysis on Debt Securities

 

Debt securities with unrealized and unrecognized losses at March 31, 2026 and December 31, 2025, aggregated by investment category and length of time securities have been in a continuous unrealized loss position follows:

 

  

AFS Debt Securities

 
  

Less than 12 months

  

12 months or more

  

Total

 

(in thousands)

 

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

 

March 31, 2026

 

value

  

losses

  

value

  

losses

  

value

  

losses

 
                         

Government sponsored agency obligations

 $-  $-  $62,453  $(2,700) $62,453  $(2,700)

Mortgage-backed securities

  25,720   (274)  473,048   (68,078)  498,768   (68,352)

Obligations of states and political subdivisions

  12,919   (199)  80,355   (9,797)  93,274   (9,996)

Other

  -   -   502   (38)  502   (38)

Total AFS debt securities

 $38,639  $(473) $616,358  $(80,613) $654,997  $(81,086)
                         

December 31, 2025

                        
                         

Government sponsored agency obligations

 $-  $-  $69,880  $(2,737) $69,880  $(2,737)

Mortgage-backed securities

  -   -   507,041   (67,576)  507,041   (67,576)

Obligations of states and political subdivisions

  1,446   (4)  91,609   (9,335)  93,055   (9,339)

Other

  -   -   531   (37)  531   (37)

Total AFS debt securities

 $1,446  $(4) $669,061  $(79,685) $670,507  $(79,689)

 

 

  

HTM Debt Securities

 
  

Less than 12 months

  

12 months or more

  

Total

 

(in thousands)

 

Fair

  

Unrecognized

  

Fair

  

Unrecognized

  

Fair

  

Unrecognized

 

March 31, 2026

 

value

  

losses

  

value

  

losses

  

value

  

losses

 
                         

U.S. Treasury and other U.S. Government obligations

 $-  $-  $1,995  $(3) $1,995  $(3)

Government sponsored agency obligations

  -   -   19,669   (1,252)  19,669   (1,252)

Mortgage-backed securities

  -   -   153,079   (16,450)  153,079   (16,450)

Total HTM debt securities

 $-  $-  $174,743  $(17,705) $174,743  $(17,705)
                         

December 31, 2025

                        
                         

U.S. Treasury and other U.S. Government obligations

 $-  $-  $1,982  $(12) $1,982  $(12)

Government sponsored agency obligations

  -   -   21,649   (1,112)  21,649   (1,112)

Mortgage-backed securities

  -   -   156,877   (16,624)  156,877   (16,624)

Total HTM debt securities

 $-  $-  $180,508  $(17,748) $180,508  $(17,748)

 

Applicable dates for determining when securities are in unrealized and unrecognized loss positions are March 31, 2026 and December 31, 2025. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past 12 months, but is not in the “Less than 12 months” category of the preceding table.

 

In evaluating debt securities in unrealized and unrecognized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or government-sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. Unrealized and unrecognized losses on Bancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is attributable to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach maturity and/or the interest rate environment returns to conditions similar to when these securities were purchased. These investments consisted of 410 and 402 separate investment positions as of March 31, 2026 and December 31, 2025, respectively.

 

  

 

(3)

Loans and Allowance for Credit Losses on Loans

 

Composition of loans by class follows:

 

(in thousands)

 

March 31, 2026

  

December 31, 2025

 
         

Commercial real estate - non-owner occupied

 $1,964,589  $1,915,252 

Commercial real estate - owner occupied

  1,176,570   1,121,896 

Total commercial real estate

  3,141,159   3,037,148 
         

Commercial and industrial - term

  967,246   897,576 

Commercial and industrial - lines of credit

  625,332   611,913 

Total commercial and industrial

  1,592,578   1,509,489 
         

Residential real estate - owner occupied

  888,721   881,865 

Residential real estate - non-owner occupied

  387,652   391,216 

Total residential real estate

  1,276,373   1,273,081 
         

Construction and land development

  742,243   751,897 

Home equity lines of credit

  290,766   285,115 

Consumer

  142,897   142,425 

Leases

  15,493   16,912 

Credits cards

  24,920   25,243 

Total loans (1)

 $7,226,429  $7,041,310 

 

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

 

Accrued interest receivable on loans, which is excluded from the amortized cost of loans, $25 million at both March 31, 2026 and December 31, 2025 and was included in the condensed consolidated balance sheets.

 

Loans with carrying amounts of $3.86 billion and $3.78 billion were pledged to secure FHLB borrowing capacity at March 31, 2026 and December 31, 2025, respectively.

 

Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $96 million and $104 million as of March 31, 2026 and December 31, 2025, respectively.

 

 

ACL for Loans

 

Fluctuations in the ACL for loans during the three months ended March 31, 2026 were the result of loan growth, changes in the forecasted unemployment forecast, a decrease in specific reserves in addition to net recoveries.

 

The tables below reflect activity in the ACL for loans:

 

(in thousands)  Beginning  

Provision for

Credit Losses

          Ending 

Three Months Ended March 31, 2026

 

Balance

  

on Loans

  

Charge-offs

  

Recoveries

  

Balance

 
                     

Commercial real estate - non-owner occupied

 $13,779  $200  $-  $-  $13,979 

Commercial real estate - owner occupied

  13,100   426   -   -   13,526 

Total commercial real estate

  26,879   626   -   -   27,505 
                     

Commercial and industrial - term

  21,121   1,187   -   233   22,541 

Commercial and industrial - lines of credit

  7,323   232   -   -   7,555 

Total commercial and industrial

  28,444   1,419   -   233   30,096 
                     

Residential real estate - owner occupied

  14,914   (103)  (103)  3   14,711 

Residential real estate - non-owner occupied

  4,287   (109)  -   -   4,178 

Total residential real estate

  19,201   (212)  (103)  3   18,889 
                     

Construction and land development

  12,316   (244)  -   -   12,072 

Home equity lines of credit

  1,439   25   -   -   1,464 

Consumer

  2,924   24   (254)  250   2,944 

Leases

  524   (160)  -   -   364 

Credit cards

  140   147   (54)  29   262 

Total

 $91,867  $1,625  $(411) $515  $93,596 

 

 

(in thousands)  Beginning  

Provision for

Credit Losses

          Ending  

Three Months Ended March 31, 2025

 

Balance

  

on Loans

  

Charge-offs

  

Recoveries

  

Balance

 
                     

Commercial real estate - non-owner occupied

 $13,935  $663  $-  $18  $14,616 

Commercial real estate - owner occupied

  10,192   1,647   -   -   11,839 

Total commercial real estate

  24,127   2,310   -   18   26,455 
                     

Commercial and industrial - term

  21,284   (764)  (260)  1,417   21,677 

Commercial and industrial - lines of credit

  6,496   133   -   -   6,629 

Total commercial and industrial

  27,780   (631)  (260)  1,417   28,306 
                     

Residential real estate - owner occupied

  14,468   (983)  (50)  3   13,438 

Residential real estate - non-owner occupied

  5,154   (667)  -   -   4,487 

Total residential real estate

  19,622   (1,650)  (50)  3   17,925 
                     

Construction and land development

  10,981   406   -   -   11,387 

Home equity lines of credit

  1,277   13   (10)  -   1,280 

Consumer

  2,531   403   (203)  113   2,844 

Leases

  370   (29)  -   -   341 

Credit cards

  255   78   (91)  34   276 

Total

 $86,943  $900  $(614) $1,585  $88,814 

 

 

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

 

  

Non-accrual Loans

      

Past Due 90-Days-

 

(in thousands)

 

With No

  

Total

  

or-More and Still

 

March 31, 2026

 

Recorded ACL

  

Non-accrual

  

Accruing Interest

 
             

Commercial real estate - non-owner occupied

  583  $858   719 

Commercial real estate - owner occupied

     1,204    

Total commercial real estate

  583   2,062   719 
             

Commercial and industrial - term

  41   512    

Commercial and industrial - lines of credit

     301    

Total commercial and industrial

  41   813    
             

Residential real estate - owner occupied

  17   6,055    

Residential real estate - non-owner occupied

  324   1,161   159 

Total residential real estate

  341   7,216   159 
             

Construction and land development

         

Home equity lines of credit

        49 

Consumer

  20   318    

Leases

         

Credit cards

     110    

Total

 $985  $10,519  $927 

 

 

  

Non-accrual Loans

      

Past Due 90-Days-

 

(in thousands)

 

With No

  

Total

  

or-More and Still

 

December 31, 2025

 

Recorded ACL

  

Non-accrual

  

Accruing Interest

 
             

Commercial real estate - non-owner occupied

 $  $283  $72 

Commercial real estate - owner occupied

     2,449   219 

Total commercial real estate

     2,732   291 
             

Commercial and industrial - term

  348   819    

Commercial and industrial - lines of credit

     182    

Total commercial and industrial

  348   1,001    
             

Residential real estate - owner occupied

  400   7,349   158 

Residential real estate - non-owner occupied

  324   1,173    

Total residential real estate

  724   8,522   158 
             

Construction and land development

         

Home equity lines of credit

         

Consumer

  20   278    

Leases

         

Credit cards

     52    

Total

 $1,092  $12,585  $449 

 

For the three month periods ended March 31, 2026 and 2025, the amount of accrued interest income previously recorded as revenue and subsequently reversed due to the change in accrual status was immaterial.

 

For the three month periods ended March 31, 2026 and 2025, no interest income was recognized on loans on non-accrual status.

 

 

The following table presents the amortized cost basis and ACL allocated for collateral dependent loans, which are individually evaluated to determine expected credit losses:

 

(in thousands)

March 31, 2026

 

Real Estate

  

Accounts

Receivable /

Equipment

  

Other

  

Total

  

ACL

Allocation

 
                     

Commercial real estate - non-owner occupied

 $7,301  $-  $-  $7,301  $888 

Commercial real estate - owner occupied

  2,175   147   -   2,322   474 

Total commercial real estate

  9,476   147   -   9,623   1,362 
                     

Commercial and industrial - term

  166   93   41   300   - 

Commercial and industrial - lines of credit

  575   200   -   775   421 

Total commercial and industrial

  741   293   41   1,075   421 
                     

Residential real estate - owner occupied

  5,086   -   -   5,086   1,179 

Residential real estate - non-owner occupied

  1,573   -   -   1,573   443 

Total residential real estate

  6,659   -   -   6,659   1,622 
                     

Construction and land development

  -   -   -   -   - 

Home equity lines of credit

  -   -   -   -   - 

Consumer

  -   -   315   315   - 

Leases

  -   -   -   -   - 

Credit cards

  -   -   -   -   - 

Total collateral dependent loans

 $16,876  $440  $356  $17,672  $3,405 

 

 

(in thousands)

December 31, 2025

 

Real Estate

  

Accounts

Receivable /

Equipment

  

Other

  

Total

  

ACL

Allocation

 
                     

Commercial real estate - non-owner occupied

 $6,809  $-  $-  $6,809  $887 

Commercial real estate - owner occupied

  4,302   -   -   4,302   755 

Total commercial real estate

  11,111   -   -   11,111   1,642 
                     

Commercial and industrial - term

  877   97   46   1,020   405 

Commercial and industrial - lines of credit

  289   -   382   671   306 

Total commercial and industrial

  1,166   97   428   1,691   711 
                     

Residential real estate - owner occupied

  6,376   -   -   6,376   1,464 

Residential real estate - non-owner occupied

  1,608   -   -   1,608   470 

Total residential real estate

  7,984   -   -   7,984   1,934 
                     

Construction and land development

  -   -   -   -   - 

Home equity lines of credit

  -   -   -   -   - 

Consumer

  -   -   272   272   - 

Leases

  -   -   -   -   - 

Credit cards

  -   -   -   -   - 

Total collateral dependent loans

 $20,261  $97  $700  $21,058  $4,287 

 

 

The following tables present the aging of contractually past due loans by portfolio class:

 

(in thousands)

     

30-59 days

  

60-89 days

  

90 or more

  

Total Past

  

Total

 

March 31, 2026

 

Current

  

Past Due

  

Past Due

  

days Past Due

  

Due Loans

  

Loans

 
                         

Commercial real estate - non-owner occupied

 $1,961,972  $877  $745  $995  $2,617  $1,964,589 

Commercial real estate - owner occupied

  1,173,119   2,104   851   496   3,451   1,176,570 

Total commercial real estate

  3,135,091   2,981   1,596   1,491   6,068   3,141,159 
                         

Commercial and industrial - term

  965,458   732   585   471   1,788   967,246 

Commercial and industrial - lines of credit

  624,826   456   50      506   625,332 

Total commercial and industrial

  1,590,284   1,188   635   471   2,294   1,592,578 
                         

Residential real estate - owner occupied

  869,933   12,688   586   5,514   18,788   888,721 

Residential real estate - non-owner occupied

  386,282   230   324   816   1,370   387,652 

Total residential real estate

  1,256,215   12,918   910   6,330   20,158   1,276,373 
                         

Construction and land development

  742,243               742,243 

Home equity lines of credit

  290,407   310      49   359   290,766 

Consumer

  141,921   406   256   314   976   142,897 

Leases

  15,493               15,493 

Credit cards

  24,448   273   89   110   472   24,920 

Total

 $7,196,102  $18,076  $3,486  $8,765  $30,327  $7,226,429 

 

 

(in thousands)

     

30-59 days

  

60-89 days

  

90 or more

  

Total Past

  

Total

 

December 31, 2025

 

Current

  

Past Due

  

Past Due

  

days Past Due

  

Due Loans

  

Loans

 
                         

Commercial real estate - non-owner occupied

 $1,912,951  $2,042  $151  $108  $2,301  $1,915,252 

Commercial real estate - owner occupied

  1,120,790   383      723   1,106   1,121,896 

Total commercial real estate

  3,033,741   2,425   151   831   3,407   3,037,148 
                         

Commercial and industrial - term

  896,911   71   84   510   665   897,576 

Commercial and industrial - lines of credit

  611,757   156         156   611,913 

Total commercial and industrial

  1,508,668   227   84   510   821   1,509,489 
                         

Residential real estate - owner occupied

  862,509   8,514   4,137   6,705   19,356   881,865 

Residential real estate - non-owner occupied

  390,148   103   151   814   1,068   391,216 

Total residential real estate

  1,252,657   8,617   4,288   7,519   20,424   1,273,081 
                         

Construction and land development

  751,897               751,897 

Home equity lines of credit

  284,707   369   39      408   285,115 

Consumer

  141,352   445   350   278   1,073   142,425 

Leases

  16,912               16,912 

Credit cards

  24,970   187   34   52   273   25,243 

Total

 $7,014,904  $12,270  $4,946  $9,190  $26,406  $7,041,310 

 

 

Loan Risk Ratings

 

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

 

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

 

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

 

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

 

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

 

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Bancorp has elected not to disclose revolving loans that have converted to term loans, as activity relating to this disclosure, which is included in the tables is currently immaterial to Bancorp’s loan portfolio and is expected to be in the future.

 

 

As of March 31, 2026, the risk rating of loans based on year of origination was as follows:

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

March 31, 2026

 

2026

  

2025

  

2024

  

2023

  

2022

  

Prior

  cost basis  

Total

 
                                 

Commercial real estate - non-owner occupied:

                                

Risk rating

                                

Pass

 $158,676  $437,758  $287,044  $308,472  $298,386  $397,377  $23,303  $1,911,016 

OAEM

  15,208   7,876   2,260   14,070   2,204   6,802   -   48,420 

Substandard

  2,737   137   -   1,217   -   204   -   4,295 

Substandard non-performing

  -   -   151   -   582   125   -   858 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial real estate non-owner occupied

 $176,621  $445,771  $289,455  $323,759  $301,172  $404,508  $23,303  $1,964,589 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial real estate - owner occupied:

                                

Risk rating

                                

Pass

 $52,087  $193,097  $187,322  $171,259  $157,730  $355,217  $18,556  $1,135,268 

OAEM

  -   2,318   5,953   1,008   5,795   5,895   -   20,969 

Substandard

  1,675   5,318   2,298   3,843   3,007   2,988   -   19,129 

Substandard non-performing

  -   -   240   -   155   809   -   1,204 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial real estate owner occupied

 $53,762  $200,733  $195,813  $176,110  $166,687  $364,909  $18,556  $1,176,570 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial and industrial - term:

                                

Risk rating

                                

Pass

 $164,549  $246,963  $189,581  $120,223  $119,633  $114,004  $-  $954,953 

OAEM

  -   338   7,445   132   1,042   -   -   8,957 

Substandard

  1,385   381   437   55   297   269   -   2,824 

Substandard non-performing

  -   -   21   41   214   236   -   512 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial and industrial - term

 $165,934  $247,682  $197,484  $120,451  $121,186  $114,509  $-  $967,246 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial and industrial - lines of credit

                                

Risk rating

                                

Pass

 $14,957  $63,662  $2,356  $5,276  $541  $3,464  $494,153  $584,409 

OAEM

  -   2,987   2,207   -   -   -   22,918   28,112 

Substandard

  -   -   -   -   -   -   12,510   12,510 

Substandard non-performing

  301   -   -   -   -   -   -   301 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial and industrial - lines of credit

 $15,258  $66,649  $4,563  $5,276  $541  $3,464  $529,581  $625,332 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 

 

(continued)

 

 

(continued)

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

March 31, 2026

 

2026

  

2025

  

2024

  

2023

  

2022

  

Prior

  cost basis  

Total

 
                                 

Residential real estate - owner occupied

                                

Risk rating

                                

Pass

 $35,568  $158,371  $141,016  $133,662  $149,491  $264,206  $-  $882,314 

OAEM

  -   149   -   -   -   76   -   225 

Substandard

  -   -   -   -   9   118   -   127 

Substandard non-performing

  251   352   1,092   1,610   1,619   1,131   -   6,055 

Doubtful

  -   -   -   -   -   -   -   - 

Total Residential real estate - owner occupied

 $35,819  $158,872  $142,108  $135,272  $151,119  $265,531  $-  $888,721 
                                 

Current period gross charge offs

 $(100) $-  $-  $(3) $-  $-  $-  $(103)
                                 

Residential real estate - non-owner occupied

                                

Risk rating

                                

Pass

 $20,501  $75,761  $62,021  $49,130  $63,244  $115,134  $-  $385,791 

OAEM

  -   -   -   -   -   161   -   161 

Substandard

  -   230   -   207   -   102   -   539 

Substandard non-performing

  -   -   -   874   159   128   -   1,161 

Doubtful

  -   -   -   -   -   -   -   - 

Total Residential real estate - non-owner occupied

 $20,501  $75,991  $62,021  $50,211  $63,403  $115,525  $-  $387,652 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Construction and land development

