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 June 30, 2026
or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-13661
STOCK YARDS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
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 July 31, 2026, was 31,066,643.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information
Item 6. Exhibits.
Signatures
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
ACH
Automatic Clearing House
EPS
Earnings Per Share
MSRs
Mortgage Servicing Rights
AFS
Available for Sale
ESG
Environmental, Social and Governance
Nasdaq
AI
Artificial intelligence
ETR
Effective Tax Rate
NIM
Net Interest Margin (FTE)
APIC
Additional paid-in capital
EVP
Executive Vice President
NPV
Net Present Value
ACL
Allowance for Credit Losses
FM
Field & Main Bancorp, Inc and Field & Main Bank
Net Interest Spread
Net Interest Spread (FTE)
AOCI
Accumulated Other Comprehensive Income
FASB
Financial Accounting Standards Board
NM
Not Meaningful
ASC
Accounting Standards Codification
FDIC
Federal Deposit Insurance Corporation
OAEM
Other Assets Especially Mentioned
ASU
Accounting Standards Update
FFP
Federal Funds Purchased
OREO
Other Real Estate Owned
ATM
Automated Teller Machine
FFS
Federal Funds Sold
PV
Present Value
AUM
Assets Under Management
FFTR
Federal Funds Target Rate
PCD
Purchased Credit Deteriorated
Bancorp / the Company
Stock Yards Bancorp, Inc.
FHA
Federal Housing Authority
PD
Probability of Default
Bank / SYB
Stock Yards Bank & Trust Company
FHC
Financial Holding Company
Prime
The Wall Street Journal Prime Interest Rate
BOLI
Bank Owned Life Insurance
FHLB
Federal Home Loan Bank of Cincinnati
Provision
Provision for Credit Losses
BP
Basis Point - 1/100th of one percent
FHLMC
Federal Home Loan Mortgage Corporation
PSL
Purchased Seasoned Loans
C&D
Construction and Land Development
FICA
Federal Insurance Contributions Act
PSU
Performance Stock Unit
Captive
SYB Insurance Company, Inc.
FNMA
Federal National Mortgage Association
ROA
Return on Average Assets
C&I
Commercial and Industrial
FRB
Federal Reserve Bank
ROE
Return on Average Equity
CB
Commonwealth Bancshares, Inc. and Commonwealth Bank & Trust Company
FTE
Fully Tax Equivalent
RSA
Restricted Stock Award
CD
Certificate of Deposit
GAAP
United States Generally Accepted Accounting Principles
RSU
Restricted Stock Unit
CDI
Core Deposit Intangible
GLB
Gramm-Leach-Bliley Act
SAR
Stock Appreciation Right
CECL
Current Expected Credit Loss (ASC-326)
GNMA
Government National Mortgage Association
SBA
Small Business Administration
CEO
Chief Executive Officer
HELOC
Home Equity Line of Credit
SEC
Securities and Exchange Commission
CFO
Chief Financial Officer
HTM
Held to Maturity
SOFR
Secured Overnight Financing Rate
CFPB
Consumer Financial Protection Bureau
ICS
Insured Cash Sweep
SSUAR
Securities Sold Under Agreements to Repurchase
CLI
Customer List Intangible
ITM
Interactive Teller Machine
SVP
Senior Vice President
CRA
Community Reinvestment Act
KB
Kentucky Bancshares, Inc. and Kentucky Bank
TBA
To Be Annouced
CRE
Commercial Real Estate
KSB
King Bancorp, Inc. and King Southern Bank
TBOC
The Bank Oldham County
DCF
Discounted Cash Flow
LGD
Loss Given Default
TCE
Tangible Common Equity
DTA
Deferred Tax Asset
Loans
Loans and Leases
TPS
Trust Preferred Securities
DTL
Deferred Tax Liability
MBS
Mortgage Backed Securities
VA
U.S. Department of Veterans Affairs
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
MSA
Metropolitan Statistical Area
WM&T
Wealth Management and Trust
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2026 (unaudited) and December 31, 2025 (in thousands, except share data)
June 30,
December 31,
2026
2025
Assets
Cash and due from banks
Federal funds sold and interest bearing due from banks
Total cash and cash equivalents
Mortgage loans held for sale, at fair value
Held to maturity debt securities (fair value of $167,613 in 2026 and $181,203 in 2025, respectively)
Federal Home Loan Bank stock, at cost
Allowance for credit losses on loans
Net loans
Premises and equipment, net
Premises held for sale
Bank owned life insurance
Accrued interest receivable
Goodwill
Core deposit intangible
Customer list intangible
Other assets
Total assets
Liabilities
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Securities sold under agreements to repurchase
Federal funds purchased
Subordinated debentures
Federal Home Loan Bank advances
Accrued interest payable
Other liabilities
Total liabilities
Commitments and contingent liabilities (Footnote 13)
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 31,068,000 and 29,476,000 shares in 2026 and 2025, respectively
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and equity
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three and six months ended June 30, 2026 and 2025 (in thousands, except per share data)
Three months ended
Six months ended
Interest income:
Loans, including fees
Mortgage loans held for sale
Federal Home Loan Bank stock
Investment securities:
Taxable
Tax-exempt
Total interest income
Interest expense:
Deposits
Federal funds purchased and other short-term borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision expense
Non-interest income:
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income
Net investment product sales commissions and fees
(Loss) gain on sale of premises and equipment
Other
Total non-interest income
Non-interest expenses:
Compensation
Employee benefits
Net occupancy and equipment
Technology and communication
Debit and credit card processing
Marketing and business development
Postage, printing and supplies
Legal and professional
FDIC insurance
Capital and deposit based taxes
Merger expenses
Intangible amortization
Total non-interest expenses
Income before income tax expense
Income tax expense
Net income
Net income per share - basic
Net income per share - diluted
Weighted average outstanding shares
Basic
Diluted
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the three and six months ended June 30, 2026 and 2025 (in thousands)
Other comprehensive income (loss):
Change in unrealized gain (loss) on AFS debt securities
Change in fair value of derivatives used in cash flow hedge
Total other comprehensive income (loss) before income tax effect
Income tax effect
Total other comprehensive income (loss) net of tax
Comprehensive income
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
Accumulated
Common stock
Additional
other
Total
Shares
paid-in
Retained
comprehensive
stockholders'
outstanding
Amount
capital
earnings
loss
equity
Balance, January 1, 2026
Activity for three months ended March 31, 2026:
Other comprehensive income
Stock compensation expense
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations
Cash dividends declared, $0.32 per share
Shares cancelled
Balance, March 31, 2026
Activity for three months ended June 30, 2026:
Stock issued for FM acquisition
Balance, June 30, 2026
(continued)
Balance, January 1, 2025
Activity for three months ended March 31, 2025:
Cash dividends declared, $0.31 per share
Balance, March 31, 2025
Activity for three months ended June 30, 2025:
Stock issued for KB acquisition
Distributions to non-controlling interest
Balance, June 30, 2025
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the six months ended June 30, 2026 and 2025 (in thousands)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net
Deferred income tax expense (benefit)
Gain on sale of mortgage loans held for sale
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
Bank owned life insurance income
Gain on the sale of premises and equipment
Excess tax benefit from share-based compensation arrangements
Net change in accrued interest receivable and other assets
Net change in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturities and paydowns of available for sale debt securities
Purchases of available for sale debt securities
Proceeds from sales of acquired available for sale debt securities
Proceeds from maturities and paydowns of held to maturity debt securities
Purchases of FHLB stock
Proceeds from redemption of FHLB stock
Net change in loans
Purchases of premises and equipment
Proceeds from sale or disposal of premises and equipment
Other investment activities
Proceeds from sales of other real estate owned
Cash from acquisition, net of cash paid
Net cash used in investing activities
Cash flows from financing activities:
Net change in deposits
Net change in securities sold under agreements to repurchase and federal funds purchased
Proceeds from FHLB advances
Repayments of FHLB advances
Repurchase of common stock
Cash dividends paid
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Supplemental cash flow information:
Interest paid
Income taxes paid, net of refunds
Cash paid for operating lease liabilities
Supplemental non-cash activity:
Change in unfunded commitments in tax credit investments
Dividends payable to stockholders
Loans transferred to OREO
Liabilities assumed in conjunction with acquisitions:
Fair value of assets acquired
Cash paid in acquisition
Common stock issued in acquisition
Total consideration paid
Liabilities assumed
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 and six month periods ended June 30, 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. The initial application of this ASU was utilized for the acquisition of Field & Main Bancorp, Inc. See the footnote titled “Loans and Allowance for Credit Losses on Loans,” for additional information regarding the impact of adoption related to this ASU on PCD and PSL loans.
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)
Acquisition
Bancorp completed its acquisition of Field & Main Bancorp, Inc. (referred to herein as “FM”), a Henderson, Kentucky-based commercial bank and trust company, on May 1, 2026. Bancorp acquired 100% of the outstanding common stock of FM that resulted in total consideration paid to Field & Main Bancorp, Inc. shareholders of $112 million for the 1,551,000 common shares issued based on the $72.33 closing market price of Bancorp’s shares on May 1, 2026. The acquisition of FM provides Bancorp presence in the Western Kentucky region, as 6 retail branches were acquired as part of the transaction, including three in Henderson, Kentucky and one each in Lexington, Kentucky, Cynthiana, Kentucky and Evansville, Indiana, respectively.
The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary fair values shown in the following table continue to be evaluated by management and may be subjected to further adjustment.
Fair Value of Net Assets Acquired at Date of Acquisition
Assets aquired:
Available for sale debt securities
Other real estate owned
Mortgage servicing rights
Deferred income taxes, net
Total assets acquired
Liabilities assumed:
Total liabilities assumed
Net assets acquired
Consideration for common stock
Cash consideration paid
Total consideration
The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Estimated fair values were based on management’s best estimates, using the information available at the date of acquisition, including the use of third-party valuation specialists. The fair value estimates used in valuing certain acquired assets and liabilities assumed are based, in part, on inputs that are unobservable. For loans, these include, but are not limited to, forecasted future cash flows and discount rates.
The following table presents additional information related to the acquired loan portfolio at the acquisition date:
(in thousands)
May 1, 2026
Purchased Credit-Deteriorated ("PCD") loans
Par value
Allowance for credit losses at acquisition
Non-credit discount
Fair value at date of acquisition
Non-PCD loans
Fair value
Gross contractual amounts receivable
Estimate of contractual cash flows not expected to be collected
The following valuation approaches were utilized to estimate the acquisition date fair values for the intangible assets acquired:
Core Deposit Intangible (“CDI”) – The CDI represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer retention rates, cost of the deposit base, net servicing costs attributable to customer deposits and an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets are based on market rates.
Customer List Intangible (“CLI”) – The CLI represents the value of the relationships with WM&T customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer retention rates, projected management fees and an estimated operating margin. The discount rates used for CLI assets are based on market rates.
Goodwill of approximately $44 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to be recorded in the FM acquisition and is the result of expected operational synergies and other factors. Of this total, $36 million is attributed to the commercial banking segment and $8 million is attributed to the WM&T segment. Goodwill related to the FM acquisition is not deductible for tax purposes, as it was structured as stock sale. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the FM acquisition will change.
Total revenue, defined as net interest income and non-interest income, attributed to FM totaled approximately $6.8 million for the three and six months ended June 30, 2026. Net income, excluding one-time merger-related expenses, attributed to FM totaled $2.6 million for the three and six months ended June 30, 2026.
The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the FM acquisition taken place on January 1, 2025:
June 30, 2026
June 30, 2025
Non-interest income
Non-interest expense (1)
Income before taxes
(1) - Excludes $2.3 million in pre-tax merger expenses for the three and six months ended June 30, 2026, respectively.
(3)
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:
Amortized
Unrealized
Gains
Losses
Government sponsored agency obligations
Mortgage backed securities
Obligations of states and political subdivisions
Total available for sale debt securities
December 31, 2025
AFS debt securities totaling $56.3 million (stated at market value) were acquired as a result of the FM acquisition. Immediately after acquisition, 86 securities with a total fair value of $55.6 million in the acquired AFS debt securities portfolio were sold.
HTM Debt Securities
The following table summarizes the amortized cost, unrecognized gains and losses, and fair value of Bancorp’s HTM debt securities portfolio:
Carrying
Unrecognized
Total held to maturity debt securities
U.S. Treasury and other U.S. Government obligations
All investment securities classified as HTM by Bancorp as of June 30, 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 June 30, 2026. Further, as of June 30, 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 June 30, 2026 follows:
Amortized cost
Carrying value
Due within one year
Due after one year but within five years
Due after five years but within 10 years
Due after 10 years
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 June 30, 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 $603 million and $707 million were pledged at June 30, 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 June 30, 2026 and December 31, 2025.
Unrealized and Unrecognized Loss Analysis on Debt Securities
Debt securities with unrealized and unrecognized losses at June 30, 2026 and December 31, 2025, aggregated by investment category and length of time securities have been in a continuous unrealized loss position follows:
Less than 12 months
12 months or more
Fair
value
losses
Mortgage-backed securities
Total AFS debt securities
Total HTM debt securities
Applicable dates for determining when securities are in unrealized and unrecognized loss positions are June 30, 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 417 and 402 separate investment positions as of June 30, 2026 and December 31, 2025, respectively.
(4)
Loans and Allowance for Credit Losses on Loans
Composition of loans by class follows:
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credits cards
Total loans (1)
(1) Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.
Net loans, including purchase accounting adjustments, totaling approximately $626 million were acquired as a result of the FM acquisition.
Accrued interest receivable on loans, which is excluded from the amortized cost of loans, totaled $28 million and $25 million at June 30, 2026 and December 31, 2025, respectively, and was included in the condensed consolidated balance sheets. The increase during the first six months of the year was attributed mainly to the FM acquisition.
Loans with carrying amounts of $4.22 billion and $3.78 billion were pledged to secure FHLB borrowing capacity at June 30, 2026 and December 31, 2025, respectively, the increase being attributed to the loan portfolio acquired from FM.
Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $71 million and $104 million as of June 30, 2026 and December 31, 2025, respectively. The decrease from December 31, 2025 was the result of a change in the composition of Bancorp’s Board of Directors.
ACL for Loans
Fluctuations in the ACL for loans during the three and six months ended June 30, 2026 were the result of loan growth, the impact of the FM acquisition, changes in the unemployment forecast and annual CECL model updates in addition to net recoveries.
The tables below reflect activity in the ACL for loans:
Three Months Ended June 30, 2026
Initial
Allowance
on PCD
on PSL
Provision for
Credit
Losses on
Charge-offs
Recoveries
Ending
Balance
Credit cards
Six Months Ended June 30, 2026
Three Months Ended June 30, 2025
Beginning
Credit Losses
on Loans
Six Months Ended June 30, 2025
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-
With No
or-More and Still
Recorded ACL
Non-accrual
Accruing Interest
For the three and six month periods ended June 30, 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 and six month periods ended June 30, 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:
Real Estate
Accounts
Receivable /
Equipment
Allocation
Total collateral dependent loans
The following tables present the aging of contractually past due loans by portfolio class:
30-59 days
60-89 days
90 or more
Total Past
Current
Past Due
days Past Due
Due Loans
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 June 30, 2026, the risk rating of loans based on year of origination was as follows:
Revolving
loans
Term Loans Amortized Cost Basis by Origination Year
2024
2023
2022
Prior
Commercial real estate - non-owner occupied:
Risk rating
Pass
Substandard
Substandard non-performing
Doubtful
Total Commercial real estate non-owner occupied
Current period gross charge offs
Commercial real estate - owner occupied:
Total Commercial real estate owner occupied
Commercial and industrial - term:
Total Commercial and industrial - term
Total Commercial and industrial - lines of credit
Total Residential real estate - owner occupied
Total Residential real estate - non-owner occupied
Total Construction and land development
Total Home equity lines of credit
Total Consumer
Total Leases
Total Credit cards
Total loans
Total Loans
Current period gross charge offs*
*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:
2021
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:
Performing
Non-performing
Total credit cards
Bancorp had $1 million in residential real estate loans for which formal foreclosure proceedings were in process at both June 30, 2026 and December 31, 2025.
Modifications to Borrowers Experiencing Financial Difficulty
During the three and six month periods ended June 30, 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.
(5)
As of June 30, 2026, goodwill totaled $238 million, of which $207 million was attributed to the commercial banking segment and $31 million was attributed to WM&T. As of 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 totaling $44 million related to the FM acquisition was recorded as of June 30, 2026. Management has up to 12 months following the date of acquisition to finalize fair values of the acquired assets and assumed liabilities related to the FM acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.
The following table presents the changes in the carrying amount of goodwill:
Balance at the beginning of the period
Acquisitions and adjustments
Balance at the end of the period
Goodwill and intangible assets with indefinite useful lives will not be amortized, but instead will 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.
(6)
Core Deposit and Customer List Intangible Assets
The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets:
Gross
Amortization
Net Amount
Amortizable intangible assets:
Core deposit intangibles
Customer list intangibles
Total amortizable intangible assets
CDI and CLI assets totaling $18 million and $5 million, respectively, were added in relation to the FM acquisition as of the acquisition date.
Amortization expense for all amortizable intangible assets totaled $1.5 million and $2.3 million for the three and six month periods ended June 30, 2026. Amortization expense for all amortizable intangible assets totaled $915,000 and $1.8 million for the three and six month periods ended June 30, 2025.
Future CDI and CLI amortization expense is estimated as follows:
Remainder of 2026
2027
2028
2029
2030
Thereafter
Total future expense
(7)
Other Assets
A summary of the major components of other assets follows:
Cash surrender value of life insurance other than BOLI
Net deferred tax asset
Investments in tax credit partnerships
Derivative assets
Prepaid assets
WM&T fees receivable
Total other assets
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.”
(8)
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 20.91% for the six months ended June 30, 2026 compared to 20.42% for the same period of the prior year.
(9)
The composition of deposits follows:
Non-interest bearing demand deposits
Interest bearing deposits:
Interest bearing demand
Savings
Money market
Time deposits of $250 thousand or more
Other time deposits
Total time deposits
Total interest bearing deposits
Deposits totaling approximately $765 million were assumed as a result of the FM acquisition.
(10)
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 June 30, 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)
Outstanding balance at end of period
Weighted average interest rate at end of period
%
Fair value of securities pledged:
Total securities pledged
Average outstanding balance during the period
Average interest rate during the period
Maximum outstanding at any month end during the period
The following table presents information regarding the Company’s repurchase agreements as if they had been presented on a net basis:
Gross amount of
recognized liabilities
Gross amount offset
in the balance sheet
Net amount of
liabilities presented
Investment securities
posted as collateral
Net amount
Repurchase agreements
(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.