                                

Risk rating

                                

Pass

 $113,051  $279,548  $151,271  $143,179  $45,219  $4,510  $5,465  $742,243 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Construction and land development

 $113,051  $279,548  $151,271  $143,179  $45,219  $4,510  $5,465  $742,243 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Home equity lines of credit

                                

Risk rating

                                

Pass

 $-  $-  $-  $-  $-  $-  $289,693  $289,693 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   1,073   1,073 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Home equity lines of credit

 $-  $-  $-  $-  $-  $-  $290,766  $290,766 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Consumer

                                

Risk rating

                                

Pass

 $6,681  $25,478  $12,729  $8,706  $7,789  $3,669  $77,527  $142,579 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  -   55   139   112   12   -   -   318 

Doubtful

  -   -   -   -   -   -   -   - 

Total Consumer

 $6,681  $25,533  $12,868  $8,818  $7,801  $3,669  $77,527  $142,897 

Current period gross charge offs

 $(175) $(20) $(19) $(33) $(7) $-  $-  $(254)

 

(continued)

 

 

(continued)

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

March 31, 2026

 

2026

  

2025

  

2024

  

2023

  

2022

  

Prior

  cost basis  

Total

 
                                 

Leases

                                

Risk rating

                                

Pass

 $-  $6,429  $3,606  $3,509  $848  $792  $-  $15,184 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   309   -   -   309 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Leases

 $-  $6,429  $3,606  $3,509  $1,157  $792  $-  $15,493 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Credit cards

                                

Risk rating

                                

Pass

 $-  $-  $-  $-  $-  $-  $24,810  $24,810 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   110   110 

Doubtful

  -   -   -   -   -   -   -   - 

Total Credit cards

 $-  $-  $-  $-  $-  $-  $24,920  $24,920 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $(54) $(54)
                                 

Total loans

                                

Risk rating

                                

Pass

 $566,070  $1,487,067  $1,036,946  $943,416  $842,881  $1,258,373  $933,507  $7,068,260 

OAEM

  15,208   13,668   17,865   15,210   9,041   12,934   22,918   106,844 

Substandard

  5,797   6,066   2,735   5,322   3,622   3,681   13,583   40,806 

Substandard non-performing

  552   407   1,643   2,637   2,741   2,429   110   10,519 

Doubtful

  -   -   -   -   -   -   -   - 

Total Loans

 $587,627  $1,507,208  $1,059,189  $966,585  $858,285  $1,277,417  $970,118  $7,226,429 
                                 

Current period gross charge offs*

 $(275) $(20) $(19) $(36) $(7) $-  $(54) $(411)

 

*Current period gross charge offs represent year-to-date activity.

 

 

As of December 31, 2025, the risk rating of loans based on year of origination was as follows:

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

December 31, 2025

 

2025

  

2024

  

2023

  

2022

  

2021

  

Prior

  cost basis  

Total

 
                                 

Commercial real estate - non-owner occupied:

                                

Risk rating

                                

Pass

 $473,903  $308,918  $322,311  $304,074  $234,941  $198,207  $21,473  $1,863,827 

OAEM

  16,521   2,271   11,620   2,240   7,638   5,945   -   46,235 

Substandard

  138   -   1,219   595   2,747   208   -   4,907 

Substandard non-performing

  -   151   -   -   -   132   -   283 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial real estate non-owner occupied

 $490,562  $311,340  $335,150  $306,909  $245,326  $204,492  $21,473  $1,915,252 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial real estate - owner occupied:

                                

Risk rating

                                

Pass

 $206,283  $143,496  $173,577  $165,211  $167,487  $210,266  $16,784  $1,083,104 

OAEM

  1,613   4,308   1,774   4,632   1,264   5,225   -   18,816 

Substandard

  5,279   2,156   3,896   3,140   2,861   195   -   17,527 

Substandard non-performing

  1,184   240   -   158   714   153   -   2,449 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial real estate owner occupied

 $214,359  $150,200  $179,247  $173,141  $172,326  $215,839  $16,784  $1,121,896 
                                 

Current period gross charge offs

 $-  $(99) $-  $(38) $-  $-  $-  $(137)
                                 

Commercial and industrial - term:

                                

Risk rating

                                

Pass

 $264,366  $239,708  $129,940  $127,077  $84,782  $38,764  $-  $884,637 

OAEM

  341   7,853   392   1,020   -   -   -   9,606 

Substandard

  -   -   82   1,162   1,238   32   -   2,514 

Substandard non-performing

  198   15   46   9   -   551   -   819 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial and industrial - term

 $264,905  $247,576  $130,460  $129,268  $86,020  $39,347  $-  $897,576 
                                 

Current period gross charge offs

 $-  $(350) $(328) $(56) $(4) $-  $-  $(738)
                                 

Commercial and industrial - lines of credit

                                

Risk rating

                                

Pass

 $62,731  $77,599  $5,292  $586  $1,852  $1,905  $425,487  $575,452 

OAEM

  485   2,258   -   -   -   -   13,955   16,698 

Substandard

  -   -   -   -   -   -   19,581   19,581 

Substandard non-performing

  182   -   -   -   -   -   -   182 

Doubtful

  -   -   -   -   -   -   -   - 

Total Commercial and industrial - lines of credit

 $63,398  $79,857  $5,292  $586  $1,852  $1,905  $459,023  $611,913 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $(287) $(287)

 

(continued)

 

 

(continued)

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

December 31, 2025

 

2025

  

2024

  

2023

  

2022

  

2021

  

Prior

  cost basis  

Total

 
                                 

Residential real estate - owner occupied

                                

Risk rating

                                

Pass

 $166,712  $147,066  $136,367  $152,065  $140,120  $131,827  $-  $874,157 

OAEM

  151   -   -   -   77   -   -   228 

Substandard

  -   -   -   10   -   121   -   131 

Substandard non-performing

  602   1,459   2,676   1,956   -   656   -   7,349 

Doubtful

  -   -   -   -   -   -   -   - 

Total Residential real estate - owner occupied

 $167,465  $148,525  $139,043  $154,031  $140,197  $132,604  $-  $881,865 
                                 

Current period gross charge offs

 $(25) $-  $(252) $-  $(26) $(5) $-  $(308)
                                 

Residential real estate - non-owner occupied

                                

Risk rating

                                

Pass

 $79,805  $66,030  $54,464  $64,198  $61,721  $63,348  $-  $389,566 

OAEM

  -   -   -   -   -   163   -   163 

Substandard

  -   -   208   -   -   106   -   314 

Substandard non-performing

  -   -   878   159   -   136   -   1,173 

Doubtful

  -   -   -   -   -   -   -   - 

Total Residential real estate - non-owner occupied

 $79,805  $66,030  $55,550  $64,357  $61,721  $63,753  $-  $391,216 
                                 

Current period gross charge offs

 $-  $(150) $(3) $-  $-  $(3) $-  $(156)
                                 

Construction and land development

                                

Risk rating

                                

Pass

 $253,687  $254,341  $182,016  $44,909  $3,095  $1,687  $12,162  $751,897 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Construction and land development

 $253,687  $254,341  $182,016  $44,909  $3,095  $1,687  $12,162  $751,897 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Home equity lines of credit

                                

Risk rating

                                

Pass

 $-  $-  $-  $-  $-  $-  $284,064  $284,064 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   1,051   1,051 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Home equity lines of credit

 $-  $-  $-  $-  $-  $-  $285,115  $285,115 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $(10) $(10)
                                 

Consumer

                                

Risk rating

                                

Pass

 $27,560  $13,948  $9,927  $8,561  $3,838  $650  $77,663  $142,147 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  21   126   110   12   -   9   -   278 

Doubtful

  -   -   -   -   -   -   -   - 

Total Consumer

 $27,581  $14,074  $10,037  $8,573  $3,838  $659  $77,663  $142,425 

Current period gross charge offs

 $(857) $(72) $(97) $(36) $(5) $(36) $-  $(1,103)

 

(continued)

 

 

(continued)

 

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  Revolving

loans

amortized

     

December 31, 2025

 

2025

  

2024

  

2023

  

2022

  

2021

  

Prior

  cost basis  

Total

 
                                 

Leases

                                

Risk rating

                                

Pass

 $6,848  $3,880  $3,831  $1,014  $836  $137  $-  $16,546 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   366   -   -   -   366 

Substandard non-performing

  -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   - 

Total Leases

 $6,848  $3,880  $3,831  $1,380  $836  $137  $-  $16,912 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Credit cards

                                

Risk rating

                                

Pass

 $-  $-  $-  $-  $-  $-  $25,191  $25,191 

OAEM

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   52   52 

Doubtful

  -   -   -   -   -   -   -   - 

Total Credit cards

 $-  $-  $-  $-  $-  $-  $25,243  $25,243 
                                 

Current period gross charge offs

 $-  $-  $-  $-  $-  $-  $(303) $(303)
                                 

Total loans

                                

Risk rating

                                

Pass

 $1,541,895  $1,254,986  $1,017,725  $867,695  $698,672  $646,791  $862,824  $6,890,588 

OAEM

  19,111   16,690   13,786   7,892   8,979   11,333   13,955   91,746 

Substandard

  5,417   2,156   5,405   5,273   6,846   662   20,632   46,391 

Substandard non-performing

  2,187   1,991   3,710   2,294   714   1,637   52   12,585 

Doubtful

  -   -   -   -   -   -   -   - 

Total Loans

 $1,568,610  $1,275,823  $1,040,626  $883,154  $715,211  $660,423  $897,463  $7,041,310 
                                 

Current period gross charge offs*

 $(882) $(671) $(680) $(130) $(35) $(44) $(600) $(3,042)

 

*Current period gross charge offs represent year-to-date activity.

 

For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit cards based on payment activity:

 

  

March 31,

  

December 31,

 

(in thousands)

 

2026

  

2025

 
         

Credit cards

        

Performing

 $24,810  $25,191 

Non-performing

  110   52 

Total credit cards

 $24,920  $25,243 

 

Bancorp had $2 million and $1 million, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at March 31, 2026 and December 31, 2025.

 

Modifications to Borrowers Experiencing Financial Difficulty

 

During the three month periods ended March 31, 2026 and 2025, there were no modifications made to loans for borrowers experiencing financial difficulty and there were no payment defaults of existing modified loans within 12 months following modification. Default is determined at 90 days or more past due, charge off, or foreclosure.

 

  

 

(4)

Goodwill

 

As of March 31, 2026 and December 31, 2025, goodwill totaled $194 million, of which $172 million was attributed to the commercial banking segment and $22 million is attributed to WM&T.

 

Goodwill, as recognized at the time of acquisition for each respective acquisition, is included in the table below:

 

  

March 31,

  

December 31,

 

(in thousands)

 

2026

  

2025

 

Commonwealth Bancshares (2022)

 $58,244  $58,244 

Kentucky Bancshares (2021)

  123,317   123,317 

King Southern Bancorp (2019)

  11,831   11,831 

Austin State Bank (1996)

  682   682 

Total

 $194,074  $194,074 

 

Note: The acquisition of The Bank Oldham County in 2013 resulted in a bargain purchase gain.

 

Goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Bancorp’s annual goodwill impairment test is conducted as of October 1 of each year or more often as situations dictate.

 

At October 1, 2025, Bancorp performed its annual qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting units exceeded their carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting units exceeded their fair value.

 

  

 

(5)

Core Deposit and Customer List Intangible Assets

 

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets:

 

  

March 31, 2026

  

December 31, 2025

 

(in thousands)

 

Gross

Carrying

Amount

  

Accumulated Amortization

  

Net Amount

  

Gross

Carrying

Amount

  

Accumulated Amortization

  

Net Amount

 

Amortizable intangible assets:

                        

Core deposit intangibles

 $20,191  $(13,998) $6,193  $20,191  $(13,503) $6,688 

Customer list intangibles

  11,856   (6,688)  5,168   11,856   (6,384)  5,472 

Total amortizable intangible assets

 $32,047  $(20,686) $11,361  $32,047  $(19,887) $12,160 

 

Amortization expense for all amortizable intangible assets totaled $799,000 and $914,000 for the three month periods ended March 31, 2026 and 2025, respectively.

 

Future CDI and CLI amortization expense is estimated as follows:

 

(in thousands)

 

CDI

  

CLI

 

Remainder of 2026

 $1,485  $912 

2027

  1,668   1,064 

2028

  1,311   912 

2029

  888   760 

2030

  576   608 

Thereafter

  265   912 

Total future expense

 $6,193  $5,168 

 

  

 

(6)

Other Assets

 

A summary of the major components of other assets follows:

 

  

March 31,

  

December 31,

 

(in thousands)

 

2026

  

2025

 
         

Cash surrender value of life insurance other than BOLI

 $21,667  $22,156 

Net deferred tax asset

  43,451   44,667 

Investments in tax credit partnerships

  189,268   194,643 

Derivative assets

  3,244   4,501 

Prepaid assets

  8,783   8,818 

WM&T fees receivable

  5,352   5,253 

Mortgage servicing rights

  9,776   10,189 

Other real estate owned

  190   190 

Other

  26,061   14,589 

Total other assets

 $307,792  $305,006 

 

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

 

Bancorp periodically invests in certain partnerships that generate federal income tax credits. The tax benefit of these investments exceeds the amortization expense associated with them, resulting in a positive impact on net income. In addition to income tax benefits, these investments also serve as an economical means of achieving CRA goals. The investments in such partnerships are recorded in other assets on the consolidated balance sheets, while the corresponding contribution requirements are recorded in other liabilities. While contributions are made periodically over the life of the respective investments, which can be up to 10 years depending on the type of investment, the majority of contributions associated with a respective investment are made within the first few years after entering the partnership.

 

Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value. For additional information, see the footnote titled “Derivative Financial Instruments.

 

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

 

  

 

(7)

Income Taxes

 

In accordance with the applicable accounting guidance, the principal method established for computing the provision for income taxes in interim periods requires the use of estimates related to the effective tax rate expected to be applicable for the full year. The estimated effective tax rate is then applied to the interim consolidated pre-tax operating income to determine the interim provision for income taxes.

 

The effective tax rate, which is the provision for income taxes as a percentage of income before income taxes, was 20.70% for the three months ended March 31, 2026 compared to 20.06% for the three months ended March 31, 2025.

 

 

(8)

Deposits

 

The composition of deposits follows:

 

(in thousands)

 

March 31, 2026

  

December 31, 2025

 
         

Non-interest bearing demand deposits

 $1,456,324  $1,435,846 

Interest bearing deposits:

        

Interest bearing demand

  2,834,034   2,886,406 

Savings

  433,559   420,382 

Money market

  1,289,806   1,311,969 
         

Time deposits of $250 thousand or more

  571,705   567,404 

Other time deposits

  1,171,808   1,169,130 

Total time deposits

  1,743,513   1,736,534 
         

Total interest bearing deposits

  6,300,912   6,355,291 

Total deposits

 $7,757,236  $7,791,137 

 

  

 

(9)

Securities Sold Under Agreements to Repurchase

 

SSUAR represent a funding source of Bancorp and are used by commercial customers in conjunction with collateralized corporate cash management accounts. Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. Bancorp’s repurchase agreements are subject to underlying agreements with master netting or similar arrangements, which provide for the right of setoff in the event of default or in the event of bankruptcy of either party to the transactions. Bancorp reports its repurchase agreements to these arrangements on a gross basis. At March 31, 2026 and December 31, 2025, all of these financing arrangements had overnight maturities. The lender agrees to resell substantially the same securities to Bancorp at the maturity of the repurchase agreement. Should the fair value of the securities pledged as collateral fall below the associated repurchase agreements, Bancorp would be required to pledge additional securities. To mitigate the risk of under-collateralization due to balance fluctuations, Bancorp generally pledges more in securities than the associated repurchase agreements.

 

Information concerning SSUAR follows:

 

(dollars in thousands)

 

March 31, 2026

  

December 31, 2025

 

Outstanding balance at end of period

 $87,513  $112,476 

Weighted average interest rate at end of period

  1.75

%

  1.80

%

         

Fair value of securities pledged:

        

Mortgage backed securities

 $136,600  $116,097 

Government sponsored agency obligations

  12,736   12,811 

Total securities pledged

 $149,336  $128,908 

 

  

Three months ended

 
  

March 31,

 

(dollars in thousands)

 

2026

  

2025

 
         

Average outstanding balance during the period

 $93,040  $158,985 

Average interest rate during the period

  1.75

%

  2.08

%

Maximum outstanding at any month end during the period

 $87,513  $192,507 

 

 

The following table presents information regarding the Company’s repurchase agreements as if they had been presented on a net basis as of March 31, 2026 and December 31, 2025:

 

(dollars in thousands) 

Gross amount of

recognized liabilities

  

Gross amount offset

in the balance sheet

  

Net amount of

liabilities presented

in the balance sheet

  

Investment securities

posted as collateral

  

Net amount

 
                     

March 31, 2026

                    

Repurchase agreements

 $87,513  $-  $87,513  $(87,513) $- 

December 31, 2025

                    

Repurchase agreements

 $112,476  $-  $112,476  $(112,476) $- 

 

(1) Amounts disclosed for collateral received by or posted to the same counterparty include the fair value of investment securities up to and not exceedng the amount or the repurchase agreement liability presented in the balance sheet. The fair value of the total collateral received by or posted to the same counterparty may exceed the amounts presented.

 

  

 

(10)

Subordinated Debentures

 

As a result of its acquisition of Commonwealth Bancshares, Inc. on March 7, 2022, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier I Capital. The subordinated notes and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. Bancorp chose not to redeem the subordinated notes on April 1, 2026 and carried the notes at the costs noted below at March 31, 2026:

 

(dollars in thousands)

 

Face Value

  

Carrying

Value

 

Origination

Date

 

Maturity

Date

 

Interest Rate

              

Commonwealth Statutory Trust III

 $3,093  $3,093 

12/19/2003

 

1/7/2034

 

SOFR2.85%

Commonwealth Statutory Trust IV

  12,372   12,372 

12/15/2005

 

12/30/2035

 

SOFR + 1.35%

Commonwealth Statutory Trust V

  11,341   11,341 

6/28/2007

 

9/15/2037

 

SOFR + 1.40%

Total

 $26,806  $26,806      

 

As part of the purchase accounting adjustments associated with the CB acquisition, the carrying values of the subordinated notes were adjusted to fair value at acquisition date. The related discounts on the subordinated notes have been amortized and recognized as a component of interest expense in Bancorp’s consolidated financial statements. The discounts became fully amortized during the first quarter of 2024.

 

 

(11)

FHLB Advances and Other Borrowings

 

FHLB advances outstanding at March 31, 2026 consisted of a rolling $300 million three-month advance that matures in May 2026, which Bancorp utilizes in conjunction with interest rate swaps in an effort to hedge cash flows. FHLB advances outstanding at December 31, 2025 consisted of a rolling $300 million three-month advance that matured in February 2026, which was also utilized in conjunction with the previously mentioned interest rate swaps.

 

For the three month period ended March 31, 2026, gross proceeds and repayments related to FHLB advances totaled $300 million and $300 million, respectively. Net proceeds and repayments related to FHLB advances (excluding those with maturities of 90 days or less) totaled $300 million and $300 million for the three months ended March 31, 2026. For the three month period ended March 31, 2025, gross proceeds and repayments totaled $775 million and $775 million, respectively. Net proceeds and repayments (excluding those with maturities of 90 days or less) for the three month period ended March 31, 2025 totaled $300 million and $300 million.

 

Information regarding FHLB advances follows. The average interest rate information provided includes the benefit associated with the related interest rate swaps:

 

(dollars in thousands)

 

March 31, 2026

  

December 31, 2025

 

Outstanding balance at end of period

 $300,000  $300,000 

Weighted average interest rate at end of period

  3.85

%

  3.85

%

 

FHLB advances are collateralized by certain CRE and residential real estate mortgage loans under blanket mortgage collateral pledge agreements. Bancorp views these advances as an effective lower-costing funding option compared to other alternatives, such as brokered deposits, to fund loan growth. At March 31, 2026 and December 31, 2025, the amount of available credit from the FHLB totaled $1.52 billion and $1.47 billion, respectively.

 

Bancorp also had unsecured available FFP lines with correspondent banks totaling $80 million at both March 31, 2026 and December 31, 2025, respectively. There were no outstanding balances associated with these lines as of both March 31, 2026 and December 31, 2025.

 

  

 

(12)

Commitments and Contingent Liabilities

 

As of March 31, 2026 and December 31, 2025, Bancorp had various commitments outstanding that arose in the normal course of business which are properly not reflected in the condensed consolidated financial statements. Total off-balance sheet commitments to extend credit follows:

 

(in thousands)

 

March 31, 2026

  

December 31, 2025

 

Commercial and industrial

 $792,312  $811,568 

Construction and development

  607,147   639,190 

Home equity lines of credit

  438,518   429,070 

Credit cards

  91,899   90,673 

Overdrafts

  54,289   54,863 

Standby letters of credit

  27,734   28,410 

Other

  112,106   99,462 

Future loan commitments

  270,698   177,135 

Total off balance sheet commitments to extend credit

 $2,394,703  $2,330,371 

 

Most commitments to extend credit are an agreement to lend to a customer either unsecured or secured, as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

 

The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, was $7.9 million as of both March 31, 2026 and December 31, 2025. No provision for off balance sheet exposures was recorded for the three month period ended March 31, 2026.

 

No provision expense for off balance sheet credit exposures was recorded for the three month period ended March 31, 2025.

 

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

 

Certain commercial customers require confirmation of Bancorp’s letters of credit by other banks since Bancorp does not have a rating by a national rating agency. Terms of the agreements range from one month to a year with certain agreements requiring between one and six months’ notice to cancel. If an event of default on all contracts had occurred at March 31, 2026, Bancorp would have been required to make payments of approximately $4.3 million, or the maximum amount payable under those contracts. No payments have ever been required because of default on these contracts. These agreements are normally secured by collateral acceptable to Bancorp, which limits credit risk associated with the agreements.

 

Bancorp periodically invests in certain partnerships that generate federal income tax credits, which result in contribution commitments. Such commitments are recorded in other liabilities on the consolidated balance sheets. While contributions are made periodically over the life of the respective investments, which can be up to 10 years depending on the type of investment, the majority of contributions associated with a respective investment are made within the first few years after entering the partnership. Bancorp invested in several larger tax credit partnerships in recent years, which have served as an economical means of fulfilling CRA goals. As of March 31, 2026, tax credit contribution commitments of $96 million were recorded in other liabilities on the consolidated balance sheets.

 

As of March 31, 2026, in the normal course of business, there were pending legal actions and proceedings in which claims for damages are asserted. Management, after discussion with legal counsel, believes the ultimate result of these legal actions and proceedings will not have a material adverse effect on the consolidated financial position or results of operations of Bancorp.

 

  

 

(13)

Assets and Liabilities Measured and Reported at Fair Value

 

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

Authoritative guidance requires maximization of use of observable inputs and minimization of use of unobservable inputs in fair value measurements. Where there exists limited or no observable market data, Bancorp derives its own estimates by generally considering characteristics of the asset/liability, the current economic and competitive environment and other factors. For this reason, results cannot be determined with precision and may not be realized on an actual sale or immediate settlement of the asset or liability.

 

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

 

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

 

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

 

Mortgage banking derivatives – Mortgage banking derivatives used in the ordinary course of business consist primarily of interest rate lock loan commitments and mandatory forward sales contracts. The fair value of the Bancorp’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from observable market inputs that can generally be verified and do not typically involve significant judgement by Bancorp (Level 2 inputs).

 

Interest rate swap agreements – Interest rate swaps are valued using valuations received from the relevant dealer counterparty. These valuations consider multiple observable market inputs, including interest rate yield curves, time value and volatility factors (Level 2 inputs).

 

 

Carrying values of assets measured at fair value on a recurring basis follows:

 

  

Fair Value Measurements Using:

  

Total

 

March 31, 2026 (in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Assets:

                

Available for sale debt securities:

                

Government sponsored enterprise obligations

 $  $70,080  $  $70,080 

Mortgage backed securities - government agencies

     514,343      514,343 

Obligations of states and political subdivisions

     107,873      107,873 

Other

     502      502 
                 

Total available for sale debt securities

 $   692,798      692,798 
                 

Mortgage loans held for sale

     5,758      5,758 

Rate lock loan commitments

     451      451 

Mandatory forward contracts

     85      85 

Interest rate swap assets

     3,244      3,244 

Total assets

 $  $702,336  $  $702,336 
                 

Liabilities:

                

Interest rate swap liabilities

 $  $3,518  $  $3,518 

 

 

  

Fair Value Measurements Using:

  

Total

 

December 31, 2025 (in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Assets:

                

Available for sale debt securities:

                

Government sponsored enterprise obligations

 $  $72,819  $  $72,819 

Mortgage backed securities - government agencies

     535,007      535,007 

Obligations of states and political subdivisions

     113,754      113,754 

Other

     531      531 
                 

Total available for sale debt securities

     722,111      722,111 
                 

Mortgage loans held for sale

     6,247      6,247 

Rate lock loan commitments

     333      333 

Interest rate swap assets

     4,501      4,501 

Total assets

 $  $733,192  $  $733,192 
                 

Liabilities:

                

Interest rate swap liabilities

 $  $6,319  $  $6,319 

Mandatory forward contracts

     49      49 

Total liabilities

 $  $6,368  $  $6,368 

 

There were no transfers into or out of Level 3 of the fair value hierarchy during 2026 or 2025. 

 

 

Discussion of assets measured at fair value on a non-recurring basis follows:

 

Collateral dependent loans – For collateral-dependent loans where Bancorp has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value of the loan’s collateral is determined by third party or internal appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, comparable sales, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. Bancorp reviews the third party appraisal for appropriateness and adjusts the value to consider selling and closing costs. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise or knowledge of the client and client’s business.

 

OREO OREO is primarily comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the ACL. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. Bancorp obtains the valuation of OREO with material balances from third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. Bancorp reviews the appraisal for appropriateness and adjusts the value to consider selling and closing costs.

 

Carrying values of assets measured at fair value on a non-recurring basis follows:

 

                  

Three months

 
  

Fair Value Measurements Using:

  

Total

  

ended

 

March 31, 2026 (in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Fair Value

  

March 31, 2026

 
                     

Collateral dependent loans

 $  $  $4,275  $4,275  $100 

 

                  

Three months

 
  

Fair Value Measurements Using:

  

Total

  

ended

 

December 31, 2025 (in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Fair Value

  

March 31, 2025

 
                     

Collateral dependent loans

 $  $  $14,684  $14,684  $10 

Other real estate owned

        190   190    

 

There were no liabilities measured at fair value on a non-recurring basis at March 31, 2026 and December 31, 2025.

 

For Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair value measurements are presented below.

 

  

March 31, 2026

 

(dollars in thousands)

 

Fair Value

 

Valuation Technique

 

Unobservable Inputs

 

Weighted Average

 
            

Collateral dependent loans

 $4,275 

Appraisal

 

Appraisal discounts

  32.0%

 

  

December 31, 2025

 

(dollars in thousands)

 

Fair Value

 

Valuation Technique

 

Unobservable Inputs

 

Weighted Average

 
            

Collateral dependend loans

 $14,684 

Appraisal

 

Appraisal discounts

  22.6%

Other real estate owned

  190 

Appraisal

 

Appraisal discounts

  15.4 

 

  

 

(14)

Disclosure of Financial Instruments Not Reported at Fair Value

 

GAAP requires disclosure of the fair value of financial assets and liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The estimated fair values of Bancorp’s financial instruments not measured at fair value on a recurring or non-recurring basis follows:

 

  

Carrying

      

Fair Value Measurements Using:

 

March 31, 2026 (in thousands)

 

amount

  

Fair value

  

Level 1

  

Level 2

  

Level 3

 
                     

Assets

                    

Cash and cash equivalents

 $666,719  $666,719  $666,719  $  $ 

HTM debt securities

  192,956   175,255   1,996   173,259    

Federal Home Loan Bank stock

  20,717   20,717      20,717    

Loans, net

  7,132,833   7,052,710         7,052,710 

Accrued interest receivable

  28,579   28,579      28,579    

Mortgage servicing rights

  9,776   23,053         23,053 
                     

Liabilities

                    

Non-interest bearing deposits

 $1,456,324  $1,456,324  $1,456,324  $  $ 

Transaction deposits

  4,557,399   4,557,399      4,557,399    

Time deposits

  1,743,513   1,743,609      1,743,609    

Securities sold under agreement to repurchase

  87,513   87,513      87,513    

Federal funds purchased

  7,345   7,345      7,345    

Subordinated debentures

  26,806   26,438      26,438    

FHLB advances

  300,000   295,886      295,886    

Accrued interest payable

  1,706   1,706      1,706    

 

  

Carrying

      

Fair Value Measurements Using:

 

December 31, 2025 (in thousands)

 

Amount

  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 
                     

Assets

                    

Cash and cash equivalents

 $886,376  $886,376  $886,376  $  $ 

HTM debt securities

  198,946   181,203   1,982   179,221    

Federal Home Loan Bank stock

  20,717   20,717      20,717    

Loans, net

  6,949,443   6,872,537         6,872,537 

Accrued interest receivable

  28,783   28,783      28,783    

Mortgage servicing rights

  10,189   22,237         22,237 
                     

Liabilities

                    

Non-interest bearing deposits

 $1,435,846  $1,435,846  $1,435,846  $  $ 

Transaction deposits

  4,618,757   4,618,757      4,618,757    

Time deposits

  1,736,534   1,740,161      1,740,161    

Securities sold under agreement to repurchase

  112,476   112,476      112,476    

Federal funds purchased

  7,289   7,289      7,289    

Subordinated debentures

  26,806   26,547      26,547    

FHLB advances

  300,000   297,101      297,101    

Accrued interest payable

  1,740   1,740      1,740    

 

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

 

  

 

(15)

Mortgage Banking Activities

 

Mortgage banking activities primarily include residential mortgage originations and servicing. Mortgages originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors.

 

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

 

  

Three months ended

 
  

March 31,

 

(in thousands)

 

2026

  

2025

 

Balance, beginning of period:

 $6,247  $6,286 

Origination of mortgage loans held for sale

  32,087   29,997 

Proceeds from the sale of mortgage loans held for sale

  (33,218)  (29,040)

Net gain realized on sale of mortgage loans held for sale

  642   554 

Balance, end of period

 $5,758  $7,797 

 

The following table represents the components of Mortgage banking income:

 

  

Three months ended

 
  

March 31,

 

(in thousands)

 

2026

  

2025

 
         

Net gain realized on sale of mortgage loans held for sale

 $642  $554 

Net change in fair value recognized on loans held for sale

  (82)  68 

Net change in fair value recognized on rate lock loan commitments

  100   355 

Net change in fair value recognized on forward contracts

  84   (211)

Net gain recognized

  744   766 
         

Net loan servicing income

  831   817 

Amortization of mortgage servicing rights

  (701)  (732)

Change in mortgage servicing rights valuation allowance

  -   - 

Net servicing income recognized

  130   85 
         

Other mortgage banking income

  56   66 

Total mortgage banking income

 $930  $917 

 

Activity for capitalized mortgage servicing rights was as follows:

 

  

Three months ended

 
  

March 31,

 

(in thousands)

 

2026

  

2025

 

Balance, beginning of period

 $10,189  $11,333 

Additions for mortgage loans sold

  288   216 

Amortization

  (701)  (732)

Impairment

      
         

Balance, end of period

 $9,776  $10,817 

 

 

The estimated fair value of MSRs at March 31, 2026 and December 31, 2025 was $23 million and $22 million, respectively. There was no valuation allowance recorded for MSRs as of March 31, 2026 and December 31, 2025, as fair value exceeded carrying value. The fair value of MSRs at March 31, 2026 was determined using discount rates ranging from 9.5% to 12.5%, prepayment speeds ranging from 7.5% to 10.2%, depending on the characteristics of the specific rights (rate, maturity, etc.), and a weighted average default rate of 0.6%. The fair value of MSRs at December 31, 2025 was determined using discount rates ranging from 9.5% to 12.5%, prepayment speeds ranging from 6.8% to 11.8%, depending on the characteristics of the specific rights, and a weighted average default rate of 0.5%.

 

Total outstanding principal balances of loans serviced for others were $1.71 billion and $1.73 billion at March 31, 2026 and December 31, 2025, respectively.

 

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

 

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

 

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

 

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

 

  

March 31, 2026

  

December 31, 2025

 

(in thousands)

 

Notional

Amount

  

Fair Value

  

Notional

Amount

  

Fair Value

 

Included in Mortgage loans held for sale:

                

Mortgage loans held for sale, at fair value

 $5,703  $5,758  $6,111  $6,247 
                 

Included in other assets:

                

Rate lock loan commitments

 $15,175  $451  $7,799  $333 

Mandatory forward contracts

  15,250   85   -   - 
                 

Included in other liabilities

                

Mandatory forward contracts

 $-  $-  $10,250  $49 

 

  

 

(16)

Accumulated Other Comprehensive Income (Loss)

 

The following table illustrates activity within the balances of AOCI, net of tax, by component:

 

  

Net unrealized

  

Net unrealized

  

Minimum

     
  

gains (losses)

  

gains (losses)

  

pension

     
  

on available for

  

on cash

  

liability

     

(in thousands)

 

sale debt securities

  

flow hedges

  

adjustment

  

Total

 

Three months ended March 31, 2026

                

Balance, beginning of period

 $(59,825) $(1,493) $43  $(61,275)

Other comprehensive income (loss) before reclassifications

  (1,600)  1,691   -   91 

Income tax benefit (expense)

  390   (406)      (16)

Net current period other comprehensive income (loss)

  (1,210)  1,285   -   75 

Balance, end of period

 $(61,035) $(208) $43  $(61,200)
                 

Three months ended March 31, 2025

                

Balance, beginning of period

 $(94,190) $2,922  $117  $(91,151)

Other comprehensive income (loss) before reclassifications

  18,518   (3,497)  -   15,021 

Income tax benefit (expense)

  (4,551)  841       (3,710)

Net current period other comprehensive income (loss)

  13,967   (2,656)  -   11,311 

Balance, end of period

 $(80,223) $266  $117  $(79,840)

  

 

(17)

Preferred Stock

 

Bancorp has one class of preferred stock (no par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of the class or any series within the class will be determined by the Board of Directors prior to any issuance. None of this stock has been issued to date.

 

 

 

(18)

Net Income Per Share

 

The following table reflects net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:

 

  

Three months ended

 
  

March 31,

 

(in thousands, except per share data)

 

2026

  

2025

 

Net income

 $36,595  $33,271 
         

Weighted average shares outstanding - basic

  29,387   29,349 

Dilutive securities

  115   152 

Weighted average shares outstanding- diluted

  29,502   29,501 
         

Net income per share - basic

 $1.25  $1.13 

Net income per share - diluted

  1.24   1.13 

 

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

 

  

Three months ended

 

(shares in thousands)

 

March 31,

 
  

2026

  

2025

 

Antidilutive SARs

  71   14 

 

  

 

(19)

Stock-Based Compensation

 

At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018, shareholders approved an additional 500,000 shares for issuance under the plan. Shareholders approved an additional 1 million shares for issuance under the plan at Bancorp’s 2024 Annual Meeting of Shareholders on April 25, 2024. As of March 31, 2026, there were 853,000 shares available for future awards. The 2015 Stock Incentive Plan has no defined expiration date.

 

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

 

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

 

Assumptions

 

2026

  

2025

 

Dividend yield

  2.18%  2.26%

Expected volatility

  29.13%  29.29%

Risk free interest rate

  3.85%  4.42%

Expected life (in years)

  7.8   7.8 

 

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

 

RSA Grants – RSAs granted to officers vest equally over five years on each grant’s anniversary date. There is no performance-based requirement necessary for vesting. Dividends associated with RSA grants are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.

 

PSU Grants – PSUs vest based upon service and a three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one-year post-vesting holding period and therefore the fair value of such grants incorporates a liquidity discount related to the holding period of 5.5% for both 2026 and 2025.

 

RSU Grants – RSUs are only granted to non-employee directors, are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, therefore the fair value of the RSUs equals market value of underlying shares on the date of grant.

 

In the first quarters of 2026 and 2025, Bancorp awarded 8,280 and 7,670 RSUs to non-employee directors of Bancorp with a grant date fair value of $540,000 and $539,000, respectively.