(11)
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 July 1, 2026 and carried the notes at the costs noted below at June 30, 2026:
Face Value
Value
Origination
Date
Maturity
Interest Rate
Commonwealth Statutory Trust III
12/19/2003
1/7/2034
SOFR + 2.85%
Commonwealth Statutory Trust IV
12/15/2005
12/30/2035
SOFR + 1.35%
Commonwealth Statutory Trust V
6/28/2007
9/15/2037
SOFR + 1.40%
As part of the purchase accounting adjustments associated with the CB acquisition, the carrying values of the subordinated notes were adjusted to fair value at acquisition date. The related discounts on the subordinated notes 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.
(12)
FHLB Advances and Other Borrowings
FHLB advances outstanding at June 30, 2026 consisted of a rolling $300 million three-month advance that matures in August 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.
Information regarding FHLB advances follows. The average interest rate information provided includes the benefit associated with the related interest rate swaps:
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 June 30, 2026 and December 31, 2025, the amount of available credit from the FHLB totaled $1.49 billion and $1.47 billion, respectively.
Bancorp also had unsecured available FFP lines with correspondent banks totaling $80 million at both June 30, 2026 and December 31, 2025, respectively. There were no outstanding balances associated with these lines as of both June 30, 2026 and December 31, 2025.
(13)
Commitments and Contingent Liabilities
As of June 30, 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:
Commercial and industrial
Construction and development
Overdrafts
Standby letters of credit
Future loan commitments
Total off balance sheet commitments to extend credit
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 $8.3 million and $7.9 million as of June 30, 2026 and December 31, 2025, respectively. While no provision expense was recorded for off balance sheet credit exposures for the three and six months ended June 30, 2026, the liability was increased as a result of the line of credit portfolio added through the FM acquisition, with the corresponding offset recorded to goodwill (as opposed to provision expense). The lack of expense for the first half of 2026, is consistent with lower availability (excluding acquisition-related activity) stemming from improved utilization.
Negative provision (credit to expense) of $75,000 was recorded for off balance sheet credit expopsures for the three and six month periods ended June 30, 2025, as line of credit utilization improved during the first half of 2025, which reduced the reserve necessary for line availability during the prior year period.
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 June 30, 2026, Bancorp would have been required to make payments of approximately $4.1 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 also utilizes standby letters of credit through the FHLB as a means of collateralizing certain public fund deposit relationships. These letters of credit are issued to such depositors by FHLB on behalf of Bancorp, guaranteeing collateralization of their deposits in excess of FDIC-insured coverage, and are backed by the Company’s collateral-based borrowing capacity. As of June 30, 2026, such standby letters of credit totaled $56 million.
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 June 30, 2026, tax credit contribution commitments of $94 million were recorded in other liabilities on the consolidated balance sheets.
As of June 30, 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.
(14)
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 mandatory forward sales contracts and interest rate lock loan commitments. The fair value of Bancorp’s mandatory forward sales contracts 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). While the fair value measurement of Bancorp’s interest rate lock commitments incorporate similar observable inputs, it also includes assumptions that utilize inputs related to the probability of a mortgage loan ultimately closing and funding, otherwise known as a “pull-through” rate. The determination of this rate requires management judgement and significant unobservable inputs (Level 3 inputs).
As of June 30, 2026, the weighted average pull-through rate was 85.5%, with a range of 67.3% to 99.0%. As of December 31, 2025, the weighted average pull-through rate was 84.4%, with a range of 65.1% to 98.1%. These weighted averages were calculated based on the relative loan amount of the instruments.
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:
June 30, 2026 (in thousands)
Level 1
Level 2
Level 3
Fair Value
Assets:
Available for sale debt securities:
Government sponsored enterprise obligations
Mortgage backed securities - government agencies
Rate lock loan commitments
Interest rate swap assets
Liabilities:
Interest rate swap liabilities
Mandatory forward contracts
December 31, 2025 (in thousands)
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:
Losses recorded
Six months
ended
Collateral dependent loans
There were no liabilities measured at fair value on a non-recurring basis at June 30, 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.
Valuation Technique
Unobservable Inputs
Range of inputs
Weighted
Average (1)
Appraisal
Appraisal discounts
Collateral dependend loans
(1) The weighted average discount rate was calculated based on the relative carrying value of the instruments.
(15)
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:
amount
Cash and cash equivalents
HTM debt securities
Loans, net
Non-interest bearing deposits
Transaction deposits
Time deposits
Securities sold under agreement to repurchase
FHLB advances
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.
(16)
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:
Balance, beginning of period:
Loans held for sale acquired
Proceeds from the sale of mortgage loans held for sale
Net gain realized on sale of mortgage loans held for sale
Balance, end of period
The following table represents the components of Mortgage banking income:
Net change in fair value recognized on loans held for sale
Net change in fair value recognized on rate lock loan commitments
Net change in fair value recognized on forward contracts
Net gain recognized
Net loan servicing income
Amortization of mortgage servicing rights
Change in mortgage servicing rights valuation allowance
Net servicing income recognized
Other mortgage banking income
Total mortgage banking income
Activity for capitalized mortgage servicing rights was as follows:
Balance, beginning of period
MSRs acquired
Additions for mortgage loans sold
Impairment
The estimated fair value of MSRs at June 30, 2026 and December 31, 2025 was $25 million and $22 million, respectively. There was no valuation allowance recorded for MSRs as of June 30, 2026 and December 31, 2025, as fair value exceeded carrying value. The fair value of MSRs at June 30, 2026 was determined using discount rates ranging from 9.5% to 12.5%, prepayment speeds ranging from 7.3% to 10.1%, depending on the characteristics of the specific rights (rate, maturity, etc.), and a weighted average default rate of 0.5%. 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 $1.80 billion and $1.73 billion at June 30, 2026 and December 31, 2025, respectively.
(17)
Accumulated Other Comprehensive Income (Loss)
The following table illustrates activity within the balances of AOCI, net of tax, by component:
Net unrealized
Minimum
gains (losses)
pension
on available for
on cash
liability
sale debt securities
flow hedges
adjustment
Three months ended June 30, 2026
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Income tax benefit (expense)
Net current period other comprehensive income (loss)
Three months ended June 30, 2025
Six months ended June 30, 2026
Six months ended June 30, 2025
(18)
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.
(19)
Net Income Per Share
The following table reflects net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:
(in thousands, except per share data)
Weighted average shares outstanding - basic
Dilutive securities
Weighted average shares outstanding- diluted
Certain SARs that were excluded from the EPS calculation because their impact was antidilutive were as follows:
(shares in thousands)
Antidilutive SARs
(20)
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 June 30, 2026, there were 856,000 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
Dividend yield
Expected volatility
Risk free interest rate
Expected life (in years)
Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of underlying shares for the expected term calculated on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.
RSA Grants – RSAs granted to officers vest 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 $325,000 and $344,000 during the first six 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:
Stock
Appreciation
Rights
Restricted
Stock Awards
Stock Units
Performance
Expense
Deferred tax benefit
Total net expense
Detail of unrecognized stock-based compensation expense follows:
Year ended
2031
Total estimated future expense
The following table summarizes SARs activity and related information:
average
Aggregate
remaining
Exercise
exercise
intrinsic
fair
contractual
(in thousands, except per share and life data)
SARs
price
value(1)
life (in years)
Outstanding, January 1, 2025
$25.76
Granted
Exercised
Forfeited
Outstanding, December 31, 2025
$35.90
Outstanding, January 1, 2026
Outstanding, June 30, 2026
Vested and exercisable
Unvested
Vested in the current year
(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
RSAs
average cost
Unvested at January 1, 2025
Shares awarded
Restrictions lapsed and shares released
Unvested at December 31, 2025
Unvested at January 1, 2026
Unvested at June 30, 2026
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
Grant
period
expected to
year
in years
be awarded
(21)
Derivative Financial Instruments
Bancorp utilizes derivative financial instruments as part of its asset liability and interest rate risk management strategies. The Company does not use derivatives for trading or speculative purposes.
Interest Rate Swaps
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 June 30, 2026, Bancorp had interest rate swap contracts entered into with a single counterparty in a net asset position of $6.1 million. Bancorp posted cash collateral of $5 million with the single counterparty as of June 30, 2026, which is included in other assets on the consolidated balance sheets. The remaining interest rate swap transactions are entered into with borrowers and are not subject to netting.
Cash Flow Hedges – Interest rate swaps used to hedge exposure to variability in expected future cash flows, or other forecasted transactions, are designated as cash flow hedges. Interest rate swaps involve exchange of Bancorp’s floating rate interest payments for fixed rate swap payments on underlying principal amounts. Derivative financial instruments that are designated and qualify as cash flow hedging instruments are highly effective. Gains or losses are reported as a component of AOCI and are subsequently reclassified into earnings as an adjustment to interest expense in periods for which the hedged forecasted transaction impacts earnings. As of June 30, 2026, Bancorp estimates that $714,000 of pre-tax net gains related to cash flow hedges recorded in AOCI will be recognized in income over the next 12 months.
Interest rate swaps with notional amounts totaling $300 million as of both June 30, 2026 and December 31, 2025 were designated at cash flow hedges of certain FHLB advances and were determined to be effective during all periods presented. The Company expects the hedges to remain effective during the remaining terms of the swaps, the last of which matures in August of 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.
Derivatives Not Designated as Hedging Instruments - Bancorp periodically 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 are offsetting and therefore have no effect on Bancorp’s earnings or cash flows.
Mortgage Banking Derivatives
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 - These contracts 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.
Interest Rate Lock Commitments - 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 presents the notional amounts and gross fair values of the Company’s derivative financial instruments. The derivative asset and liability balances are presented on a gross basis, prior to the application of any master netting agreements, as included in other assets and other liabilities, respectively, on the consolidated balance sheets.
Notional
Designated as hedging instruments:
Interest rate swaps - Cash flow hedges
Not designated as hedging instruments:
Interest rate swaps
Mortgage banking derivatives:
Interest rate lock commitments
Total derivative financial instruments:
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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 June 30, 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 June 30, 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:
Actual
Minimum for adequately
capitalized
Minimum for well
Ratio
Total risk-based capital (1)
Consolidated
NA
Bank
Common equity tier 1 risk-based capital (1)
Tier 1 risk-based capital (1)
Leverage
apitalized
(1) Ratio is computed in relation to risk-weighted assets.
NA – Regulatory framework does not define “well-capitalized” for holding companies.
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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. 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 June 30, 2026, goodwill totaling $238 million was recorded on Bancorp’s consolidated balance sheets, of which $207 million is attributed to the commercial banking segment and $31 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 $8.84 billion and $7.64 billion as of June 30, 2026 and December 31, 2025, respectively. AUM attributed to FM totaled $890 million as of June 30, 2026.
Financial results by operating segment, including significant expense categories provided to the chief operating decision maker, are detailed below:
Commercial
Banking
Interest income
Interest expense
All other non-interest income
Compensation and employee benefits
Other direct and indirect/allocated expenses
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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:
Mortgage banking income (1)
Bank owned life insurance (1)
Gain on sale of premises and equipment (1)
Other (2)
(Dollars in thousands)
Other(2)
(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 $6.0 million and $5.3 million at June 30, 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 $578,000 and $568,000 for the six month periods ended June 30, 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 June 30, 2026.
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Bancorp has operating leases (land and building) for various locations with terms ranging from approximately one month 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:
Balance Sheet
Operating lease right-of-use asset
Operating lease liability
Weighted average remaining lease term (years)
Weighted average discount rate
Maturities of lease liabilities:
One year or less
Year two
Year three
Year four
Year five
Greater than five years
Total lease payments
Less imputed interest
Income Statement
Components of lease expense:
Operating lease cost
Variable lease cost
Less sublease income
Total lease cost
Cash flow Statement
Operating cash flows from operating leases
As of June 30, 2026, Bancorp had entered into one lease agreement that had yet to commence.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Stock Yards Bancorp, Inc. (“Bancorp” or “the Company”), is a FHC headquartered in Louisville, Kentucky and is engaged in the business of banking through its wholly owned subsidiary, Stock Yards Bank & Trust Company (“SYB” or “the Bank”). 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 throughout the state of Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio markets through 81 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.
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that 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.
On May 1, 2026, Bancorp completed its acquisition of Field & Main Bancorp, Inc. and its wholly owned subsidiary, Field & Main Bank, a Henderson, Kentucky-based commercial bank and trust company, which operated 6 retail branches, including three in Henderson County, Kentucky and one each in Lexington, Kentucky, Cynthiana, Kentucky and Evansville, Indiana. At the time of acquisition and including purchase accounting adjustments, FM had $839 million in assets, including $626 million in net loans, $56 million in investment securities, and $765 million in deposits in addition to maintaining a Wealth Management and Trust Department with total assets under management of approximately $825 million. Bancorp acquired all outstanding common stock of Field & Main Bancorp, Inc. in an all-stock transaction that resulted in total consideration paid to Field & Main Bancorp, Inc. shareholders of $112 million.
Bancorp recorded goodwill of $44 million and incurred pre-tax merger related expenses totaling $2.3 million for the three months ended June 30, 2026 as a result of the FM acquisition.
Further, the FM acquisition served to increase the ACL on loans by $16 million at acquisition date. This increase consisted of $11 million attributed to the acquired PCD loan portfolio and $5 million attributed to the acquired non-PCD portfolio, with the corresponding offset for both recorded to goodwill.
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.”
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.
The following table presents an overview of Bancorp’s financial performance for the three months ended June 30, 2026 and 2025:
(dollars in thousands, except per share data)
Variance
Three months ended June 30,
$/bp
Diluted earnings per share
11 bps
(41) bps
Additional discussion follows under the section titled “Results of Operations.”
General highlights for the three months ended June 30, 2026 compared to June 30, 2025:
Bancorp completed its acquisition of FM on May 1, 2026. At the time of acquisition, and net of purchase accounting adjustments, approximately $839 million in total assets were acquired, including $626 million in net loans and total deposits of $765 million were assumed.
o
The three months ended June 30, 2026 included two months of activity associated with the FM acquisition, which contributed meaningfully to results for the second quarter. In addition, one-time merger-related expenses totaling $2.3 million were recorded for the period.
Net income totaled a record $40.1 million for the three months ended June 30, 2026, resulting in diluted EPS of $1.31, compared to net income of $34.0 million for the three months ended June 30, 2025, which resulted in diluted EPS of $1.15.
Total loans increased $1.03 billion, or 15%, compared to June 30, 2025, driven by the loan portfolio acquired from FM in addition to solid organic growth. Average loans increased $938 million, or 14%, for the three months ended June 30, 2026 compared to the same period of the prior year.
Bancorp’s ACL on loans increased $18 million, or 20%, compared to June 30, 2025, driven primarily by organic and acquisition-related loan growth.
While no provision for credit losses on loans was recorded for the three months ended June 30, 2026 due primarily to muted loan growth for the second quarter and annual CECL model updates, the ACL on loans was increased $16 million as a result of the loan portfolio added through the FM acquisition.
Deposit balances increased $979 million, or 13%, compared to June 30, 2025, which was attributed to the deposit portfolio assumed through the FM acquisition and organic growth.
Net interest income (FTE) totaled $87.9 million for the three months ended June 30, 2026, representing an increase of $14.4 million, or 20%, compared to the three months ended June 30, 2025.
Interest income experienced a $13.3 million, or 12%, increase over this period as a result of strong average loan growth, which was coupled with a $1.1 million, or 3%, decrease in interest expense stemming from lower deposit costs that were the result of strategically lowering rates in tandem with interest rate reductions implemented by the FRB in the latter part of 2025.
NIM increased 31 bps to 3.84% for the three months ended June 30, 2026, compared to the same period of the prior year, driven by a 30 bp decline in the cost of interest-bearing liabilities and a 9 bps improvement in earning asset yields.
Non-interest income increased $2.4 million, or 10%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, which was the result of both organic growth and acquisition-related activity.
Non-interest expenses increased $11.1 million, or 21%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, attributed to higher compensation expense and a continued investment in technology, as well as the impact of the FM acquisition, which included $2.3 million of one-time merger-related expenses.
Bancorp’s efficiency ratio (FTE) for the three months ended June 30, 2026 was 55.64% compared to 53.83% for the three months ended June 30, 2025, the higher ratio being attributed to the impact of the FM acquisition. Bancorp also considers an adjusted efficiency ratio, which eliminates certain non-recurring activity, such as one-time merger-related expenses. Bancorp’s adjusted efficiency ratio (FTE) for the three months ended June 30, 2026 was 53.64%.
As of June 30, 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 June 30, 2025. Total stockholders’ equity to total assets was 12.02% as of June 30, 2026, compared to 11.28% and 10.92% at December 31, 2025 and June 30, 2025, respectively. Tangible common equity to tangible assets was 9.66% at June 30, 2026, compared to 9.32% and 8.86% at December 31, 2025 and June 30, 2025, respectively.
The following table presents an overview of Bancorp’s financial performance for the six months ended June 30, 2026 and 2025:
Six months ended June 30,
8 bps
(47) bps
General highlights for the six months ended June 30, 2026 compared to June 30, 2025:
Net income totaled $76.7 million for the six months ended June 30, 2026, resulting in diluted EPS of $2.55, compared to net income of $67.3 million for the six months ended June 30, 2025, which resulted in diluted EPS of $2.28.
Total loans increased $1.03 billion, or 15%, compared to June 30, 2025, driven by the loan portfolio acquired from FM in addition to solid organic growth. Average loans increased $730 million, or 11%, for the six months ended June 30, 2026 compared to the same period of the prior year.
Provision for credit losses on loans of $1.6 million was recorded for the six months ended June 30, 2026, consistent with moderate organic loan growth and partially offset by a slightly improved unemployment forecast and annual CECL model updates.
Further, the ACL on loans was increased $16 million as a result of the loan portfolio added through the FM acquisition.
Net interest income (FTE) totaled $166.4 million for the six months ended June 30, 2026, representing an increase of $22.2 million, or 15%, compared to the six months ended June 30, 2025.
Interest income experienced a $19.8 million, or 9%, increase over this period as a result of strong average loan growth, which was coupled with a $2.4 million, or 3%, decrease in interest expense attributed in large part to an inflow of liquidity from scheduled securities maturities and deposit growth that eliminated the need for more expensive overnight borrowings that had been utilized in the prior year.
NIM increased 25 bps to 3.75% for the six months ended June 30, 2026, compared to the same period of the prior year, driven by a 27 bp decline in the cost of interest-bearing liabilities and a 5 bps improvement in earning asset yields.
Non-interest income increased $4.0 million, or 8%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, which was attributed in large part to organic growth, but was also bolstered by acquisition-related activity.
Non-interest expenses increased $15.3 million, or 15%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, attributed to higher compensation and employee benefits expense and a continued investment in technology, as well as the impact of the FM acquisition, which included $2.3 million of one-time merger-related expenses.