 

Bancorp utilized cash of $266,000 and $344,000 during the first three months of 2026 and 2025, respectively, for the purchase of shares upon the vesting of RSUs.

 

 

Bancorp has recognized stock-based compensation expense for SARs, RSAs and PSUs within compensation expense and RSUs for directors within other non-interest expense, as follows:

 

  

Three months ended March 31, 2026

 

(in thousands)

 

Stock

Appreciation

Rights

  

Restricted

Stock Awards

  

Restricted

Stock Units

  

Performance

Stock Units

  

Total

 
                     

Expense

 $120  $546  $132  $489  $1,287 

Deferred tax benefit

  (25)  (115)  (28)  (103)  (271)

Total net expense

 $95  $431  $104  $386  $1,016 

 

 

  

Three months ended March 31, 2025

 

(in thousands)

 

Stock

Appreciation

Rights

  

Restricted

Stock Awards

  

Restricted

Stock Units

  

Performance

Stock Units

  

Total

 
                     

Expense

 $103  $450  $131  $469  $1,153 

Deferred tax benefit

  (22)  (95)  (28)  (99)  (244)

Total net expense

 $81  $355  $103  $370  $909 

 

Detail of unrecognized stock-based compensation expense follows:

 

  

Stock

                 

(in thousands)

 

Appreciation

  

Restricted

  

Restricted

  

Performance

     

Year ended

 

Rights

  

Stock Awards

  

Stock Units

  

Stock Units

  

Total

 
                     

Remainder of 2026

 $394  $1,679  $407  $1,387  $3,867 

2027

  461   1,972   1   1,849   4,283 

2028

  370   1,599      640   2,609 

2029

  255   1,243         1,498 

2030

  137   710         847 

2031

  16   59         75 

Total estimated future expense

 $1,633  $7,262  $408  $3,876  $13,179 

 

 

The following table summarizes SARs activity and related information:

 

                       

Weighted

 
           

Weighted

      

Weighted

  

average

 
           

average

  

Aggregate

  

average

  

remaining

 
      

Exercise

  

exercise

  

intrinsic

  

fair

  

contractual

 

(in thousands, except per share and life data)

 

SARs

  

price

  

price

  

value(1)

  

value

  

life (in years)

 
                          

Outstanding, January 1, 2025

  340  

$25.76

-$74.92  $43.41  $9,774  $8.69   5.3 

Granted

  26  67.85-75.21   74.93      23.63     

Exercised

  (28) 25.76-40.00   29.67   1,332   4.32     

Forfeited

                    

Outstanding, December 31, 2025

  338  

$35.90

-$75.21  $46.98  $6,354  $10.21   5.0 
                          

Outstanding, January 1, 2026

  338  

$35.90

-$75.21  $46.98  $6,354  $10.21   5.0 

Granted

  29  68.33-68.33   68.33      20.86     

Exercised

                    

Forfeited

                    

Outstanding, March 31, 2026

  367  

$35.90

-$75.21  $48.66  $6,771  $11.04   5.1 
                          

Vested and exercisable

  275  

$35.90

-$75.21  $43.88  $6,206  $8.55   4.0 

Unvested

  92  47.17-75.21   62.83   565   18.46   3.7 

Outstanding, March 31, 2026

  367  

$35.90

-$75.21  $48.66  $6,771  $11.04   5.1 
                          

Vested in the current year

  29  $47.17-75.21  $57.12  $269  $14.97     

 

(1) Aggregate intrinsic value for SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price.

 

The following table summarizes activity for RSAs granted:

 

      

Grant date

 
      

weighted

 

(in thousands, except per share data)

 

RSAs

  

average cost

 
         

Unvested at January 1, 2025

  102  $54.92 

Shares awarded

  42   75.34 

Restrictions lapsed and shares released

  (32)  51.92 

Shares cancelled

  (6)  61.89 

Unvested at December 31, 2025

  106  $62.49 
         

Unvested at January 1, 2026

  106  $62.49 

Shares awarded

  43   71.20 

Restrictions lapsed and shares released

  (32)  59.25 

Shares cancelled

  (2)  65.58 

Unvested at March 31, 2026

  115  $66.59 

 

Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period for which began January 1 of the award year, are as follows:

 

  

Vesting

      

Shares

 

Grant

 

period

  

Fair

  

expected to

 

year

 

in years

  

value

  

be awarded

 

2024

  3   41.84   49,957 

2025

  3   67.61   53,254 

2026

  3   60.96   31,486 

 

  

 

(20)

Derivative Financial Instruments

 

Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an insignificant effect on earnings. Exchanges of cash flows related to undesignated interest rate swap agreements were offsetting and therefore had no effect on Bancorp’s earnings or cash flows.

 

Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. Notional amounts are amounts on which calculations, payments and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Bancorp is exposed to credit-related losses in the event of non-performance by counterparties to these agreements. Bancorp mitigates the credit risk of its financial contracts through credit approvals, collateral and monitoring procedures, and does not expect any counterparties to fail their obligations. As of March 31, 2026, Bancorp had interest rate swap contracts entered into with a single counterparty in a net asset position of $1.6 million. Bancorp had posted cash collateral of $5 million with the single counterparty as of March 31, 2026, which is included in Federal fund sold and interest bearing due from banks on the consolidated balance sheets. The remaining interest rate swap transactions are entered into with borrowers and are not subject to netting.

 

Bancorp had outstanding undesignated interest rate swap contracts as follows:

 

  

Assets

  

Liabilities

 
  

March 31,

  

December 31,

  

March 31,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 
                 

Notional amount

 $351,610  $345,098  $351,610  $345,098 

Weighted average maturity (years)

  3.7   4.0   3.7   4.0 

Fair value

 $3,244  $4,428  $3,244  $4,428 

 

During the first quarter of 2023, Bancorp entered into an interest rate swap to hedge cash flows of a $100 million rolling fixed-rate three-month FHLB borrowing. The swap began February 6, 2023 and matures February 6, 2028. During the third quarter of 2023, Bancorp entered into two additional interest rate swaps to hedge cash flows of two $50 million rolling fixed-rate three-month FHLB borrowings. These swaps began August 7, 2023, with one maturing August 6, 2026 and the other maturing August 6, 2028. During the third quarter of 2024, Bancorp entered into another interest rate swap to hedge cash flows of a $100 million rolling fixed-rate three-month FHLB borrowing. The swap began on August 6, 2024 and matures on August 6, 2029.

 

While Bancorp expects to utilize fixed-rate three-month FHLB advances with respect to these interest rate swaps, brokered CDs or other fixed rate advances may be utilized for the same three-month terms instead should those sources be more favorable. For purposes of hedging, rolling fixed rate advances are considered to be floating rate liabilities.

 

Interest rate swaps involve exchange of Bancorp’s floating rate interest payments for fixed rate swap payments on underlying principal amounts. These swaps were designated and qualified, for cash-flow hedge accounting. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of gains or losses is reported as a component of AOCI and is subsequently reclassified into earnings as an adjustment to interest expense in periods for which the hedged forecasted transaction impacts earnings.

 

The following table details Bancorp’s derivative positions designated as a cash flow hedges, and the related fair values:

 

           

Fair value

 

(dollars in thousands)

     

Pay fixed

  

March 31,

 

Notional Amount

 

Maturity Date

 

Receive (variable) index

 

swap rate

  

2026

 
$100,000 

2/6/2028

 

USD SOFR

  3.27% $616 
 50,000 

8/6/2026

 

USD SOFR

  4.38%  (179)
 50,000 

8/6/2028

 

USD SOFR

  3.97%  (515)
 100,000 

8/6/2029

 

USD SOFR

  3.58%  (196)
$300,000         $(274)

 

  

 

(21)

Regulatory Matters

 

Bancorp and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Holding Company and the Bank must meet specific capital guidelines that involve quantitative measures of Bancorp’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other factors.

 

Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.

 

Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered adequately-capitalized. At March 31, 2026, the adequately-capitalized minimums, including the capital conservation buffer, were a 7.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio. As all of Bancorp’s capital ratios were above the adequately-capitalized minimums, including the buffer, the Company was not subject to any such restrictions.

 

As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of March 31, 2026 and December 31, 2025, subordinated notes totaled $27 million.

 

Bancorp continues to exceed the regulatory requirements for all calculations. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.

 

The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ratios:

 

(dollars in thousands)

 

Actual

  

Minimum for adequately

capitalized

  

Minimum for well

capitalized

 

March 31, 2026

 

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 
                         

Total risk-based capital (1)

                        

Consolidated

 $1,087,675   13.53

%

 $643,312   8.00

%

 

NA

  

NA

 

Bank

  1,058,962   13.18   642,554   8.00  $803,192   10.00%
                         

Common equity tier 1 risk-based capital (1)

                        

Consolidated

  961,145   11.95   361,863   4.50  

NA

  

NA

 

Bank

  958,549   11.93   361,437   4.50   522,075   6.50 
                         

Tier 1 risk-based capital (1)

                        

Consolidated

  987,145   12.28   482,484   6.00  

NA

  

NA

 

Bank

  958,549   11.93   481,915   6.00   642,554   8.00 
                         

Leverage

                        

Consolidated

  987,145   10.68   369,736   4.00  

NA

  

NA

 

Bank

  958,549   10.38   369,505   4.00   461,882   5.00 

 

 

(dollars in thousands)

 

Actual

  

Minimum for adequately

capitalized

  

Minimum for well

capitalized

 

December 31, 2025

 

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 
                         

Total risk-based capital (1)

                        

Consolidated

 $1,057,932   13.42

%

 $630,800   8.00

%

 

NA

  

NA

 

Bank

  1,030,454   13.07   630,567   8.00  $788,209   10.00%
                         

Common equity tier 1 risk-based capital (1)

                        

Consolidated

  933,354   11.84   354,825   4.50  

NA

  

NA

 

Bank

  931,912   11.82   354,694   4.50   512,336   6.50 
                         

Tier 1 risk-based capital (1)

                        

Consolidated

  959,354   12.17   473,100   6.00  

NA

  

NA

 

Bank

  931,912   11.82   472,925   6.00   630,567   8.00 
                         

Leverage

                        

Consolidated

  959,354   10.30   372,695   4.00  

NA

  

NA

 

Bank

  931,912   10.01   372,449   4.00   465,561   5.00 

 

(1)    Ratio is computed in relation to risk-weighted assets.

 

NA Regulatory framework does not define well-capitalized for holding companies.

 

  

 

(22)

Segments

 

Bancorp’s principal activities are divided into two reportable segments, Commercial Banking and WM&T, which are delineated based on the products and services that each segment offers:

 

Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, leasing, treasury management services, merchant services, international banking, correspondent banking, credit card services, and other banking services. Bancorp also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment. 

 

WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

 

Bancorp’s Commercial Banking and WM&T segments overlap a regional reporting structure. These regions are based on the primary geographic markets in which Bancorp operates, specifically Louisville, central, eastern and northern Kentucky, and the Indianapolis, Indiana and Cincinnati, Ohio MSAs. All regions share the same lines of business, including the same products, services and delivery methods, as well as similar customer bases and pricing guidelines.

 

Financial information for each business segment reflects that which is specifically identifiable or allocated based on an internal allocation method. Income taxes are allocated based on the effective federal income tax rate adjusted for any tax-exempt activity. All tax-exempt activity and provision have been allocated fully to the commercial banking segment. Other direct and indirect/allocated expenses include legal and professional fees, advertising and business development costs as well as other miscellaneous expenses. Measurement of performance for business segments is based on the management structure of Bancorp and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the segments’ operations if they were independent entities.

 

Bancorp’s chief executive officer is the chief operating decision maker. The financial results by operating segment, including significant expense categories provided to the chief operating decision maker, help measure the profitability of a particular segment and identify trends, evaluate each segment and its impact on consolidated earnings, and enhance decision making processes related to the allocation of Bancorp’s resources. Bancorp evaluates performance and allocates resources based on a reportable segment’s net income.

 

The majority of the net assets of Bancorp are associated with in the Commercial Banking segment. As of March 31, 2026, goodwill totaling $194 million was recorded on Bancorp’s consolidated balance sheets, of which $172 million is attributed to the commercial banking segment and $22 million is attributed to WM&T.

 

WM&T AUM, which are a primary driver of WM&T revenue, are not included on the consolidated balance sheets of Bancorp. WM&T AUM totaled $7.60 billion and $7.64 billion as of March 31, 2026 and December 31, 2025, respectively.

 

 

Financial results by operating segment, including significant expense categories provided to the chief operating decision maker, are detailed below:

 

  

Three months ended March 31, 2026

  

Three months ended March 31, 2025

 
  

Commercial

          

Commercial

         

(in thousands)

 

Banking

  

WM&T

  

Total

  

Banking

  

WM&T

  

Total

 

Interest income

 $117,374  $268  $117,642  $110,887  $279  $111,166 

Interest expense

  39,221      39,221   40,614      40,614 

Net interest income

  78,153   268   78,421   70,273   279   70,552 

Provision for credit losses

  1,625      1,625   900      900 

Net interest income after provision expense

  76,528   268   76,796   69,373   279   69,652 

Non-interest income:

                        

Wealth management and trust services

     11,335   11,335      10,647   10,647 

All other non-interest income

  13,259      13,259   12,349      12,349 

Total non-interest income

  13,259   11,335   24,594   12,349   10,647   22,996 

Non-interest expenses:

                        

Compensation and employee benefits

  30,211   5,124   35,335   26,810   4,907   31,717 

Net occupancy and equipment

  4,067   253   4,320   3,878   245   4,123 

Technology and communication

  4,600   735   5,335   4,086   742   4,828 

Intangible amortization

  495   304   799   572   342   914 

Other direct and indirect/allocated expenses

  8,926   527   9,453   8,992   453   9,445 

Total non-interest expenses

  48,299   6,943   55,242   44,338   6,689   51,027 

Income before income tax expense

  41,488   4,660   46,148   37,384   4,237   41,621 

Income tax expense

  8,542   1,011   9,553   7,430   920   8,350 

Net income

 $32,946  $3,649  $36,595  $29,954  $3,317  $33,271 
                         

Total assets

 $9,433,888  $32,968  $9,466,856  $8,963,765  $33,713  $8,997,478 

 

  

 

(23)

Revenue from Contracts with Customers

 

All of Bancorp’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The table below presents Bancorp’s sources of non-interest income with items outside the scope of ASC 606 noted as such:

 

  

Three months ended March 31, 2026

  

Three months ended March 31, 2025

 

(in thousands)

 

Commercial

Banking

  

WM&T

  

Total

  

Commercial

Banking

  

WM&T

  

Total

 

Wealth management and trust services

 $  $11,335  $11,335  $  $10,647  $10,647 

Deposit service charges

  2,156      2,156   2,079      2,079 

Debit and credit card income

  4,638      4,638   4,508      4,508 

Treasury management fees

  2,988      2,988   2,673      2,673 

Mortgage banking income (1)

  930      930   917      917 

Net investment product sales commissions and fees

  1,061      1,061   1,010      1,010 

Bank owned life insurance (1)

  632      632   622      622 

Gain on sale of premises and equipment (1)

  479      479          

Other (2)

  375      375   540      540 

Total non-interest income

 $13,259  $11,335  $24,594  $12,349  $10,647  $22,996 

 

(1) Outside of the scope of ASC 606.

(2) Outside of the scope of ASC 606, with the exception of safe deposit fees which were nominal for all periods.

 

Bancorp’s revenue on the consolidated statement of income is categorized by product type, which effectively depicts how the nature, timing and extent of cash flows are affected by economic factors. Revenue sources within the scope of ASC 606 are discussed below:

 

WM&T provides customers fiduciary and investment management services as agreed upon in asset management contracts. The contracts require WM&T to provide a series of distinct services for which fees are earned over time. The contracts are cancellable upon demand with fees typically based upon the asset value of investments. Revenue is accrued and recognized monthly based upon month-end asset values and collected from the customer predominately in the following month except for a small percentage of fees collected quarterly. Incentive compensation related to WM&T activities is considered a cost of obtaining the contract. The Company has elected the practical expedient to expense such costs as incurred, as the amortization period of the related contracts is one year or less. Accordingly, no assets are recognized for incentive compensation costs to obtain customer contracts, and these costs are included in compensation and benefits expense in the consolidated statements of income. Incentive compensation costs expensed during the year were not material to the consolidated financial statements. Contracts between WM&T and customers do not permit performance-based fees and accordingly, none of the fee income earned by WM&T is performance-based. Trust fees receivable were $5.4 million and $5.3 million at March 31, 2026 and December 31, 2025, respectively.

 

Bancorp earns fees from its deposit customers for transaction-based, account management and overdraft services. Transaction-based fees, which include services such as ATM use fees and stop payments fees, are recognized at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account management fees are earned over the course of a month and charged in the month in which the services are provided.

 

Debit and credit card revenue primarily consists of debit and credit card interchange income. Interchange income represents fees assessed within the payment card system for acceptance of card-based transactions. Interchange fees are assessed as the performance obligation is satisfied, which is at the point in time the card transaction is authorized. Revenue is collected and recognized daily through the payment network settlement process.

 

Treasury management transaction fees are recognized at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account analysis fees are earned over the course of a month and charged in the month in which the services are provided. Treasury management fees are withdrawn from customers’ account balances.

 

Net investment products sales commissions and fees represent the Bank’s share of transaction fees and wrap fees resulting from investment services and programs provided through an agent relationship with a third party broker-dealer. Transaction fees are assessed at the time of the transaction. Those fees are collected and recognized on a monthly basis. Trailing fees are based upon market values and are assessed, collected and recognized on a quarterly basis. Because the Bank acts as an agent in arranging the relationship between the customer and third party provider, and does not control the services rendered, investment product sales commissions and fees are reported net of related costs, including nominal incentive compensation, and trading activity charges of $310,000 and $296,000 for the three month periods ended March 31, 2026 and 2025.

 

 

Bancorp did not establish any contract assets or liabilities as a result of adopting ASC 606, nor were any recognized during the three month period ended March 31, 2026.