Bancorp’s efficiency ratio (FTE) for the six months ended June 30, 2026 was 54.66% compared to 54.15% for the three months ended June 30, 2025, the higher ratio being attributed to the impact of the FM acquisition. Bancorp also considers an adjusted efficiency ratio, which eliminates certain non-recurring activity, such as one-time merger-related expenses. Bancorp’s adjusted efficiency ratio (FTE) for the six months ended June 30, 2026 was 53.73%.
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:
As of and for the three months ended June 30,
Net interest income (FTE)*
Net interest spread (FTE)*
39 bps
Net interest margin (FTE)*
31 bps
Average interest earning assets
Average interest bearing liabilities
Five year Treasury note rate at period end
40 bps
Average five year Treasury note rate
(3) bps
Prime rate at period end
(75) bps
Average Prime rate
One month term SOFR at period end
(68) bps
Average one month term SOFR
As of and for the six months ended June 30,
32 bps
25 bps
(2) bps
(67) bps
*See table titled, "Average Balance Sheets and Interest Rates (FTE)" for detail of Net interest income (FTE).
At June 30, 2026, Bancorp’s loan portfolio consisted of approximately 64% fixed and 36% 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 June 30, 2026, approximately 55% and 45% 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. While these levels were maintained through June 30, 2026, the yield curve continued to improve during the first half of this year, with spreads on the portion of the curve that is most critical to Bancorp’s business (overnight through 5 years) showing a semblance of normalization during the second quarter after battling flatness/inversion during the first three months of 2026.
The NIM expansion experienced during the three months ended June 30, 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, providing gradual improvement to yields.
Recent projections indicate that the FRB will likely hold rates steady during the second half of 2026. However, given current geopolitical uncertainty and regularly changing economic data/conditions, projections remain volatile. Further, Bancorp remains cautious regarding both loan and deposit rates as pricing related to competitive pressures could intensify in the coming quarters.
Net Interest Income (FTE) – Three months ended June 30, 2026 compared to June 30, 2025:
Net interest spread (FTE) and NIM (FTE) were 3.26% and 3.84%, for the three months ended June 30, 2026, compared to 2.87% and 3.53% for the same period of 2025, respectively.
Net interest income (FTE) increased $14.4 million, or 20%, for the three months ended June 30, 2026 compared to the same period of 2025, driven by strong organic average loan growth, a decline in interest expense related to the strategic reduction of deposit rates in tandem with FRB rate cuts and the impact of the F&M acquisition, the latter of which represents two months worth of activity.
Total average interest earning assets increased $810 million, or 10%, for the three months ended June 30, 2026, as compared to the same period of 2025, attributed to both organic average earning asset growth and the impact of the FM acquisition, which 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 9 bps to 5.61% 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 organic loan growth and earning assets added through the FM acquisition helped boost yields.
Average total loan balances increased $938 million, or 14%, for the three months ended June 30, 2026, compared to the same period of 2025. Over half of this increase was attributed to organic loan growth, which was led largely by the CRE and C&I segments, with the remaining growth resulting from the FM acquisition.
Average investment securities declined $378 million, or 28%, for the three months ended June 30, 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. The FM acquisition had minimal impact on the investment securities portfolio, as Bancorp immediately sold virtually the entire acquired securities portfolio upon acquisition.
Average FFS and interest bearing due from bank balances increased $248 million, or 99%, for the three months ended June 30, 2026, which was largely the result of the previously mentioned liquidity provided by the investment securities portfolio in addition to interest-bearing cash acquired from FM.
Total interest income (FTE) increased $13.3 million, or 12%, to $128.4 million for the three months ended June 30, 2026, as compared to the same period of 2025.
Interest and fee income (FTE) on loans increased $15.0 million, or 15%, to $118.0 million for the three months ended June 30, 2026, compared to the same period of 2025, driven by average loan balance growth. The yield on the overall loan portfolio increased 3 bps to 6.16% for the three months ended June 30, 2026 compared to 6.13% for the same period of the prior year despite rate reductions enacted by the FRB in the latter part of 2025. The increased yield was driven by a combination of continued favorable repricing of the legacy loan portfolio and the addition of the higher-rate FM loan portfolio.
Interest income (FTE) on the investment securities portfolio declined $3.3 million, or 39%, for the three months ended June 30, 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 39 bps to 2.18% for the three months ended June 30, 2026 compared to the same period of 2025.
Interest income on FFS and interest bearing due from bank balances increased $1.9 million, or 71% for the three months ended June 30, 2026, consistent with the increase in corresponding average balances. The yield on these assets decreased 62 bps to 3.76% for the three months ended June 30, 2026 compared to the same period of 2025 due to the previously mentioned FRB rate reductions.
Total average interest bearing liabilities increased $628 million, or 10%, to $6.91 billion for the three month period ended June 30, 2026 compared with the same period in 2025, driven by both organic growth and the impact of the FM acquisition.
Average interest bearing deposits increased $679 million, or 12%, for the three months ended June 30, 2026 compared to the same period in 2025, driven by a $470 million, or 19%, increase in average interest bearing demand deposits and a $227 million, or 14%, increase in average time deposits, driven by both strong organic growth and the addition of the deposit portfolio acquired from FM.
Average SSUAR decreased $48 million, or 38%, for the three months ended June 30, 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 $1.0 million, or 3%, for the three months ended June 30, 2026 compared to the same period of 2025 despite additional costs related to the acquired deposit portfolio, consistent with the strategic reduction of deposit rates in tandem with FRB rate reductions.
Total interest bearing deposit expense decreased $740,000, or 2%, driven by a $2.1 million, or 23%, decrease in expense on money market deposits, which was attributed to a combination of lower rates and an average balance decrease. This activity more than offset increased expense on interest bearing demand and time deposits, which was driven by both organic and acquisition-related average balance growth. The cost of total interest bearing deposits declined 32 bps to 2.27%, and the cost of total deposits (including average non-interest bearing deposits) declined 24 bps to 1.82%, consistent with previously mentioned deposit rate reductions.
Interest expense on SSUAR decreased $281,000, or 45%, for the three months ended June 30, 2026, as compared to the same period of the prior year, consistent with the average balance decrease.
Net Interest Income (FTE) – Six months ended June 30, 2026 compared to June 30, 2025:
Net interest spread (FTE) and NIM (FTE) were 3.17% and 3.75%, for the six months ended June 30, 2026, compared to 2.85% and 3.50% for the same period of 2025, respectively.
Net interest income (FTE) increased $22.2 million, or 15%, for the six months ended June 30, 2026 compared to the same period of 2025, driven by the impact of strong organic average loan growth on interest income, 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 and the impact of the FM acquisition, the latter of which represents two months worth of activity.
Total average interest earning assets increased $638 million, or 8%, for the six months ended June 30, 2026, as compared to the same period of 2025, attributed primarily to average organic loan and interest-bearing cash balance growth, and to a lesser extent, the impact of the FM acquisition. This growth was only partially offset by a decline in average investment securities driven by scheduled maturities and normal amortization. The rate earned on average earning assets increased 5 bp to 5.54% 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. The earning assets added through the FM acquisition also provided benefit to earning asset yields for the six months ended June 30, 2026.
Average total loan balances increased $730 million, or 11%, for the six months ended June 30, 2026, compared to the same period of 2025. Approximately 80% of this increase was attributed to organic growth, with the CRE and C&I segments driving the bulk of the growth. The remaining growth was attributed to the impact of the FM acquisition.
Average investment securities declined $400 million, or 29%, for the six months ended June 30, 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. As previously noted, the FM acquisition had minimal impact on the investment securities portfolio, as Bancorp immediately sold virtually the entire acquired securities portfolio upon acquisition.
Average FFS and interest bearing due from bank balances increased $312 million, or 145%, for the six months ended June 30, 2026, which was largely the result of the previously mentioned liquidity provided by the investment securities portfolio in addition to deposit growth slightly outpacing loan growth and interest bearing cash balances added through the FM acquisition.
Total interest income (FTE) increased $19.8 million, or 9%, to $246.1 million for the six months ended June 30, 2026, as compared to the same period of 2025.
Interest and fee income (FTE) on loans increased $21.8 million, or 11%, to $224.5 million for the six months ended June 30, 2026, compared to the same period of 2025, driven primarily by organic average loan balance growth, and to a lesser extent, the loan portfolio added through FM. The yield on the overall loan portfolio decreased 1 bp to 6.12% for the six months ended June 30, 2026 compared to 6.13% for the same period of the prior year, as rate reductions enacted by the FRB in the latter part of 2025 created a hurdle for loan yield expansion.
Interest income (FTE) on the investment securities portfolio declined $6.6 million, or 38%, for the six months ended June 30, 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 31 bps to 2.22% for the six months ended June 30, 2026 compared to the same period of 2025.
Interest income on FFS and interest bearing due from bank balances increased $5.0 million, or 105% for the six months ended June 30, 2026, consistent with the increase in corresponding average balances. The yield on these assets decreased 72 bps to 3.71% for the six months ended June 30, 2026 compared to the same period of 2025 due to the previously mentioned FRB rate reductions.
Total average interest bearing liabilities increased $512 million, or 8%, to $6.78 billion for the six month period ended June 30, 2026 compared with the same period in 2025, attributed primarily to organic growth, and to a lesser extent, the impact of the FM acquisition.
Average interest bearing deposits increased $653 million, or 11%, for the six months ended June 30, 2026 compared to the same period in 2025, driven by a $374 million, or 15%, increase in average interest bearing demand deposits and a $319 million, or 22%, increase in average time deposits, consistent with depositors seeking higher-yielding deposit products, the success of Bancorp’s competitive CD offerings, and to a lesser extent, the impact of the FM acquisition.
Average FHLB advances decreased $85 million, or 22%, for the six months ended June 30, 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 June 30, 2026.