 

 

(24)

Leases

 

Bancorp has operating leases (land and building) for various locations with terms ranging from approximately three months to 20 years, several of which include options to extend the leases in five-year increments. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the Company’s incremental borrowing rate, which is a blended rate comprised of the FHLB term rate and the Company’s subordinated debt rate. Right-of-use assets initially equal the lease liability, adjusted for any lease payments made prior to lease commencement and for any lease incentives. Options reasonably expected to be exercised are included in determination of the right-of-use asset. Bancorp elected to use a practical expedient to expense short-term lease obligations associated with leases with original terms of 12 months or less. Bancorp elected not to separate non-lease components from lease components for its operating leases. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and other liabilities on the consolidated balance sheet

 

Balance sheet, income statement and cash flow detail regarding operating leases follows:

 

(dollars in thousands)

 

March 31, 2026

  

December 31, 2025

 
         

Balance Sheet

        

Operating lease right-of-use asset

 $30,436  $31,241 

Operating lease liability

  32,228   32,971 
         

Weighted average remaining lease term (years)

  10.0   10.2 

Weighted average discount rate

  3.66%  3.65%
         

Maturities of lease liabilities:

        

One year or less

 $3,104  $4,131 

Year two

  4,149   4,149 

Year three

  4,198   4,198 

Year four

  4,130   4,129 

Year five

  3,974   3,974 

Greater than five years

  19,347   19,347 

Total lease payments

 $38,902  $39,928 

Less imputed interest

  (6,674)  (6,957)

Total

 $32,228  $32,971 

 

  

Three months ended

  

Three months ended

 

(in thousands)

 

March 31, 2026

  

March 31, 2025

 

Income Statement

        

Components of lease expense:

        

Operating lease cost

 $1,089  $1,048 

Variable lease cost

  105   93 

Less sublease income

  5   26 

Total lease cost

 $1,189  $1,115 

 

  

Three months ended

  

Three months ended

 

(in thousands)

 

March 31, 2026

  

March 31, 2025

 

Cash flow Statement

        

Supplemental cash flow information:

        

Operating cash flows from operating leases

 $1,138  $1,138 

 

As of March 31, 2026, Bancorp had entered into one lease agreement that had yet to commence.

 

  

 

 

(25)

Subsequent Event

 

On May 1, 2026, Bancorp completed its previously disclosed acquisition of Field & Main Bancorp, Inc. Under the terms of the Agreement, the Company acquired all outstanding stock in an all stock transaction, resulting in a total consideration to existing Field & Main Bancorp, Inc. shareholders of approximately $112 million.

 

Field & Main Bancorp, Inc., headquartered in Henderson, Kentucky, was the holding company for Field & Main Bank, which operated 6 retail branches, including three in Henderson, Kentucky and one each in Lexington, Kentucky, Cynthiana, Kentucky and Evansville, Indiana, respectively. As of March 31, 2026, Field & Main Bancorp, Inc. had approximately $860 million in total assets, $640 million in loans and $780 million in deposits. Field & Main Bancorp, Inc. also maintained a WM&T Department with total AUM of approximately $791 million as of March 31, 2026.

 

The combined franchise will serve customers through a branch network of 81 locations with approximately $10.30 billion in total assets, $7.90 billion in gross loans, $8.50 billion in deposits and $8.40 billion in trust assets under management. Management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. 

 

 

 

 

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

 

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

 

SYB, established in 1904, is a state-chartered non-member financial institution that provides services in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio markets through 75 full service banking center locations. The Bank is registered with, and subject to supervision, regulation and examination by the FDIC and the Kentucky Department of Financial Institutions.

 

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

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying footnotes presented in Part 1 Item 1 “Financial Statements” and other information appearing in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2025. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of Bancorp’s future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

 

Cautionary Statement Regarding Forward-Looking Statements

 

This document contains statements relating to future results of Bancorp that are considered “forward-looking” as defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part I Item 2 “Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the statement. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “conclude,” “continue,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “outlook,” “possible,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “will likely,” “would,” or other similar expressions. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control.

 

Forward-looking statements detail management’s expectations regarding the future and are based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements to reflect events or circumstances that occur after the date forward-looking statements are made, except as required by applicable regulation.

 

There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

 

 

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

 

changes in laws and regulations or the interpretation thereof;

 

accuracy of assumptions and estimates used in establishing the ACL for loans, ACL for off-balance sheet credit exposures and other estimates;

 

impairment of investment securities;

 

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

 

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

 

 

 

changes in fiscal, monetary, and/or regulatory policies;

 

changes in tax polices including but not limited to changes in federal and state statutory rates;

 

behavior of securities and capital markets, including changes in interest rates, market volatility and liquidity;

 

ability to effectively manage capital and liquidity;

 

long-term and short-term interest rate fluctuations, as well as the shape of the U.S. Treasury yield curve;

 

the magnitude and frequency of changes to the FFTR implemented by the Federal Open Market Committee of the FRB;

 

competitive product and pricing pressures;

 

projections of revenue, expenses, capital expenditures, losses, EPS, dividends, capital structure, etc.;

 

integration of acquired financial institutions, businesses or future acquisitions;

 

changes in the credit quality of Bancorp’s customers and counterparties, deteriorating asset quality and charge-off levels;

 

changes in technology instituted by Bancorp, its counterparties or competitors;

 

changes to or the effectiveness of Bancorp’s overall internal control environment;

 

adequacy of Bancorp’s risk management framework, disclosure controls and procedures and internal control over financial reporting;

 

changes in applicable accounting standards, including the introduction of new accounting standards;

 

changes in investor sentiment or behavior;

 

changes in consumer/business spending or savings behavior;

 

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

 

occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics or outbreaks of hostilities, and Bancorp’s ability to deal effectively with disruptions caused by the foregoing;

 

ability to maintain the security of its financial, accounting, technology, data processing and other operational systems and facilities;

 

ability to withstand disruptions that may be caused by any failure of its operational systems or those of third parties;

 

ability to effectively defend itself against cyberattacks or other attempts by unauthorized parties to access information of Bancorp, its vendors or its customers or to disrupt systems; and

 

other risks and uncertainties reported from time-to-time in Bancorp’s filings with the SEC, including Part I Item 1A “Risk Factors of Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2025.

 

 

Issued but Not Yet Effective Accounting Standards Updates

 

For disclosure regarding the impact to Bancorp’s financial statements of issued-but-not-yet-effective ASUs, see the footnote titled “Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”

 

 

Business Segment Overview

 

Bancorp is divided into two reportable segments: Commercial Banking and WM&T:

 

Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, treasury management services, merchant services, international banking, correspondent banking and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment. 

 

WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.

 

Overview Operating Results (FTE)

 

The following table presents an overview of Bancorp’s financial performance for the three months ended March 31, 2026 and 2025:

 

(dollars in thousands, except per share data)

         

Variance

 

Three months ended March 31,

 

2026

  

2025

  

$/bp

  

%

 
                 

Net income

 $36,595  $33,271  $3,324   10%

Diluted earnings per share

 $1.24  $1.13  $0.11   10%

ROA

  1.58%  1.52% 

6 bps

   4%

ROE

  13.63%  14.14% 

(51) bps

   -4%

 

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

 

General highlights for the three months ended March 31, 2026 compared to March 31, 2025:

 

 

Net income totaled $36.6 million for the three months ended March 31, 2026, resulting in diluted EPS of $1.24, compared to net income of $33.3 million for the three months ended March 31, 2025, which resulted in diluted EPS of $1.13.

 

Total loans increased $580 million, or 9%, compared to March 31, 2025, with growth driven by increases from virtually every loan segment and led by the CRE and C&I categories. Average loans increased $520 million, or 8%, for the three months ended March 31, 2026 compared to the same period of the prior year.

 

Bancorp’s ACL on loans increased $4.8 million, or 5%, compared to March 31, 2025. The increase over the past 12 months was attributed to strong loan growth, which was only partially offset by an improved unemployment forecast and a decline in specific reserves.

 

Provision for credit losses on loans totaled $1.6 million for the three months ended March 31, 2026, compared to $900,000 for the three months ended March 31, 2025.

 

Deposit balances increased $463 million, or 6%, compared to March 31, 2025, which was driven by interest bearing demand and time deposit growth, the latter of which was attributed to the success of the prior year’s promotional CD offerings.

 

Net interest income (FTE) totaled $78.5 million for the three months ended March 31, 2026, representing an increase of $7.9 million, or 11%, compared to the three months ended March 31, 2025.

 

Interest income experienced a $6.5 million, or 6%, increase over this period as a result of strong average loan growth, which was coupled with a $1.4 million, or 3%, decrease in interest expense stemming from an inflow of liquidity that eliminated the need for more expensive overnight borrowings that were utilized in the prior year period.

 

NIM increased 19 bps to 3.65% for the three months ended March 31, 2026, compared to the same period of the prior year despite several rate reductions implemented by the FRB in the latter part of 2025, attributed to a 24 bp decline in the cost of interest-bearing liabilities and the scheduled maturity of lower-yielding investment securities whose liquidity helped fund strong, higher-yielding loan growth.

 

 

 

Non-interest income increased $1.6 million, or 7%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, driven by increases from virtually every non-interest revenue stream in addition to recording a $479,000 gain on the sale of a former branch location.

 

Non-interest expenses increased $4.2 million, or 8%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, driven mainly by higher compensation and employee benefit expenses associated with FTE growth, merit-based salary increases and higher bonus accrual levels in addition to continued investment in technology.

 

Bancorp’s efficiency ratio (FTE) for the three months ended March 31, 2026 was 53.58% compared to 54.50% for the three months ended March 31, 2025. This improvement is attributed to strong net interest income growth, which outpaced growth in non-interest expenses.

 

As of March 31, 2026, Bancorp continued to be “well-capitalized,” the highest regulatory capital rating for financial institutions, with capital ratios experiencing growth compared to both December 31, 2025 and March 31, 2025. Total stockholders’ equity to total assets was 11.65% as of March 31, 2026, compared to 11.28% and 10.84% at December 31, 2025 and March 31, 2025, respectively. Tangible common equity to tangible assets was 9.69% at March 31, 2026, compared to 9.32% and 8.72% at December 31, 2025 and March 31, 2025, respectively.

 

Results of Operations

 

Net Interest Income - Overview

 

Bancorp’s primary revenue sources are net interest income and fee income from various financial services provided to customers. Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and interest rates earned on those loans are critical to overall profitability. Similarly, deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. New business volume is influenced by numerous economic factors including market interest rates, business spending, liquidity, consumer confidence and competitive conditions within the marketplace. The discussion that follows is based on FTE net interest income data.

 

Comparative information regarding net interest income follows:

 

(dollars in thousands)

         

Variance

 

As of and for the three months ended March 31,

 

2026

  

2025

  

$/bp

  

%

 
                 

Net interest income

 $78,421  $70,552  $7,869   11%

Net interest income (FTE)*

  78,516   70,636   7,880   11%

Net interest spread (FTE)*

  3.08%  2.83% 

25 bps

   9%

Net interest margin (FTE)*

  3.65%  3.46% 

19 bps

   5%

Average interest earning assets

 $8,734,527  $8,270,323  $464,204   6%

Average interest bearing liabilities

  6,648,036   6,253,712   394,324   6%

Five year Treasury note rate at period end

  3.92%  3.96% 

(4) bps

   -1%

Average five year Treasury note rate

  3.77%  4.25% 

(48) bps

   -11%

Prime rate at period end

  6.75%  7.50% 

(75) bps

   -10%

Average Prime rate

  6.75%  7.50% 

(75) bps

   -10%

One month term SOFR at period end

  3.66%  4.32% 

(66) bps

   -15%

Average one month term SOFR

  3.67%  4.31% 

(64) bps

   -15%

 

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

 

NIM and net interest spread calculations above exclude the sold portion of certain participation loans, which totaled $2 million at both March 31, 2026 and December 31, 2025. These sold loans are on Bancorp’s balance sheet as required by GAAP because Bancorp retains some form of effective control; however, Bancorp receives no interest income on the sold portion. These participation loans sold are excluded from NIM and spread analysis, as Bancorp believes it provides a more accurate depiction of loan portfolio performance.

 

At March 31, 2026, Bancorp’s loan portfolio consisted of approximately 63% fixed and 37% variable rate loans. At inception, most of Bancorp’s fixed rate loans are generally priced in relation to the five year treasury note. Bancorp’s variable rate loans are typically indexed to either Prime or one month term SOFR, repricing as those rates change. At March 31, 2026, approximately 54% and 46% of Bancorp’s variable rate loan portfolio was indexed to Prime and SOFR, respectively.

 

 

Prime rate, the five year treasury note rate and one month term SOFR are included in the preceding tables to provide a general indication of the interest rate environment in which Bancorp has operated during the past 12 months.

 

While the yield curve was challenged by flatness and/or inversion during 2025, continued loan growth at higher rates and the benefit of repricing on portions of the loan portfolio that had been carrying lower pandemic-era rates drove NIM expansion during the prior year. These positive forces were coupled with a decline in overall funding costs attributed to deposit rate cuts and improved liquidity, the latter of which ended the need for more expensive overnight borrowings that had been utilized more heavily in the first part of last year.

 

Towards the end of 2025, slight steepness on the longest portion of the yield curve began to be experienced, as three consecutive 25 bps rate reductions from the FRB in September, October and December resulted in the FFTR falling to a range of 3.50% - 3.75%, and Prime to 6.75%, as of December 31, 2025. These levels were maintained through March 31, 2026. However, despite a slight improvement in the overall yield curve’s trajectory, the shorter end of the curve that is most critical to Bancorp’s business (overnight through 5 years) remained relatively flat through the first quarter of this year.

 

The NIM expansion experienced during the three months ended March 31, 2026 compared to recent quarters was attributed mainly to a continued decline in the cost of interest-bearing deposits. Bancorp strategically lowered deposit rates in tandem with FRB rate reductions and the repricing of the time deposit portfolio as the prior year’s promotional rates have adjusted to lower current offerings has provided significant benefit to NIM. In addition, while earning-asset yields have been challenged by lower rates, excess liquidity provided by deposit growth and the scheduled maturity of lower-yielding investment securities over the past 12 months has been used to fund higher-yielding loan growth, serving to buoy yields.

 

Recent projections indicate a likelihood that the FRB may halt rate reductions for the remainder of 2026. However, given current geopolitical uncertainty and regularly changing economic data/conditions, interest rate volatility could present challenges throughout the year.

 

Net Interest Income (FTE) Three months ended March 31, 2026 compared to March 31, 2025:

 

Net interest spread (FTE) and NIM (FTE) were 3.08% and 3.65%, for the three months ended March 31, 2026, compared to 2.83% and 3.46% for the same period of 2025, respectively.

 

Net interest income (FTE) increased $7.9 million, or 11%, for the three months ended March 31, 2026 compared to the same period of 2025, driven by the impact of strong average loan growth on interest income and a decline in interest expense related to eliminating the need for the more expensive overnight borrowings that were utilized through the first quarter of 2025.

 

Total average interest earning assets increased $464 million, or 6%, for the three months ended March 31, 2026, as compared to the same period of 2025, attributed to average loan and interest-bearing cash balance growth that was partially offset by a decline in average investment securities driven by scheduled maturities and normal amortization. The rate earned on average earning assets increased 1 bp to 5.47% despite the impact of rate reductions implemented by the FRB in the latter part of 2025, as liquidity provided by the scheduled maturity of lower-yielding securities helped fund higher-yielding loan growth.

 

 

Average total loan balances increased $520 million, or 8%, for the three months ended March 31, 2026, compared to the same period of 2025. While the CRE and C&I segments drove a significant portion of the period over period growth, virtually every loan portfolio segment experienced an increase over the past 12 months.

 

 

Average investment securities declined $422 million, or 29%, for the three months ended March 31, 2026 compared to the same period of 2025, mainly as the result of significant scheduled maturities within the treasury portfolio, and to a lesser extent, normal amortization activity. The funding provided by this activity has benefitted interest-earning asset yields and overall NIM, as the related liquidity has helped fund Bancorp’s substantial loan growth or shifted into higher-yielding interest-bearing cash balances.

 

 

Average FFS and interest bearing due from bank balances increased $377 million, or 209%, for the three months ended March 31, 2026, which was largely the result of the previously mentioned liquidity provided by the investment securities portfolio in addition to deposit growth outpacing loan growth.

 

 

Total interest income (FTE) increased $6.5 million, or 6%, to $117.7 million for the three months ended March 31, 2026, as compared to the same period of 2025.

 

 

Interest and fee income (FTE) on loans increased $6.9 million, or 7%, to $106.5 million for the three months ended March 31, 2026, compared to the same period of 2025, driven by average loan balance growth. The yield on the overall loan portfolio decreased 6 bps to 6.07% for the three months ended March 31, 2026 compared to 6.13% for the same period of the prior year, as a result of rate reductions enacted by the FRB in the latter part of 2025.

 

 

Interest income (FTE) on the investment securities portfolio declined $3.3 million, or 36%, for the three months ended March 31, 2026 compared to the same period of 2025. This decrease was driven primarily by large, scheduled maturities within the treasury portfolio, and to a lesser extent, normal amortization activity. As a result, the corresponding yield on the portfolio declined 26 bps to 2.25% for the three months ended March 31, 2026 compared to the same period of 2025.

 

 

Interest income on FFS and interest bearing due from bank balances increased $3.0 million, or 151% for the three months ended March 31, 2026, consistent with the increase in corresponding average balances. The yield on these assets decreased 84 bps to 3.66% for the three months ended March 31, 2026 compared to the same period of 2025 due to the previously mentioned FRB rate reductions.

 

Total average interest bearing liabilities increased $394 million, or 6%, to $6.65 billion for the three month period ended March 31, 2026 compared with the same period in 2025.

 

 

Average interest bearing deposits increased $626 million, or 11%, for the three months ended March 31, 2026 compared to the same period in 2025, driven by a $411 million, or 31%, increase in average time deposits and a $276 million, or 11%, increase in average interest bearing demand deposits, consistent with the success of Bancorp’s competitive CD offerings and depositors seeking higher-yielding deposit products over the past 12 months.

 

 

Average FHLB advances decreased $167 million, or 36%, for the three months ended March 31, 2026 compared to the same period of the prior year, as significant interest-bearing deposit growth and liquidity provided from the investment securities portfolio eliminated the need for more expensive overnight borrowings through the FHLB. Bancorp currently utilizes a $300 million term advance in conjunction with four separate interest rate swaps of varying maturities in an effort to secure longer-term funding at more favorable rates. This advance represents the only outstanding FHLB borrowing as of March 31, 2026.

 

 

Average SSUAR decreased $66 million, or 41%, for the three months ended March 31, 2026 compared to the same period of the prior year, attributed largely to a number of clients moving into other deposit products. 

 

Total interest expense decreased $1.4 million, or 3%, for the three months ended March 31, 2026 compared to the same period of 2025, driven primarily by the decrease in average FHLB advances due to the need for overnight borrowings utilized in the prior year period being eliminated.

 

 

Total interest bearing deposit expense increased $881,000, or 3%, driven by growth in the time deposit portfolio associated with successful promotional campaigns. However, each interest bearing deposit category experienced a decline in cost for the three months ended March 31, 2026 compared to the same period of the prior year, which was driven by Bancorp’s ability to reduce deposit rates consistent with rate reductions enacted by the FRB. Total interest-bearing deposit cost decreased 20 bps to 2.31% compared to the prior year period.

 

 

Interest expense on FHLB borrowings decreased $1.8 million, or 38%, for the three months ended March 31, 2026, as compared to same period of the prior year, consistent with the $167 million decrease in average FHLB advances.

 

 

Interest expense on SSUAR decreased $413,000, or 51%, for the three months ended March 31, 2026, as compared to the same period of the prior year, consistent with the average balance decrease.

 

 

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

 

  

Three months ended March 31,

 
  

2026

  

2025

 
  

Average

      

Average

  

Average

      

Average

 

(dollars in thousands)

 

Balance

  

Interest

  

Rate

  

Balance

  

Interest

  

Rate

 
                         

Interest earning assets:

                        

Federal funds sold and interest bearing due from banks

 $557,364  $5,030   3.66% $180,439  $2,001   4.50%

Mortgage loans held for sale

  5,365   70   5.29   5,732   77   5.45 

Investment securities:

                        

Taxable

  966,896   5,243   2.20   1,382,322   8,495   2.49 

Tax-exempt

  67,044   500   3.02   73,604   498   2.74 

Total securities

  1,033,940   5,743   2.25   1,455,926   8,993   2.51 
                         

Federal Home Loan Bank stock

  20,717   392   7.67   30,838   532   7.00 
                         

Loans

  7,117,141   106,502   6.07   6,597,388   99,647   6.13 
                         

Total interest earning assets

  8,734,527   117,737   5.47   8,270,323   111,250   5.46 
                         

Less allowance for credit losses on loans

  93,990           89,624         
                         

Non-interest earning assets:

                        

Cash and due from banks

  74,618           76,170         

Premises and equipment, net

  121,430           115,772         

Bank owned life insurance

  92,157           89,611         

Goodwill

  194,074           194,074         

Accrued interest receivable and other

  266,025           237,581         
                         

Total assets

 $9,388,841          $8,893,907         
                         

Interest bearing liabilities:

                        

Deposits:

                        

Interest bearing demand

 $2,769,214  $11,485   1.68% $2,492,759  $11,594   1.89%

Savings

  426,669   292   0.28   421,431   293   0.28 

Money market

  1,286,235   7,351   2.32   1,352,387   9,335   2.80 

Time

  1,738,785   16,334   3.81   1,328,163   13,359   4.08 

Total interest bearing deposits

  6,220,903   35,462   2.31   5,594,740   34,581   2.51 
                         

Securities sold under agreements to repurchase

  93,040   401   1.75   158,985   814   2.08 

Federal funds purchased

  7,287   65   3.62   6,514   70   4.36 

Federal Home Loan Bank advances

  300,000   2,927   3.96   466,667   4,741   4.12 

Subordinated debentures

  26,806   366   5.54   26,806   408   6.17 
                         
                         

Total interest bearing liabilities

  6,648,036   39,221   2.39   6,253,712   40,614   2.63 
                         

Non-interest bearing liabilities:

                        

Non-interest bearing demand deposits

  1,429,253           1,426,088         

Accrued interest payable and other

  222,527           260,067         
                         

Total liabilities

  8,299,816           7,939,867         
                         

Stockholders equity

  1,089,025           954,040         

Total liabilities and stockholders' equity

 $9,388,841          $8,893,907         
                         

Net interest income

     $78,516          $70,636     
                         

Net interest spread

          3.08%          2.83%
                         

Net interest margin

          3.65%          3.46%

 

 

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

 

 

Average loan balances include the principal balance of non-accrual loans, as well as unearned income such as loan premiums, discounts, fees/costs and exclude participation loans accounted for as secured borrowings. Participation loans accounted for as secured borrowings averaged $2 million for the three month periods ended both March 31, 2026 and 2025.

 

 

Interest income on a FTE basis includes additional amounts of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal taxes yielding the same after-tax income. Interest income on municipal securities and tax-exempt loans has been calculated on a FTE basis using a federal income tax rate of 21%. Approximate tax equivalent adjustments to interest income were $95,000 and $84,000 for the three month periods ended March 31, 2026 and 2025, respectively.

 

 

Interest income includes loan fees of $1.1 million and $1.8 million for the three month periods ended March 31, 2026 and 2025, respectively. Interest income on loans may be materially impacted by the level of prepayment fees collected and net accretion income related to acquired loans. Net accretion income related to acquired loans totaled $304,000 and $430,000 for the three month periods ended March 31, 2026 and 2025, respectively.

 

 

Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense. The level of net interest income is determined by mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates.

 

 

NIM represents net interest income on a FTE basis as a percentage of total average interest earning assets.

 

 

Net interest spread (FTE) is the difference between taxable equivalent rates earned on total interest earning assets less the cost of interest bearing liabilities.

 

 

The fair market value adjustment on investment securities resulting from ASC 320, Investments  Debt and Equity Securities is included as a component of other assets.

 

 

Asset/Liability Management and Interest Rate Risk

 

Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, management evaluates interest rate sensitivity with the goal of optimizing net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer funding requirements.

 

Interest Rate Simulation Sensitivity Analysis

 

Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one-year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing liabilities. By estimating effects of interest rate fluctuations, the model can approximate interest rate risk exposure. This simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and may not indicate actual or expected results.

 

The results of the interest rate sensitivity analysis performed as of March 31, 2026 were derived from conservative assumptions Bancorp uses in its model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates based on historical data. Management uses different betas in the rising and falling rate scenarios in an effort to best simulate expected earnings trends.

 

Bancorp’s interest rate sensitivity analysis indicates that increases in interest rates of 100 and 200 bps would have a positive effect on net interest income, while decreases in interest rates of 100 and 200 bps would have a negative impact. These results depict an asset-sensitive interest rate risk profile. The increase in net interest income in the rising rate scenarios is primarily due to variable rate loans and short-term investments repricing more quickly than deposits and short-term borrowings. Net interest income decreases in the falling rate scenarios because rates on non-maturity deposits cannot be lowered sufficiently to offset the decline in interest income associated with assets that immediately reprice as rates fall.

 

  

-200

  

-100

  

+100

  

+200

 
  

Basis Points

  

Basis Points

  

Basis Points

  

Basis Points

 

% Change from base net interest income at March 31, 2026

  -6.15%  -2.97%  2.73%  5.44%

 

Bancorp’s loan portfolio is currently composed of approximately 63% fixed and 37% variable rate loans, with the fixed rate portion pricing generally based on a spread to the five year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 54%) or SOFR (approximately 46%).

 

Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value, with changes in fair value recorded in other non-interest income as interest rates fluctuate. Because of matching terms of offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings and are therefore not included in the simulation analysis results above. For additional information see the footnote titled “Assets and Liabilities Measured and Reported at Fair Value.

 

In addition, Bancorp periodically uses derivative financial instruments as part of its interest rate risk management, including interest rate swaps. These interest rate swaps are designated as cash flow hedges as described in the Footnote titled “Derivative Financial Instruments.” For these derivatives, the effective portion of gains or losses is reported as a component of OCI and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged transaction affects earnings.

 

 

Provision for Credit Losses

 

Provision for credit losses on loans at March 31, 2026 represents the amount of expense that, based on management’s judgment, is required to maintain the ACL for loans at an appropriate level under the CECL model. The determination of the amount of the ACL for loans is complex and involves a high degree of judgment and subjectivity. See the footnote titled “Basis of Presentation and Summary of Significant Accounting Policies” in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2025 for detailed discussion regarding Bancorp’s ACL methodology by loan segment.

 

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

 

  

Three months ended

 
  

March 31,

 

(dollars in thousands)

 

2026

  

2025

 
         

Beginning balance

 $91,867  $86,943 

Provision for credit losses on loans

  1,625   900 
         

Total charge-offs

  (411)  (614)

Total recoveries

  515   1,585 

Net loan recoveries

  104   971 

Ending balance

 $93,596  $88,814 
         

Average total loans

 $7,117,141  $6,597,388 
         

Provision for credit losses on loans to average total loans (1)

  0.02%  0.01%

Net loan (charge-offs)/recoveries to average total loans (1)

  0.00%  0.01%

ACL for loans to total loans

  1.30%  1.34%

ACL for loans to average total loans

  1.32%  1.35%

 

(1) Ratios are not annualized

 

The ACL for loans totaled $94 million as of March 31, 2026 compared to $89 million at March 31, 2025, representing an ACL to total loans ratio of 1.30% and 1.34% for the respective periods.

 

Provision expense on loans of $1.6 million was recorded for the three month period ended March 31, 2026, driven primarily by strong loan growth, which was only partially offset by improvement in the unemployment forecast and decreased specific reserves. Net recoveries of $104,000 were recorded for the three month period ended March 31, 2026.

 

Provision expense on loans of $900,000 was recorded for the three month period ended March 31, 2025. Expense for the prior year period was attributed mainly to strong loan growth, increased specific reserves, and to a lesser extent, slight deterioration within the unemployment forecast, which were partially offset by annual CECL model updates. Additionally, net recoveries of $971,000 were recorded for the three month period ended March 31, 2025.

 

The ACL for off balance sheet credit exposures, which is separate from the ACL for loan and recorded in other liabilities on the consolidated balance sheets, was unchanged between December 31, 2025 and March 31, 2026. No provision expense was recorded for off balance sheet credit exposures for the three months ended March 31, 2026, as line of credit availability decreased with improved overall utilization. The ACL for off balance sheet exposures totaled $7.9 million as of March 31, 2026.

 

No provision for off balance sheet credit exposures was recorded for the three month period ended March 31, 2025, as overall utilization was flat during the prior year period. The ACL for off balance sheet exposures totaled $6.8 million as of March 31, 2025.

 

Bancorp’s loan portfolio is well-diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets. The adequacy of the ACL is monitored on an ongoing basis and it is the opinion of management that the balance of the ACL at March 31, 2026 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.

 

 

Non-interest Income

 

  

Three months ended March 31,

 

(dollars in thousands)

 

2026

  

2025

  

$ Variance

  

% Variance

 
                 

Wealth management and trust services

 $11,335  $10,647  $688   6%

Deposit service charges

  2,156   2,079   77   4 

Debit and credit card income

  4,638   4,508   130   3 

Treasury management fees

  2,988   2,673   315   12 

Mortgage banking income

  930   917   13   1 

Net investment product sales commissions and fees

  1,061   1,010   51   5 

Bank owned life insurance

  632   622   10   2 

Gain on sale of premises and equipment

  479   -   479   100 

Other

  375   540   (165)  (31)
                 

Total non-interest income

 $24,594  $22,996  $1,598   7%

 

Total non-interest income increased $1.6 million, or 7%, for the three month period ended March 31, 2026 compared to the same period of 2025. Non-interest income comprised 23.9% of total revenues, defined as net interest income and non-interest income, for the three month period ended March 31, 2026 compared to 24.6% for the same period of 2025. The decrease from prior year were attributed to the increase in net interest income compared to prior year. WM&T services comprised 46.1% of total non-interest income for the three month period ended March 31, 2026 compared to 46.3% for the same period of the prior year.

 

WM&T Services:

 

The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $688,000, or 6%, for the three month period ended March 31, 2026, as compared with the same period of 2025, attributed to AUM expansion over the past 12 months, which has been driven by both general market appreciation and new business development.

 

Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. Recurring fees, which generally comprise the vast majority of WM&T revenue, increased $801,000, or 8%, for the three month period ended March 31, 2026, as compared with the same period of 2025, consistent with AUM expansion and general market appreciation.

 

A portion of WM&T revenue, most notably executor and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees decreased $113,000, or 36%, for the three month period ended March 31, 2026, as compared with the same period of 2025, due to the prior year period experiencing stronger estate fee revenue.

 

AUM, stated at market value, totaled $7.60 billion at March 31, 2026 compared with $7.64 billion at December 31, 2025 and $6.80 billion at March 31, 2025. The increase in AUM between March 31, 2025 and March 31, 2026 was attributed to appreciation within the equity and fixed income markets in addition to new business development over the past 12 months.

 

Contracts between WM&T and their customers do not permit performance-based fees and accordingly, none of the WM&T revenue is performance based. Management believes the WM&T department will continue to factor significantly in Bancorp’s financial results and provide strategic diversity to revenue streams.

 

 

Detail of WM&T Service Income by Account Type:

 

  

Three months ended March 31,

 

(in thousands)

 

2026

  

2025

 
         

Investment advisory

 $4,746  $4,269 

Personal trust

  3,458   3,467 

Personal investment retirement

  2,205   2,016 

Company retirement

  410   411 

Foundation and endowment

  375   339 

Custody and safekeeping

  70   68 

Brokerage and insurance services

  30   7 

Other

  41   70 

Total WM&T services income

 $11,335  $10,647 

 

The preceding table demonstrates that WM&T fee revenue is concentrated within investment advisory and personal trust accounts. WM&T fees are predominantly based on AUM and tailored for individual/company accounts and/or relationships with fee structures customized based on account type and other factors, with larger relationships paying a lower percentage of AUM in fees. Recurring AUM fee structures are in place for investment management, irrevocable and revocable trusts, personal investment retirement accounts and accounts holding only fixed income securities. WM&T also provides company retirement plan services, which can consist of a one-time conversion fee with recurring AUM fees to follow. While there are also fee structures for estate settlements, income received is typically non-recurring in nature. Fee structures are agreed upon at the time of account opening and any subsequent revisions are communicated in writing to the customer. As previously mentioned, WM&T fees earned are not performance-based nor are they based on investment strategy or transactions.

 

AUM by Account Type:

 

AUM (not included on balance sheet) increased from $7.64 billion at December 31, 2025 to $7.60 billion at March 31, 2026 as follows:

 

  

March 31, 2026

  

December 31, 2025

 

(in thousands)

 

Managed

  

Non-managed (1)

  

Total

  

Managed

  

Non-managed (1)

  

Total

 

Investment advisory

 $3,016,128  $32,444  $3,048,572  $2,959,858  $35,809  $2,995,667 

Personal trust

  1,504,244   464,893   1,969,137   1,531,824   498,525   2,030,349 

Personal investment retirement

  1,030,159   17,479   1,047,638   1,037,825   17,654   1,055,479 

Company retirement

  51,339   682,210   733,549   52,669   670,690   723,359 

Foundation and endowment

  551,458   641   552,099   549,666   7,588   557,254 

Subtotal

 $6,153,328  $1,197,667  $7,350,995  $6,131,842  $1,230,266  $7,362,108 

Custody and safekeeping

     244,516   244,516      273,110   273,110 

Total AUM

 $6,153,328  $1,442,183  $7,595,511  $6,131,842  $1,503,376  $7,635,218 

 

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

 

As of March 31, 2026 and December 31, 2025, approximately 81% and 80% of AUM were actively managed, respectively. Company retirement plan accounts consist primarily of participant-directed assets. The amount of custody and safekeeping accounts are insignificant to overall WM&T operations.

 

 

Managed AUM by Class of Investment:

 

(in thousands)

 

March 31, 2026

  

December 31, 2025

 
         

Interest bearing deposits

 $401,297  $440,692 

Treasury and government agency obligations

  276,411   206,184 

State, county and municipal obligations

  435,066   425,178 

Money market mutual funds

  48,994   34,371 

Equity mutual funds

  1,359,331   1,344,762 

Other mutual funds - fixed, balanced and municipal

  718,550   670,680 

Other notes and bonds

  177,305   176,103 

Common and preferred stocks

  2,542,570   2,641,640 

Real estate

  20,655   16,924 

Other miscellaneous assets (1)

  173,149   175,308 

Total managed assets

 $6,153,328  $6,131,842 

 

(1) Includes client directed instruments such as rights, warrants, annuities, insurance policies, unit investment trusts, and oil and gas rights.

 

Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 63% in equities and 37% in fixed income securities as of March 31, 2026, compared to 65% and 35% as of December 31, 2025. This composition has remained relatively consistent from period to period.

 

Additional Sources of Non-interest income:

 

Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased $77,000, or 4%, for the three month period ended March 31, 2026, as compared with the same period of 2025. Consistent with the banking industry generally, Bancorp has experienced a steady decline in the volume of fees earned on overdrawn checking accounts over the past several years. This trend has been driven by lower check presentment volume, which has in turn led to fewer overdrawn accounts in general. Further, Bancorp anticipates that future growth of this revenue stream could be significantly impacted by changing industry practices. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the future, which could negatively impact the contributions made by this, or similar, revenue streams.

 

Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased $130,000, or 3%, for the three month period ended March 31, 2026, as compared with the same period of 2025, driven mainly by higher debit card transaction volume. Total debit card income increased $141,000, or 5%, and total credit card income decreased $11,000, or less than 1% for the three month period ended March 31, 2026, compared the same period of the prior year. While Bancorp generally expects this revenue stream to grow with continued expansion of the customer base, interchange rate compression and fluctuations in business and consumer spend levels could serve as challenges to future growth.

 

Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. Treasury management fees increased $315,000, or 12%, for the year ended March 31, 2026, as compared with the same period of 2025, driven by broad fee increases implemented towards the end of the first quarter of 2025 in addition to organic growth and new product sales. Treasury management fees have seen significant annual growth over the past several years, due in large part to acquisition-related customer base expansion and organic growth that was augmented by new product sales, including increased demand for fraud prevention services. To the extent such activity cannot be replicated, future treasury management fee revenue will likely grow at a slower pace than has been experienced in recent years.

 

Mortgage banking income primarily includes gains on sales of mortgage loans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue increased $13,000, or 1%, for the three month period ended March 31, 2026, as compared with the same period of 2025.

 

 

Net investment product sales commissions and fees are generated primarily on stock, bond and mutual fund sales, as well as wrap fees earned on brokerage accounts via an arrangement with a third party broker-dealer. Wrap fees represent charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management and are based on a percentage of account assets. Bancorp deploys its financial advisors primarily through its branch network, while larger managed accounts are generally serviced by Bancorp’s WM&T group. Net investment product sales commissions and fees increased $51,000, or 5%, for the three month period ended March 31, 2026 compared to the same period of 2025.