Average SSUAR decreased $57 million, or 40%, for the six months ended June 30, 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 $2.4 million, or 3%, for the six months ended June 30, 2026 compared to the same period of 2025 despite the added costs associated with the FM acquisition, driven primarily by eliminating the necessity of more expensive overnight borrowings from the FHLB.
Total interest bearing deposit expense increased $141,000, or less than 1%, as expense related to the acquired deposit portfolio completely offset the decline in expense experienced within the legacy deposit portfolio associated with strategically lowering deposit rates. However, total interest-bearing deposit cost decreased 26 bps to 2.29% compared to the prior year period and the cost of total deposits (including average non-interest bearing deposits) declined 18 bps to 1.85%.
Interest expense on FHLB borrowings decreased $1.8 million, or 23%, for the six months ended June 30, 2026, as compared to same period of the prior year, consistent with the $85 million decrease in average FHLB advances.
Interest expense on SSUAR decreased $694,000, or 48%, for the six months ended June 30, 2026, as compared to the same period of the prior year, consistent with a $57 million, or 40%, average balance decrease and lower rates.
Average Balance Sheets and Interest Rates (FTE) – Three-Month Comparison
Average
Interest
Rate
Interest earning assets:
Total securities
Total interest earning assets
Less allowance for credit losses on loans
Non-interest earning assets:
Accrued interest receivable and other
Interest bearing liabilities:
Time
Total interest bearing liabilities
Non-interest bearing liabilities:
Accrued interest payable and other
Total liabilities and stockholders' equity
Net interest spread
Net interest margin
Average Balance Sheets and Interest Rates (FTE) – Six-Month Comparison
Supplemental Information - Average Balance Sheets and Interest Rates (FTE)
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 $97,000 and $87,000 for the three month periods ended June 30, 2026 and 2025, and $192,000 and $171,000 for the six month periods ended June 30, 2026 and 2025.
Interest income includes loan fees of $2.2 million and $1.2 million for the three month periods ended June 30, 2026 and 2025, and $3.3 million and $3.0 million for the six month periods ended June 30, 2026 and 2025. 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 $934,000 and $306,000 for the three month periods ended June 30, 2026 and 2025, and $1.2 million and $735,000 for the six month periods ended June 30, 2026 and 2025.
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 June 30, 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
% Change from base net interest income at June 30, 2026
Bancorp’s loan portfolio is currently composed of approximately 64% fixed and 36% 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 55%) or SOFR (approximately 45%).
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 on loans at June 30, 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:
Beginning balance
ACL for acquired loans (goodwill adjustment)
Provision for credit losses on loans
Total charge-offs
Total recoveries
Net loan recoveries
Ending balance
Average total loans
Provision for credit losses on loans to average total loans (1)
Net loan (charge-offs)/recoveries to average total loans (1)
ACL for loans to total loans
ACL for loans to average total loans
(1) Ratios are not annualized
The ACL for loans totaled $109 million as of June 30, 2026 compared to $91 million at June, 2025, representing an ACL to total loans ratio of 1.38% and 1.32% for the respective periods. The ACL for loans was increased $16 million as a result of the loan portfolio added through the FM acquisition during the second quarter, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense).
No provision expense on loans was recorded for the three month period ended June 30, 2026, consistent with muted organic loans growth, strong credit quality metrics and annual CECL methodology updates made during the second quarter. Provision expense on loans totaling $1.6 million was recorded for the six month period ended June 30, 2026, driven primarily by strong organic loan growth that was concentrated in the first quarter and was only partially offset by improvement in the unemployment forecast and decreased specific reserves. Net charge off/recovery activity was minimal for both the three and six month periods ended June 30, 2026.
Provision expense on loans of $2.3 million and $3.2 million was recorded for the three and six month periods ended June 30, 2025. While expense for both periods of the prior year were consistent with strong loan growth, slight deterioration within the unemployment forecast and increased specific reserves, expense for the six month period was also impacted by annual CECL model updates made during the first quarter of 2025. Net charge offs of $342,000 and net recoveries of $629,000 were recorded for the three and six month periods ended June 30, 2025, respectively.
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, increased $375,000 between December 31, 2025 and June 30, 2026. While no provision expense was recorded for off balance sheet credit exposures for the three and six months ended June 30, 2026, the liability was increased as a result of the line of credit portfolio added through the FM acquisition, with the corresponding offset recorded to goodwill (as opposed to provision expense). The lack of expense for the first half of 2026, is consistent with lower availability (excluding acquisition-related activity) stemming from improved utilization and the impact of payoff activity within the CRE and C&D portfolios. The ACL for off balance sheet exposures totaled $8.3 million as of June 30, 2026.
Negative provision (credit to expense) of $75,000 for off balance sheet credit exposures was recorded for the three and six month periods ended June 30, 2025, as line of credit utilization improved during the first half of 2025, reducing the reserve necessary for line availability. The ACL for off balance sheet exposures totaled $6.7 million as of June 30, 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 June 30, 2026 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.
Non-interest Income
$ Variance
% Variance
Gain on sale of premises and equipment
Total non-interest income increased $2.4 million, or 10%, and $4.0 million, or 8%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025. Non-interest income comprised 23.3% and 23.6% of total revenues, defined as net interest income and non-interest income, for the three and six month periods ended June 30, 2026 compared to 24.9% and 24.7% for the same periods of 2025. The decreases from the prior year are attributed to net interest income growth outpacing non-interest income. WM&T services comprised 47.0% and 46.5% of total non-interest income for the three and six month periods ended June 30, 2026 compared to 43.0% and 44.6% for the same periods of the prior year. The increases over the prior year were driven by WM&T revenue growth outpacing the other non-interest income categories.
Total non-interest income attributed to the FM acquisition for the three and six month periods ended June 30, 2026 totaled $1.3 million and represents two full months of activity related to FM.
WM&T Services:
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $2.1 million, or 20%, and $2.8 million, or 13%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, attributed to AUM expansion over the past 12 months, which has been driven by both general market appreciation and new business development in addition to the impact of the FM acquisition, the latter of which contributed approximately $789,000 in revenue for the three and six month periods ended June 30, 2026.
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 $2.2 million, or 21%, and $3.0 million, or 14%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, consistent with AUM expansion, general market appreciation and the impact of the FM acquisition.
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 $76,000, or 25%, and $189,000, or 29%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, due to the prior year periods experiencing stronger estate fee revenue.
AUM, stated at market value, totaled $8.84 billion at June 30, 2026 compared with $7.64 billion at December 31, 2025 and $7.19 billion at June 30, 2025. The increase in AUM between June 30, 2025 and June 30, 2026 was attributed largely to the impact of the FM acquisition, but was also driven by appreciation within the equity and fixed income markets in addition to organic new business development over the past 12 months. AUM attributed to FM totaled $890 million as of June 30, 2026.
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:
Investment advisory
Personal trust
Personal investment retirement
Company retirement
Foundation and endowment
Custody and safekeeping
Brokerage and insurance services
Total WM&T services income
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 $8.84 billion at June 30, 2026 as follows:
Managed
Non-managed (1)
Subtotal
Total AUM
(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion.
As of June 30, 2026 and December 31, 2025, approximately 83% 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:
Interest bearing deposits
Treasury and government agency obligations
State, county and municipal obligations
Money market mutual funds
Equity mutual funds
Other mutual funds - fixed, balanced and municipal
Other notes and bonds
Common and preferred stocks
Real estate mortgages
Real estate
Other miscellaneous assets (1)
Total managed assets
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 66% in equities and 34% in fixed income securities as of June 30, 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 $299,000, or 14%, and $376,000, or 9%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, driven by both acquisition-related activity and organic growth. However, 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 will be implementing compliance-related changes associated with regulatory deposit settlement requirements during the third quarter of 2026, which are consistent with changing industry practices and will negatively impact this revenue stream.
Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased $307,000, or 6%, and $437,000, or 5%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, attributed to both acquisition-related activity and organic growth. Debit card income increased $374,000, or 11%, and $515,000, or 8%, and total credit card income decreased $67,000, or 4%, and $78,000, or 3%, for the three and six month periods ended June 30, 2026 compared the same periods 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. Further, Bancorp will be subject to regulatory limitations on interchange transaction fees for debit card transactions after total consolidated assets exceed $10 billion as of any given December 31, which will negatively impact this revenue stream. Such limitations begin on July 1 of the calendar year immediately following the year an institution crosses this threshold. Bancorp expects to officially cross the $10 billion threshold for regulatory purposes on December 31, 2027.
Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. Treasury management fees increased $170,000, or 6%, and $485,000 or 9%, for the year ended June 30, 2026 as compared with the same periods 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. While the FM acquisition had little impact on overall treasury management fee income for the three and six month periods ended June 30, 2026, the customer base added through the acquisition is expected to provide opportunities for future growth given Bancorp’s ability to offer these new customers a broader array of treasury services.
Mortgage banking income primarily includes gains on sales of mortgage loans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue decreased $81,000, or 7%, and $68,000, or 3%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025. While overall volumes have remained steady, yields on mortgage loans sold in the secondary market have declined as a result of competitive pricing pressures, negatively impacting mortgage banking revenue. The FM acquisition had minimal impact on mortgage banking revenue for the three and six months ended June 30, 2026.
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 $94,000, or 10%, and $145,000, or 7%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025. The FM acquisition had minimal impact on this non-interest revenue stream.
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 $62,000, or 10%, and $72,000, or 6%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, primarily as a result of adding BOLI assets totaling approximately $13 million as a result of the FM acquisition.
A loss of $34,000 on the sale of premises and equipment was recorded for the three months ended June 30, 2026 while a gain of $445,000 was recorded for the six months ended June 30, 2026. Activity for the first half of 2026 consisted primarily of the sale of a former branch location during the first quarter of 2026, which was only partially offset by a loss recorded during the second quarter related to the disposal of miscellaneous equipment. A gain of $74,000 was recorded for the three and six month periods ended June 30, 2025 as a result of the sale of a property owned through a prior acquisition that had been held for sale.
Other non-interest income decreased $424,000, or 36%, and $589,000, or 34%, for the three and six month periods ended June 30, 2026 compared with the same periods of 2025, driven mainly by the prior year periods benefitting from swap fee activity.
Non-interest Expenses
Total non-interest expenses increased $11.1 million, or 21%, and $15.3 million, or 15%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025. Compensation and employee benefits comprised 60.4% and 62.1% of Bancorp’s total non-interest expenses, excluding one-time merger-related expenses, for the three and six month periods ended June 30, 2026, compared to 61.9% and 62.0% for the same periods of 2025.
Total non-interest expense, excluding one-time merger-related expenses, attributed to the FM acquisition for the three and six month periods ended June 30, 2026 totaled $3.5 million and effectively represents two full months of activity related to FM. One-time merger-related expenses totaled $2.3 million for the three and six month periods ended June 30, 2026. Such expenses are expected to be recorded throughout the third and fourth quarters of 2026.
Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $3.7 million, or 13%, and $6.9 million, or 13%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025. The increase was attributed primarily to growth in full time equivalent employees, including the impact of the FM acquisition and a focus on sales team expansion, annual merit-based salary increases and higher bonus accrual levels. Net full time equivalent employees totaled 1,270 at June 30, 2026 compared to 1,118 at June 30, 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 $853,000, or 16%, and $1.2 million, or 11%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, driven mainly by the previously mentioned growth in FTEs, including the impact of the FM acquisition.
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 $720,000, or 18%, and $917,000, or 11%, for the three and six month periods ended June 30, 2026, as compared with the same periods of 2025, consistent with the impact of the FM acquisition and organic branch network expansion in addition to higher rent and depreciation expense. In addition to the six full-service locations added through the FM acquisition, three new branch locations were opened over the past 12 months. At June 30, 2026, Bancorp’s branch network consisted of 81 locations throughout the state of 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 $1.6 million, or 35%, and $2.2 million, or 22%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, consistent with several planned investments, including the development of advanced data analytics capabilities, and the impact of the FM acquisition.
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 $218,000, or 11%, and $321,000, or 9%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, driven by higher processing fees, including increased fraud-mitigation and prevention expenses, in addition to the impact of the FM acquisition.
Marketing and business development expenses include all costs associated with promoting Bancorp, including community support, retaining customers and acquiring new business. Marketing and business development expenses increased $286,000, or 15%, and $49,000, or 1%, for the three and six month periods ended June 30, 2026, as compared to the same periods of 2025. Increased expense for the three month period compared to the prior year was driven primarily by higher customer entertainment spending in addition to the impact of the FM acquisition, but the minimal increase experienced for the six month period was the result of elevated advertising expense incurred in the first quarter of the prior year tied to deposit product promotions.
Postage, printing and supplies expense increased $88,000, or 9%, and $32,000, or 2%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, consistent with increases in the general cost of postage and the impact of the FM acquisition.
Legal and professional fees increased $271,000, or 25%, and $240,000, or 12%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, driven by an increase in expenses related to general corporate legal matters and the impact of the FM acquisition.
FDIC insurance expense decreased $151,000, or 12%, and $228,000, or 9%, for the three and six month periods ended June 30, 2026, as compared to the same periods 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 $238,000, or 32%, and $416,000, or 29%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, as a result of the substantial deposit growth experienced over the past 12 months. 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.
Merger expenses represent non-recurring expenses associated with completion of acquisitions and consist primarily of investment banker fees, legal fees, various compensation-related expenses, early termination fees relation to various contracts and system-conversion expenses. Such expenses totaled $2.3 million for the three and six month periods ended June 30, 2026 and are attributed entirely the FM acquisition.
Intangible amortization expense consists of amortization associated with the CDI of acquired deposit portfolios, as well as intangibles related to customer lists of WM&T business lines added through a past acquisition. The intangibles are amortized on an accelerated basis over a period of approximately ten years. Intangible amortization expense increased $631,000, or 69%, and $516,000, or 28%, for the three and six month periods ended June 30, 2026 compared to the same periods of 2025, which is attributed entirely to the CDI and CLI assets added through the FM acquisition.
Other non-interest expenses increased $346,000, or 14%, and $474,000, or 10%, for the three and six month periods ended June 30, 2026 as compared to the same periods of 2025, driven mainly by costs associated with growth in the ICS deposit product offering and the impact of the FM acquisition in addition to other miscellaneous expenses.
Income Tax Expense
A comparison of income tax expense and ETR follows:
$/bp Variance
Effective tax rate
33 bps
49 bps
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 3.10% for the six month period ended June 30, 2026, compared to an increase of 2.83% 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 0.12% for the six month period ended June 30, 2026 compared to a decrease of 0.44% 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 0.54% and 0.56% for the six month periods ended June 30, 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 six month periods ended June 30, 2026 and 2025 served to reduce the ETR 2.94% and 2.62%, respectively.
Tax-exempt interest income earned on loans and investment securities reduced the ETR by 0.27% and 0.34% for the six month periods ended June 30, 2026 and 2025, respectively.
Non-deductible merger expenses recorded during the six months ended June 30, 2026 served to increase the ETR by 0.15%. No such expense was recorded for the prior year period.
Overview
Total assets increased $832 million, or 9%, to $10.37 billion at June 30, 2026 from $9.54 billion at December 31, 2025. Total assets, including purchase accounting adjustments, of $839 million were added on May 1, 2026 as a result of the FM acquisition, including net loans of $626 million. Goodwill of $44 million was recorded in relation to this acquisition. Excluding the impact of the acquisition, total assets decreased $7 million during the first six months of 2026. The decrease was attributed to a $136 million, or 15%, decrease in cash and cash equivalents and a $69 million, or 7%, decline in investment securities, as liquidity was used to fund $209 million, or 3%, of net loan growth and deposit contraction.
As a result of the Durbin Amendment, Bancorp will be subject to regulatory limitations on interchange transaction fees for debit card transactions after total consolidated assets exceed $10 billion as of any given December 31. Such limitations begin on July 1 of the calendar year immediately following the year an institution crosses this threshold. Bancorp expects to officially cross the $10 billion threshold for regulatory purposes on December 31, 2027.
While total assets technically exceed $10 billion as of June 30, 2026, Bancorp intends to implement balance sheet management strategies to be below this threshold at December 31, 2026, which is the official measurement date associated with the $10 billion regulatory threshold. Such strategies include use of the ICS network’s one-way sell service, which will enable Bancorp to move large deposit balances off balance sheet temporarily by sending an equivalent amount of cash to ICS’s network of participating banks. In this scenario, Bancorp does not receive any deposits, effectively helping 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.
Total liabilities increased $662 million, or 8%, to $9.12 billion at June 30, 2026 from $8.46 billion at December 31, 2025. Total liabilities of $771 million were assumed on May 1, 2026 as a result of the FM acquisition, including total deposits of $765 million. Excluding the impact of the acquisition, total liabilities decreased $109 million, or 1%, during the first six months of 2026, driven by combined contraction of $80 million, or 1%, for total deposits and SSURA in addition to a $30 million, or 14%, decrease in other liabilities.
Stockholders’ equity increased $171 million, or 16%, to $1.25 billion at June 30, 2026 from $1.08 billion at December 31, 2025. Stock issued in relation to the FM acquisition, which totaled $112 million, and net income of $76.7 million were only partially offset by $19.4 million of cash dividends declared during the first six months of 2026.
Cash and Cash Equivalents
Cash and cash equivalents decreased $44 million, or 5%, ending at $843 million at June 30, 2026 compared to $886 million at December 31, 2025, driven by a combination of solid organic loan growth and deposit contraction, as the loan and deposit balances acquired from FM remained relatively flat between acquisition date and period end. Cash and cash equivalents totaling $92 million were added through the FM acquisition as of the acquisition date.
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.
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 $69 million, or 7%, to $852 million at June 30, 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 half of 2026 was used primarily to fund organic loan growth.
AFS debt securities totaling $56 million (stated at market value) were acquired as a result of the FM acquisition. Shortly after acquisition, 86 securities with a total fair value of $55 million from the acquired AFS debt securities portfolio were sold, resulting in a loss on sale of $701,000, which was recorded as a fair value adjustment through goodwill.
FHLB Stock
FHLB stock holdings increased from $21 million at December 31, 2025 to $25 million at June 30, 2026, the increase stemming primarily from stock added through the FM acquisition. 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 half of 2026. Bancorp’s FHLB stock holdings are expected to fluctuate consistent with borrowing activity from period to period.
Total loans increased $842 million, or 12%, from December 31, 2025 to June 30, 2026. Net loans added through the FM acquisition, including purchase accounting-related adjustments, totaled $626 million. Excluding the acquired loan portfolio, total loans increased $209 million during the first six months of 2026, led most notably by increases in the CRE and C&I segments.
Total line of credit utilization has experienced steady improvement over the past several quarters, ending at 49.7% as of June 30, 2026 compared to 48.0% at December 31, 2025 and 47.8% at June 30, 2025. Utilization within the C&I portfolio was relatively flat at June 30, 2026, ending at 37.0% compared to 37.0% at December 31, 2025 and 36.9% at June 30, 2025.