 

BOLI assets represent the cash surrender value of life insurance policies on certain active and non-active employees who have provided consent for Bancorp to be the beneficiary for a portion of such policies. The related change in cash surrender value and any death benefits received under the policies are recorded as non-interest income and serves to offset the cost of various employee benefits. BOLI income increased $10,000, or 2%, for the year ended March 31, 2026 compared to the same period of 2025, consistent with yields within the policy plans.

 

Gains on the sale of premises and equipment totaled $479,000 for the three months ended March 31, 2026, which was attributed entirely to the sale of a former branch location. No activity was recorded for the prior year period.

 

Other non-interest income decreased $165,000, or 31%, for the three month period ended March 31, 2026 compared with the same period of 2025, driven largely by lower swap fee and letter of credit fee income. The prior year period also benefitted from a miscellaneous tax credit investment distribution.

 

Non-interest Expenses

 

  

Three months ended March 31,

 

(dollars in thousands)

 

2026

  

2025

  

$ Variance

  

% Variance

 
                 

Compensation

 $29,166  $25,932  $3,234   12%

Employee benefits

  6,169   5,785   384   7 

Net occupancy and equipment

  4,320   4,123   197   5 

Technology and communication

  5,335   4,828   507   11 

Debit and credit card processing

  1,922   1,819   103   6 

Marketing and business development

  1,278   1,515   (237)  (16)

Postage, printing and supplies

  913   969   (56)  (6)

Legal and professional

  876   907   (31)  (3)

FDIC insurance

  1,146   1,223   (77)  (6)

Capital and deposit based taxes

  878   700   178   25 

Intangible amortization

  799   914   (115)  (13)

Other

  2,440   2,312   128   6 
                 

Total non-interest expenses

 $55,242  $51,027  $4,215   8%

 

Total non-interest expenses increased $4.2 million, or 8%, for the three month period ended March 31, 2026 compared to the same period of 2025. Compensation and employee benefits comprised 64.0% of Bancorp’s total non-interest expenses for the three month period ended March 31, 2026, compared to 62.2% for the same period of 2025, the increase being attributed to general FTE growth and higher bonus accrual levels compared to the prior year.

 

Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $3.2 million, or 12%, for the three month period ended March 31, 2026, as compared with the same period of 2025. The increase was attributed primarily to growth in full time equivalent employees, which included a focus on sales team expansion, annual merit-based salary increases and higher bonus accrual levels. Net full time equivalent employees totaled 1,144 at March 31, 2026 compared to 1,089 at March 31, 2025.

 

Employee benefits consists of all personnel-related expense not included in compensation, with the most significant items being health insurance, payroll taxes and employee retirement plan contributions. Employee benefits increased $384,000, or 7%, for the three month period ended March 31, 2026, as compared with the same period of 2025, driven mainly by the previously mentioned growth in FTEs and higher health insurance claims activity.

 

 

Net occupancy and equipment expenses primarily include depreciation, rent, property taxes, utilities and maintenance. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense. Net occupancy expense increased $197,000, or 5%, for the three month period ended March 31, 2026, as compared with the same period of 2025, consistent with branch network expansion in addition to higher rent and depreciation expense. Three new branch locations were opened over the past 12 months. At March 31, 2026, Bancorp’s branch network consisted of 75 locations throughout Louisville, central, eastern and Northern Kentucky, as well as the MSAs of Indianapolis, Indiana and Cincinnati, Ohio.

 

Technology and communication expenses include computer software usage and licensing fees, equipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources. Technology expense increased $507,000, or 11%, for the three month period ended March 31, 2026 compared to the same period of 2025, consistent with several planned investments, including the development of advanced data analytics capabilities.

 

Bancorp outsources processing for debit and credit card operations, which generate significant revenue for the Company. These expenses typically fluctuate consistent with transaction volumes. Debit and credit card processing expense increased $103,000, or 6%, for the three month period ended March 31, 2026 compared to the same period of 2025, driven by higher processing fees, including increased fraud-mitigation and prevention expenses.

 

Marketing and business development expenses include all costs associated with promoting Bancorp, including community support, retaining customers and acquiring new business. Marketing and business development expenses decreased $237,000, or 16%, for the three month period ended March 31, 2026, as compared to the same period of 2025, driven by the higher advertising expense incurred in the prior year tied to deposit product promotions.

 

Postage, printing and supplies expense decreased $56,000, or 6%, for the three month period ended March 31, 2026 compared to the same period of 2025, consistent with higher expenses in the prior year related to the previously mentioned deposit product promotions.

 

Legal and professional fees decreased $31,000, or 3%, for the three month period ended March 31, 2026 compared to the same period of 2025, driven by lower collections-related expenses and professional fees, which were partially offset by an increase in general corporate legal matters.

 

FDIC insurance expense decreased $77,000, or 6%, for the three month period ended March 31, 2026, as compared to the same period of 2025, attributed in part to a lower assessment rate related mainly to improvement in Bancorp’s leverage ratio.

 

Capital and deposit based taxes, which consist primarily of capital-based local income taxes and franchise taxes, increased $178,000, or 25%, for the three month period ended March 31, 2026 compared to the same period of 2025. Bancorp’s capital and deposit based tax expense is based on deposits held within various local taxing districts, as well as gross revenues generated within/appropriated to the state of Ohio, which is the only state Bancorp operates in with a capital-based deposit tax. The increase over the prior year stemmed mainly from the substantial deposit growth experienced over the past 12 months.

 

Intangible amortization expense consists of amortization associated with the CDI of acquired deposit portfolios, as well as an intangible related to customer list of the WM&T business line added through a past acquisition. The intangibles are amortized on an accelerated basis over a period of approximately ten years. Intangible amortization expense decreased $115,000, or 13%, for the three month period ended March 31, 2026 compared to the same period of 2025, which is attributed to the accelerated depreciation method for which intangible assets are amortized.

 

Other non-interest expenses increased $128,000, or 6%, for the three month period ended March 31, 2026, as compared to the same period of 2025, driven mainly by costs associated with the new ICS deposit product offering in addition to other miscellaneous expenses.

 

 

Income Tax Expense

 

A comparison of income tax expense and ETR follows:

 

  

Three months ended March 31,

 

(dollars in thousands)

 

2026

  

2025

  

$/bp Variance

  

% Variance

 
                 

Income before income tax expense

 $46,148  $41,621  $4,527   11%

Income tax expense

  9,553   8,350   1,203   14 

Effective tax rate

  20.70%  20.06% 

64 bps

   3 

 

Fluctuations in the ETR are primarily attributed to the following:

 

 

The impact of state income taxes, net of federal benefit, serves to increase the overall ETR and fluctuates consistent with the level of pre-tax income that is taxable at the state level. The ETR was increased by 3.15% for the three month period ended March 31, 2026, compared to an increase of 2.84% for the same period of 2025.

 

The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity in addition to the levels of PSU, RSA and RSU vesting. The ETR was increased by 0.08% for the three month period ended March 31, 2026 compared to an decrease of 0.65% for the same period of 2025, consistent with exercise and vesting activity. 

 

The cash surrender value of life insurance policies can vary widely from period to period, driven largely by market changes. The related impact is inversely correlated with the ETR generally, with cash surrender value declines typically serving to increase the ETR and vice versa. Changes in the cash surrender value of life insurance policies decreased the ETR by 0.06% and 0.22% for the three month periods ended March 31, 2026 and 2025, respectively.

 

Bancorp invests in certain partnerships that yield federal income tax credits. Taken as a whole, the tax benefit of these investments exceeds amortization expense, resulting in a positive impact on net income. The timing and magnitude of these transactions may vary widely from period to period. Cumulative tax credit activity for the three month periods ended March 31, 2026 and 2025 served to reduce the ETR 2.95% and 2.70%, respectively.

 

Tax-exempt interest income earned on loans and investment securities reduced the ETR by 0.28% and 0.34% for the three month period ended March 31, 2026 and 2025, respectively.

 

 

Financial Condition March 31, 2026 Compared to December 31, 2025

 

Overview

 

Total assets decreased $69 million, or 1%, to $9.47 billion at March 31, 2026 from $9.54 billion at December 31, 2025. The decrease for the first three months of 2026 was attributed to a $220 million, or 25%, decrease in cash and cash equivalents and a $35 million, or 4%, decline in investment securities, as liquidity was used to fund $185 million, or 3%, of net loan growth and deposit contraction.

 

Total liabilities decreased $97 million, or 1%, to $8.36 billion at March 31, 2026 from $8.46 billion at December 31, 2025, driven by combined contraction of $59 million, or less than 1%, for total deposits and SSURA in addition to a $37 million, or 17%, decrease in other liabilities.

 

Stockholders’ equity increased $27 million, or 3%, to $1.10 billion at March 31, 2026 from $1.08 billion at December 31, 2025, as net income of $36.6 million was only partially offset by $9.4 million of cash dividends declared during the first three months of 2026.

 

Cash and Cash Equivalents

 

Cash and cash equivalents decreased $220 million, or 25%, ending at $667 million at March 31, 2026 compared to $886 million at December 31, 2025, which was attributed to a combination of strong loan growth and contraction in total deposits and SSURA. Despite the decrease cash levels currently held by Bancorp remain elevated and consistent with balance sheet management strategies implemented in preparation for approaching the $10 billion regulatory threshold.

 

Investment Securities

 

The primary purpose of the investment securities portfolio is to provide another source of interest income, as well as a tool for liquidity management. In managing the composition of the balance sheet, Bancorp seeks a balance between earnings sources, credit and liquidity considerations.

 

Investment securities decreased $35 million, or 4%, to $886 million at March 31, 2026 compared to $921 million at December 31, 2025. This decline was driven mainly by scheduled maturities and normal amortization activity. The liquidity provided by the investment portfolio during the first quarter was used primarily to fund continued loan growth.

 

FHLB Stock

 

FHLB stock holdings were unchanged from year-end at $21 million at March 31, 2026. FHLB members are required to hold certain levels of FHLB stock in relation to the amount of their borrowings, which were also unchanged during the first quarter. Bancorp’s FHLB stock holdings are expected to fluctuate consistent with borrowing activity from period to period.

 

Loans

 

Total loans increased $185 million, or 3%, from December 31, 2025 to March 31, 2026. The loan growth experienced during the first three months of 2026 was well spread across loan portfolio segments, with CRE and C&I leading the way.

 

Total line of credit utilization has experienced steady improvement over the past several quarters, ending at 48.5% as of March 31, 2026 compared to 48.0% at December 31, 2025 and 45.7% at March 31, 2025. Similarly, utilization within the C&I portfolio improved to 38.3% at March 31, 2026 compared to 37.0% at December 31, 2025 and 33.7% at March 31, 2025, which was evidenced by the solid growth seen within the C&I line of credit segment of the loan portfolio.

 

Bancorp’s credit exposure is diversified between businesses and individuals. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s ability to honor loan agreements is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass the Louisville, Kentucky MSA, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs.

 

During the latter part of 2025, additional credit concerns surrounding lending to non-depository financial institutions (NDFIs) arose within the banking industry generally as a result of a few regional banks experiencing larger loan losses related to such borrowers and alleged fraud. In response, the FDIC implemented new reporting requirements related to NDFI lending, which were aimed mainly at institutions with $10 billion or more in total assets, to enable more insight into the underlying risks an institution may be exposed to.

 

 

While NDFIs include bank holding companies, mortgage companies and insurance companies, they can also include real estate investment trusts, private equity firms and hedge funds, which are perceived to carry greater risk. Bancorp’s exposure to NDFIs is minimal, totaling approximately $51 million, or less than 1% of total loans, as of March 31, 2026, and relates entirely to bank holding companies that maintain correspondent banking relationships with Bancorp.

 

Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain participation loans sold, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their ownership share of the loan without permission from Bancorp. GAAP requires the participated portion of these loans to be recorded as secured borrowings. These participated loans are included in the C&I and CRE loan portfolio segments with a corresponding liability recorded in other liabilities. At both March 31, 2026 and December 31, 2025, the total participated portion of loans of this nature totaled $2 million.

 

The following table presents the maturity distribution (based on contractual maturity) and rate sensitivity of the total loan portfolio as of March 31, 2026:

 

  

Maturity

         
March 31, 2026 (in thousands) 

Within one

year

  

After one

but within

five years

  

After five

but within

fifteen years

  

Ater fifteen

years

  

Total

  

% of Total

 

Fixed rate

 $445,482  $2,256,282  $911,855  $943,933  $4,557,552   63%

Variable rate

  850,034   1,186,551   587,873   44,419   2,668,877   37%

Total loans

 $1,295,516  $3,442,833  $1,499,728  $988,352  $7,226,429   100%

 

In the event where Bancorp structures a loan with a maturity exceeding five years, an automatic rate adjustment will typically be set in place at five years from origination date to limit interest rate sensitivity.

 

Non-performing Loans and Assets

 

Information summarizing non-performing loans and assets follows:

 

(dollars in thousands)

 

March 31, 2026

  

December 31, 2025

 
         

Non-accrual loans

 $10,519  $12,585 

Modifications to borrowers experiencing financial difficulty

  -   - 

Loans past due 90 days or more and still accruing

  927   449 

Total non-performing loans

  11,446   13,034 
         

Other real estate owned

  190   190 

Total non-performing assets

 $11,636  $13,224 
         

Non-performing loans to total loans

  0.16%  0.19%

Non-performing assets to total assets

  0.12%  0.14%

ACL for loans to total non-performing loans

  818%  705%

 

As of March 31, 2026, non-accrual loans totaled $11 million compared to $13 million at December 31, 2025. The decrease in total non-accrual loans between December 31, 2025 and March 31, 2026 stemmed mainly from the payoff of a larger CRE relationship during the first quarter.

 

Non-performing assets as of March 31, 2026 consisted of approximately 90 loans, ranging in individual amounts up to $708,000, and one residential real estate property held as OREO.

 

Delinquent Loans

 

Delinquent loans (consisting of all loans 30 days or more past due) totaled $30 million and $26 million at March 31, 2026 and December 31, 2025. Delinquent loans to total loans were 0.42% and 0.38% at March 31, 2026 and December 31, 2025, respectively.

 

 

Allowance for Credit Losses on Loans

 

The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP. When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. Allocations of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp’s judgment, should be charged-off. See the footnote titled “Summary of Significant Accounting Policies from Bancorp’s most recent Annual Report on Form 10-K for discussion of Bancorp’s ACL methodology on loans.

 

Bancorp’s ACL for loans was $94 million as of March 31, 2026 compared to $92 million as of December 31, 2025. Provision expense for credit losses on loans of $1.6 million was recorded for the three months ended March 31, 2026, consistent with strong loan growth and only partially offset by improvement in the FRB’s national unemployment forecast and decreased specific reserves. Further, net recoveries of $104,000 were recorded for the three months ended March 31, 2026.

 

The ACL for loans calculation and resulting credit loss expense is significantly impacted by changes in forecasted economic conditions. Should the forecast for economic conditions change, Bancorp could experience further adjustments in its required ACL for loans.

 

The following table sets forth the ACL by category of loan:

 

  

March 31, 2026

  

December 31, 2025

 

(dollars in thousands)

 

Allocated

Allowance

  

% of Total

ACL on

loans

  

ACL for

loans to

Total Loans

  

Allocated

Allowance

  

% of Total

ACL on

loans

  

ACL for

loans to

Total Loans

 
                         

Commercial real estate - non-owner occupied

 $13,979   15%  0.71% $13,779   15%  0.72%

Commercial real estate - owner occupied

  13,526   14%  1.15%  13,100   14%  1.17%

Total commercial real estate

  27,505   29%  0.88%  26,879   29%  0.89%
                         

Commercial and industrial - term

  22,541   24%  2.33%  21,121   23%  2.35%

Commercial and industrial - lines of credit

  7,555   8%  1.21%  7,323   8%  1.20%

Total commercial and industrial

  30,096   32%  1.89%  28,444   31%  1.88%
                         

Residential real estate - owner occupied

  14,711   16%  1.66%  14,914   16%  1.69%

Residential real estate - non-owner occupied

  4,178   5%  1.05%  4,287   5%  1.10%

Total residential real estate

  18,889   21%  1.48%  19,201   21%  1.51%
                         

Construction and land development

  12,072   13%  1.63%  12,316   14%  1.64%

Home equity lines of credit

  1,464   2%  0.50%  1,439   2%  0.50%

Consumer

  2,944   3%  2.06%  2,924   3%  2.05%

Leases

  364   0%  2.35%  524   0%  2.35%

Credit cards

  262   0%  1.05%  140   0%  1.05%

Total

 $93,596   100%  1.30% $91,867   100%  1.30%

 

 

The table below details net charge-offs to average loans outstanding by category of loan for the three month periods ended March 31, 2026 and 2025, respectively.

 

  

2026

  

2025

 

Three months ended March 31,
(dollars in thousands)

 

Net (charge

offs)/

recoveries

  

Average

Loans

  

Net (charge

offs)/

recoveries

to average

loans

  

Net (charge

offs)/

recoveries

  

Average

Loans

  

Net (charge

offs)/

recoveries

to average

loans

 
                         

Commercial real estate - non-owner occupied

 $-  $1,935,372   0.00% $18  $1,857,086   0.00%

Commercial real estate - owner occupied

  -   1,146,538   0.00%  -   1,005,949   0.00%

Total commercial real estate

  -   3,081,910   0.00%  18   2,863,035   0.00%
                         

Commercial and industrial - term

  233   930,224   0.03%  1,157   894,005   0.13%

Commercial and industrial - lines of credit

  -   617,172   0.00%  -   560,284   0.00%

Total commercial and industrial

  233   1,547,396   0.02%  1,157   1,454,289   0.08%
                         

Residential real estate - owner occupied

  (100)  883,217   -0.01%  (47)  811,174   -0.01%

Residential real estate - non-owner occupied

  -   388,521   0.00%  -   382,899   0.00%

Total residential real estate

  (100)  1,271,738   -0.01%  (47)  1,194,073   0.00%
                         

Construction and land development

  -   745,318   0.00%  -   652,560   0.00%

Home equity lines of credit

  -   287,265   0.00%  (10)  250,310   0.00%

Consumer

  (4)  142,326   0.00%  (90)  142,629   -0.06%

Leases

  -   16,165   0.00%  -   15,019   0.00%

Credit cards

  (25)  25,023   -0.10%  (57)  25,473   -0.22%

Total

 $104  $7,117,141   0.00% $971  $6,597,388   0.01%

 

The ACL for off balance sheet credit exposures, which is separate from the ACL for loan and recorded in other liabilities on the consolidated balance sheets, was unchanged between December 31, 2025 and March 31, 2026. No provision expense was recorded for off balance sheet credit exposures for the three months ended March 31, 2026, as line of credit availability decreased with improved overall utilization. The ACL for off balance sheet credit exposures totaled $7.9 million as of both March 31, 2026 and December 31, 2025.

 

Premises and Equipment

 

Premises and equipment are presented on the consolidated balance sheets net of related depreciation on the respective assets, as well as fair value adjustments associated with purchase accounting. Premises and equipment increased $1.2 million, or 1%, between December 31, 2025 and March 31, 2026. Bancorp’s branch network currently consists of 75 locations throughout Louisville, central, eastern and northern, Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio markets.

 

Premises held for sale totaling $896,000 and $1.7 million was recorded on Bancorp’s consolidated balance sheets as of March 31, 2026 and December 31, 2025, respectively. The decrease during the first three months of 2026 was attributed to the sale of a former branch location during the quarter. Premises held for sale consisted of three vacant parcels of land as of March 31, 2026.

 

BOLI

 

Bank-owned life insurance assets increased to $93 million at March 31, 2026 compared to $92 million at December 31, 2025, due to general appreciation of the cash surrender values within the policy plans experienced during the three month period ended March 31, 2026.

 

 

Goodwill

 

At March 31, 2026 and December 31, 2025, Bancorp had $194 million in goodwill recorded on its balance sheet.

 

Events that could potentially trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price declining below tangible book value), negative trends in overall financial performance and regulatory actions. At October 1, 2025, Bancorp performed its annual qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting units exceeded their carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting units exceeded their fair value.

 

Core Deposit and Customer List Intangibles

 

CDIs and CLIs arising from business acquisitions are initially measured at fair value and are then amortized on an accelerated method based on their useful lives. As of March 31, 2026 and December 31, 2025, Bancorp’s CDI assets totaled $6 million and $7 million, respectively, and are attributed entirely to the Commercial segment. As of both March 31, 2026 and December 31, 2025, Bancorp’s CLI assets were $5 million, and attributed entirely to the WM&T segment.

 

Other Assets and Other Liabilities

 

Other assets increased $3 million, or 1%, to $308 million between December 31, 2025 and March 31, 2026. Other liabilities decreased $38 million, or 17%, to $183 million over the same period. While the increase for other assets was minimal, the decrease in other liabilities was driven by a reduction in various accrued liabilities, such as employee incentive compensation and other benefit-related accruals in addition to accrued tax credit investment contributions.

 

Deposits

 

Total deposits decreased $34 million, or less than 1%, from December 31, 2025 to March 31, 2026. Interest bearing deposits decreased $54 million, or 1%, driven by normal fluctuations tied in part to seasonal public funds deposits. Non-interest bearing deposits increased $20 million, or 1%, during the first quarter.

 

Bancorp continues to experience a shift in the deposit portfolio mix, as customers have sought higher-yielding alternatives in the current interest rate environment. However, the cost of interest-bearing deposits experienced a favorable decline during the first three months of 2026, ending at 2.31% compared to 2.43% for the fourth quarter of 2025, as Bancorp strategically lowered deposit rates in tandem with the rate reductions implemented by the FRB in the latter part of 2025 and the higher-rate time deposit portfolio continued to reprice favorably to the promotional rates offered in the prior year. The cost of total deposits also decreased during the three months ended March 31, 2026 compared to the fourth quarter, declining 7 bps to 1.88%. However, despite the decreases, Bancorp remains cautious regarding deposit costs due to potential pricing pressure/competition.

 

During 2025, Bancorp implemented ICS (insured cash sweep), a deposit product offering for larger depositors that require collateralization. This product was added to the portfolio of offerings to allow flexibility for both liquidity needs and strategic balance sheet management, as we continue to grow towards $10 billion in total assets. ICS allows us to provide the necessary collateralization for public funds clients and other larger depositors in the form of a reciprocal network of other banks, which effectively spreads large deposit balances amongst enough participating banks to achieve FDIC coverage for each client. In turn, we receive deposits from other banks, helping them to achieve a similar goal. As collateral is provided to our clients through this network, the investments securities we would have otherwise had to pledge as collateral are now unrestricted from a liquidity perspective.

 

Additionally, the ICS network provides a one-way sell service, which will enable us to move large deposit balances off balance sheet temporarily by sending an equivalent amount of cash to the same network of participating banks. In this scenario, we do not receive any deposits, effectively helping us lower total assets (and total liabilities by lowering total deposits) to remain under the $10 billion threshold. Such activity occurs overnight and the deposits (and cash) are brought back on balance sheet the next day.

 

While both the reciprocal and one-way sell services offered by the ICS network may be utilized by Bancorp, the deposit customers of the Bank remain our customers. ICS effectively sweeps balances back and forth, so customers are minimally affected by the operational requirements and are provided the security of FDIC coverage.

 

 

Securities Sold Under Agreements to Repurchase

 

SSUAR declined $25 million, or 22%, between December 31, 2025 and March 31, 2026, driven by a combination of normal balance fluctuations a small number of clients within the product switching into other deposit offerings, primarily the previously mentioned ICS offering.

 

SSUAR represent a funding source of Bancorp and are used by commercial customers in conjunction with collateralized corporate cash management accounts. Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. At March 31, 2026 and December 31, 2025, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities that were owned and controlled by Bancorp.

 

SSUAR are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under Bancorp’s control.

 

Federal Funds Purchased

 

FFP and other short-term borrowing balances increased $56,000, or 1%, between December 31, 2025 and March 31, 2026. At March 31, 2026, FFP related mainly to excess liquidity held by downstream correspondent bank customers of Bancorp.

 

Subordinated Debentures

 

Bancorp owns the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of March 31, 2026 and December 31, 2025, subordinated notes totaled $27 million, respectively.

 

FHLB Advances

 

FHLB advances outstanding totaled $300 million at both March 31, 2026 and December 31, 2025, and consisted entirely of a $300 million three-month rolling advance that is hedged with four separate interest rate swaps (cash flow hedges) entered into in an effort to secure longer-term funding at more attractive rates. For more information related to the interest rate swaps noted above, see the footnote titled, “Derivative Financial Instruments.

 

Liquidity

 

The role of liquidity management is to ensure funds are available to meet depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of those funds. Liquidity is provided by short-term assets that can be converted to cash, AFS debt securities, various lines of credit available to Bancorp, and the ability to attract funds from external sources, principally deposits. Management believes it has the ability to increase deposits at any time by offering rates slightly higher than market rate.

 

Bancorp’s Asset/Liability Committee is comprised of senior management and has direct oversight responsibility for Bancorp’s liquidity position and profile. A combination of reports provided to management details internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, and exposure to contingent draws on Bancorp’s liquidity.

 

Bancorp’s most liquid assets are comprised of cash and due from banks, FFS and AFS debt securities. FFS and interest bearing deposits totaled $581 million and $816 million at March 31, 2026 and December 31, 2025, respectively. The decrease experienced for the first three months of 2026 was attributed largely to strong loan growth and to a lesser extent, slight deposit contraction. FFS normally have overnight maturities while interest-bearing deposits in banks are accessible on demand. These investments are generally used for daily liquidity purposes.

 

 

The fair value of the AFS debt security portfolio was $693 million and $722 million at March 31, 2026 and December 31, 2025, respectively. The decrease in AFS debt security portfolio for the first three months of 2026 was attributed primarily to normal amortization activity. The investment portfolio (HTM and AFS) includes total cash flows on amortizing debt securities of approximately $184 million (based on assumed prepayment speeds and contractual maturities as of March 31, 2026) expected over the next 12 months. Combined with FFS and interest bearing deposits from banks, AFS debt securities offer substantial resources to meet either loan growth or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of its investment securities portfolio to secure public funds, cash balances of certain WM&T accounts and SSUAR. At March 31, 2026, the total carrying value of investment securities pledged for these purposes comprised 73% of the debt securities portfolio, leaving approximately $241 million of unpledged debt securities, compared to 77% and $214 million at December 31, 2025.

 

Bancorp’s deposit base consists mainly of core deposits, which are defined as demand, savings, and money market deposit accounts, time deposits less than or equal to $250,000, and excludes public funds and brokered deposits. At March 31, 2026, such deposits totaled $6.49 billion and represented 84% of Bancorp’s total deposits, as compared with $6.44 billion, or 83% of total deposits at December 31, 2025. Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they are not expected to place undue pressure on liquidity.

 

As of March 31, 2026 and December 31, 2025, Bancorp held no brokered deposits.

 

Included in total deposit balances at March 31, 2026 are $691 million in public funds generally comprised of accounts with local government agencies and public school districts in the markets in which Bancorp operates. At December 31, 2025, public funds deposits totaled $781 million. The decrease experienced during the first three months of 2026 was attributed to normal seasonal public funds run-off.

 

Bancorp is a member of the FHLB of Cincinnati. As a member of the FHLB, Bancorp has access to credit products of the FHLB. Bancorp views these borrowings as a potential low cost alternative to brokered deposits. At March 31, 2026 and December 31, 2025, available credit from the FHLB totaled $1.52 billion and $1.47 billion, respectively. Bancorp also had unsecured FFP lines with correspondent banks totaling $80 million at both March 31, 2026 and December 31, 2025, respectively.

 

During the normal course of business, Bancorp enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through Bancorp’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of Bancorp’s liquidity.

 

Bancorp’s principal source of cash is dividends paid to it as the sole shareholder of the Bank. As discussed in the footnote titled “Commitments and Contingent Liabilities,” as of January 1st of any year, the Bank may pay dividends in an amount equal to the Bank’s net income of the prior two years less any dividends paid for the same two years. At March 31, 2026, the Bank could pay an amount equal to $213 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank.

 

Sources and Uses of Cash

 

Cash flow is provided primarily through financing activities of Bancorp, which include raising deposits and borrowing funds from institutional sources such as advances from FHLB and FFP, as well as scheduled loan repayments and cash flows from debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which include making loans and purchasing securities for the investment portfolio. Another important source of cash is net income of the Bank from operating activities.  For further detail regarding the sources and uses of cash, see the “Condensed Consolidated Statements of Cash Flows” in Bancorp’s consolidated financial statements.

 

Commitments

 

In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in Bancorp’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt.

 

 

Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of credit. Unused loan commitments increased $64 million, or 3%, as of March 31, 2026 compared to December 31, 2025, largely as a result of an increase in future loan commitments.

 

Most commitments to extend credit are an agreement to lend to a customer as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

 

The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, was $7.9 million at both March 31, 2026 and December 31, 2025. No provision expense of was recorded for off balance sheet credit exposures for the three month period ended March 31, 2026, as line of credit availability decreased consistent with improved utilization.

 

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

 

In addition to owned banking facilities, Bancorp has entered into long-term leasing arrangements for certain facilities. Bancorp also has required future payments for a non-qualified defined benefit retirement plan, TPS and the maturity of time deposits.

 

See the footnote titled “Commitments and Contingent Liabilities” for additional information regarding commitments.

 

Capital

 

At March 31, 2026, stockholders’ equity totaled $1.10 billion, representing an increase of $27.2 million, or 3%, compared to December 31, 2025, as net income of $36.6 million was only partially offset by $9.4 million of dividends declared during the first three months of 2026. See the “Condensed Consolidated Statement of Changes in Stockholders Equity” for further detail of changes in equity. 

 

Bancorp’s TCE ratio and tangible book value per share, both non-GAAP disclosures, experienced improvement between December 31, 2025 and March 31, 2026, which stemmed largely from recording net income of $36.6 million. TCE was 9.69% at March 31, 2026 compared to 9.32% at December 31, 2025, while tangible book value per share was $30.41 at March 31, 2026, compared to $29.50 at December 31, 2025. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.

 

In July 2025, Bancorp’s Board of Directors adopted a share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4%, of Bancorp’s total common shares outstanding. This share repurchase program replaces the program that expired in May and will expire in two years unless otherwise extended or completed at an earlier date. The plan does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan’s expiration. Bancorp has not repurchased shares under any share repurchase program since 2019.

 

Bank holding companies and their subsidiary banks are required by regulators to meet risk-based capital standards. These standards, or ratios, measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The value of both balance sheet and off-balance sheet items are adjusted to reflect credit risks. See the footnote titled “Regulatory Matters” for additional detail regarding regulatory capital requirements, as well as capital ratios of Bancorp and the Bank. The Bank exceeds regulatory capital ratios required to be well-capitalized. Regulatory framework does not define well capitalized for holding companies. Management considers the effects of growth on capital ratios as it contemplates plans for expansion.

 

Capital ratios as of March 31, 2026 increased compared December 31, 2025, as a result of strong operating results, which helped offset risk-weighted asset growth within the loan portfolio. Bancorp continues to exceed the regulatory requirements for all calculations. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.

 

 

Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized for prompt corrective action requirements, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.

 

Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered adequately-capitalized. At March 31, 2026, the adequately-capitalized minimums, including the capital conservation buffer, were a 7.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio.

 

As previously noted, Bancorp is the 100% owner of three unconsolidated trust subsidiaries. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of March 31, 2026 and December 31, 2025, subordinated notes totaled $27 million, respectively.

 

Non-GAAP Financial Measures

 

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

 

(dollars in thousands, except per share data)

 

March 31, 2026

  

December 31, 2025

 
         

Total stockholders' equity - GAAP (a)

 $1,102,935  $1,075,697 

Less: Goodwill

  (194,074)  (194,074)

Less: Core deposit and other intangibles

  (11,361)  (12,160)

Tangible common equity - Non-GAAP (c)

 $897,500  $869,463 
         

Total assets - GAAP (b)

 $9,466,856  $9,536,124 

Less: Goodwill

  (194,074)  (194,074)

Less: Core deposit and other intangibles

  (11,361)  (12,160)

Tangible assets - Non-GAAP (d)

 $9,261,421  $9,329,890 
         

Total stockholders' equity to total assets - GAAP (a/b)

  11.65%  11.28%

Tangible common equity to tangible assets - Non-GAAP (c/d)

  9.69%  9.32%
         

Total shares outstanding (e)

  29,516   29,476 
         

Book value per share - GAAP (a/e)

 $37.37  $36.49 

Tangible common equity per share - Non-GAAP (c/e)

  30.41   29.50 

 

 

The efficiency ratio, a non-GAAP measure, equals total non-interest expenses divided by the sum of net interest income (FTE) and non-interest income. In addition to the efficiency ratio presented, Bancorp considers an adjusted efficiency ratio. Bancorp believes it is important because it provides a comparable ratio after eliminating net gains (losses) on sales, calls, and impairment of investment securities, as well as net gains (losses) on sales of premises and equipment and disposition of any acquired assets, if applicable, and the fluctuation in non-interest expenses related to amortization of investments in tax credit partnerships and non-recurring merger expenses, if applicable.

 

  

Three months ended March 31,

 

(dollars in thousands)

 

2026

  

2025

 
         

Total non-interest expenses (a)

 $55,242  $51,027 
         

Total net interest income, FTE

 $78,516  $70,636 

Total non-interest income

  24,594   22,996 

Total revenue - Non-GAAP (b)

 $103,110  $93,632 

Less: Gain/loss on sale of premises and equipment

  (479)  - 

Total adjusted revenue - Non-GAAP (c)

 $102,631  $93,632 
         

Efficiency ratio - Non-GAAP (a/b)

  53.58%  54.50%

Adjusted efficiency ratio - Non-GAAP (a/c)

  53.83%  54.50%

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

 

Information required by this item is included in Part I Item 2, “Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

 

Item 4.

Controls and Procedures.

 

Stock Yards Bancorp, Inc.’s management, under the supervision and with the participation of the Chief Executive Officer (who is the principal executive officer) and Chief Financial Officer (who is the principal financial officer), evaluated the effectiveness of Bancorp’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2026. The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, Bancorp’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2026, Bancorp’s disclosure controls and procedures were effective.

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

Bancorp and the Bank are defendants in various legal proceedings that arise in the ordinary course of business. There is no such proceeding pending or, to the knowledge of management, threatened in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Bancorp or the Bank.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended March 31, 2026.

 

  

Total number

of shares

purchased(1)

  

Average price

paid per

share

  

Total number of shares

purchased as part of

publicly announced

plans or programs

  

Average

price paid

per share

  

Maximum number of

shares that may yet be

purchased under the

plans or programs

 
                     

January 1 - January 31

  154  $67.87     $     

February 1 - February 28

  10,163   69.46           

March 1 - March 31

  6,802   64.84           
                     

Total

  17,119  $67.61     $   1,000,000 

 

 

(1)

Shares repurchased during the three month period ended March 31, 2026 represent shares withheld to pay taxes due.

 

In July 2025, Bancorp’s Board of Directors adopted a share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4%, of Bancorp’s total common shares outstanding. This share repurchase program replaces the program that expired in May and will expires in two years unless otherwise extended or completed at an earlier date. The plan does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan’s expiration. Bancorp has not repurchased shares under any share repurchase program since 2019.

 

There were no equity securities of the registrant sold without registration during the quarter covered by this report.

 

 

Item 5. Other Information

 

(c) During the three months ended March 31, 2026, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

 

 

Item 6. Exhibits.

 

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

 

Exhibit

 

Number

Description of exhibit

10.1

Executive Transition Agreement by and among Stock Yards Bank & Trust Company, Stock Yards Bancorp, Inc. and Willam M. Dishman III, effective March 31, 2026.

  

10.2

Change in Control Severance Agreement between Stock Yards Bank & Trust Company and William Otten, effective April 1, 2026.

  

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

  

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

  

32

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

  

101

The following materials from Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended March 31, 2026 formatted in inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

  

104

The cover page from Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended March 31, 2026 formatted in inline XBRL and contained in Exhibit 101.

 

 

SIGNATURES

 

 

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

 

 

STOCK YARDS BANCORP, INC.

(Registrant)

   
   
   

Date: May 5, 2026

By:

/s/ James A. Hillebrand

James A. Hillebrand

Chairman and CEO (Principal Executive Officer)

   
   
   

Date: May 5, 2026

 

/s/ T. Clay Stinnett

T. Clay Stinnett

EVP, Treasurer and CFO (Principal Financial

Officer)

 

80