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 state of Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs.
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 June 30, 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 June 30, 2026:
Within one
After one
but within
five years
After five
fifteen years
After
fifteen
years
% of Total
Fixed rate
Variable rate
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:
Non-accrual loans
Modifications to borrowers experiencing financial difficulty
Loans past due 90 days or more and still accruing
Total non-performing loans
Total non-performing assets
Non-performing loans to total loans
Non-performing assets to total assets
ACL for loans to total non-performing loans
As of June 30, 2026, non-accrual loans totaled $20 million compared to $13 million at December 31, 2025. The increase in total non-accrual loans between December 31, 2025 and June 30, 2026 was attributed in almost equal part to Bancorp’s legacy portfolio and the addition of the FM portfolio. A small number of larger, unrelated CRE and C&I relationships within the legacy portfolio were moved to non-accrual status during the period. FM’s non-accrual loans were similarly concentrated in CRE and C&I.
Loans past due 90 days or more and still accruing totaled $4.9 million as of June 30, 2026 compared to $449,000 as of December 31, 2025. The increase stems primarily from administrative issues for loans in the process of resolution and the impact of the portfolio acquired from FM.
Non-performing assets as of June 30, 2026 consisted of approximately 130 loans, ranging in individual amounts up to $1.5 million, and three residential real estate properties held as OREO.
Delinquent Loans
Delinquent loans (consisting of all loans 30 days or more past due) totaled $47 million and $26 million at June 30, 2026 and December 31, 2025. Delinquent loans to total loans were 0.59% and 0.38% at June 30, 2026 and December 31, 2025, respectively. The increase for the period is attributed to both a few larger relationships within Bancorp’s legacy portfolio going past due as of period end and the loan portfolio added as a result of the FM acquisition, the latter of which was responsible for delinquent loans totaling $8 million. Bancorp anticipates that delinquent loans attributed to the acquired portfolio will decline in future periods as processes surrounding credit quality become aligned with the Company’s established standards.
Classified Loans
Classified loans, which consist of loans defined as OAEM, substandard, substandard non-performing (including non-accrual loans discussed above) and doubtful, totaled $185 million and $151 million at June 30, 2026 and December 31, 2025, respectively. The increase experienced during the first six months of 2026 is attributed mainly to the loan portfolio acquired from FM. Similar to the increase experienced for delinquent loans, Bancorp anticipates that classified loans attributed to the acquired portfolio will decline in future periods as processes surrounding quality become aligned with the Company’s established standards.
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 $109 million as of June 30, 2026 compared to $92 million as of December 31, 2025. The ACL was increased by $16 million as a result of the loan portfolio added through the FM acquisition, which was recorded as an adjustment to goodwill at acquisition date. Additionally, provision expense for credit losses on loans of $1.6 million was recorded for the six months ended June 30, 2026, consistent with solid loan growth and only partially offset by strong credit quality metrics, improvement in the FRB’s national unemployment forecast and decreased specific reserves. Further, net recoveries of $75,000 were recorded for the six months ended June 30, 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:
Allocated
ACL on
ACL for
loans to
The table below details net charge-offs to average loans outstanding by category of loan for the three and six month periods ended June 30, 2026 and 2025, respectively.
Three months ended June 30,(dollars in thousands)
Net (charge
offs)/
recoveries
to average
Six months ended June 30,(dollars in thousands)
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, increased $375,000 between December 31, 2025 and June 30, 2026. While no provision expense was recorded for off balance sheet credit exposures for the three and six months ended June 30, 2026, the liability was increased as a result of the line of credit portfolio added through the FM acquisition, with the corresponding offset recorded to goodwill (as opposed to provision expense). The lack of expense for the first half of 2026, is consistent with lower availability (excluding acquisition-related activity) stemming from improved utilization. The ACL for off balance sheet exposures totaled $8.3 million as of June 30, 2026.
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 $11.0 million, or 9%, between December 31, 2025 and June 30, 2026. Bancorp’s branch network currently consists of 81 locations throughout the state of Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio markets. Six locations were added as a result of the FM acquisition.
Premises held for sale totaling $896,000 and $1.7 million was recorded on Bancorp’s consolidated balance sheets as of June 30, 2026 and December 31, 2025, respectively. The decrease during the first six months of 2026 was attributed to the sale of a former branch location during the first quarter of 2026. Premises held for sale consisted of three vacant parcels of land as of June 30, 2026.
BOLI assets increased to $106 million at June 30, 2026 compared to $92 million at December 31, 2025, consistent with the impact of the FM acquisition and general appreciation of the cash surrender values within the policy plans experienced during the six month period ended June 30, 2026. BOLI assets totaling $13 million were added as a result of the FM acquisition.
Goodwill increased to $238 million at June 30, 2026 from $194 million at December 31, 2025, as $44 million of goodwill was recorded in relation to the FM acquisition. Management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. Any changes to the related fair values during this measurement period could result in a change to the total goodwill recorded as a result of this acquisition.
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 June 30, 2026 and December 31, 2025, Bancorp’s CDI assets totaled $23 million and $7 million, respectively, and are attributed entirely to the Commercial segment. The increase between these periods is attributed to the CDI added as a result of the FM acquisition.
As of June 30, 2026 and December 31, 2025, Bancorp’s CLI assets were $10 million and $5 million, and attributed entirely to the WM&T segment. The increase between these periods is the result of the CLI added through the FM acquisition.
Other Assets and Other Liabilities
Other assets increased $21 million, or 7%, to $326 million between December 31, 2025 and June 30, 2026. Other liabilities decreased $25 million, or 11%, to $196 million over the same period. While the increase for other assets was due in larger part to the impact of the FM acquisition, while 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 liabilities.
Total deposits increased $695 million, or 9%, from December 31, 2025 to June 30, 2026. Deposits assumed as a result of the FM acquisition totaled $765 million.
Excluding the deposit portfolio added as a result of the acquisition, total deposits decreased $70 million, or less than 1%. Interest bearing deposits decreased $159 million, or 3%, driven primarily by declines in time and money market deposits. Non-interest bearing deposits increased $89 million, or 6%, during the first half of 2026.
The cost of interest-bearing deposits experienced a favorable decline over the past 12 months, ending at 2.29% for the six months ended June 30, 2026 compared to 2.55% for the six month ended June 30, 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 six months ended June 30, 2026 compared to the same period of 2025, declining 18 bps to 1.85%. However, despite the decreases noted above, Bancorp remains cautious regarding deposit costs and anticipates higher funding costs going forward due to pricing pressure/competition and potential changes in the overall deposit mix.
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 investment 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.
SSUAR declined $10 million, or 9%, between December 31, 2025 and June 30, 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. No SSUAR were assumed as a result of the FM acquisition.
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 June 30, 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.
FFP and other short-term borrowing balances increased $96,000, or 1%, between December 31, 2025 and June 30, 2026. At June 30, 2026, FFP related mainly to excess liquidity held by downstream correspondent bank customers of Bancorp.
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 June 30, 2026 and December 31, 2025, subordinated notes totaled $27 million, respectively.
FHLB Advances
FHLB advances outstanding totaled $300 million at both June 30, 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.” No FHLB advances, or borrowings of any kind, were assumed as a result of the FM acquisition.
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 $754 million and $816 million at June 30, 2026 and December 31, 2025, respectively. Despite the impact of the FM acquisition, a decrease was experienced for the first six months of 2026 was attributed largely to loan growth and to a lesser extent, slight deposit contraction within Bancorp’s legacy portfolios. 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 $666 million and $722 million at June 30, 2026 and December 31, 2025, respectively. The decrease in AFS debt security portfolio for the first six 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 $175 million (based on assumed prepayment speeds and contractual maturities as of June 30, 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 June 30, 2026, the total carrying value of investment securities pledged for these purposes comprised 71% of the debt securities portfolio, leaving approximately $249 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 June 30, 2026, such deposits totaled $7.08 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 June 30, 2026 and December 31, 2025, Bancorp held no brokered deposits.
Included in total deposit balances at June 30, 2026 are $812 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 increase experienced during the first six months of 2026 was attributed to public fund deposits assumed through the FM acquisition.
Bancorp is a member of the FHLB of Cincinnati. As a member of the FHLB, Bancorp has access to credit products of the FHLB. Bancorp views these borrowings as a potential low cost alternative to brokered deposits. At June 30, 2026 and December 31, 2025, available credit from the FHLB totaled $1.49 billion and $1.47 billion, respectively. Bancorp also had unsecured FFP lines with correspondent banks totaling $80 million at both June 30, 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 June 30, 2026, the Bank could pay an amount equal to $245 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 $161 million, or 7%, as of June 30, 2026 compared to December 31, 2025, largely as a result of the loan portfolio added through the FM acquisition.
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.
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 June 30, 2026, stockholders’ equity totaled $1.25 billion, representing an increase of $170.7 million, or 16%, compared to December 31, 2025, as stock issued in relation to the FM acquisition, which totaled $112 million, and net income of $76.7 million was only partially offset by $19.4 million of dividends declared during the first six 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, increased between December 31, 2025 and June 30, 2026, which stemmed largely from recording net income of $76.7 million. TCE was 9.66% at June 30, 2026 compared to 9.32% at December 31, 2025, while tangible book value per share was $31.39 at June 30, 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 of 2025 and will expire in 2027 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 June 30, 2026 increased compared December 31, 2025, as a result of strong operating results, which helped offset the substantial average asset and risk-weighted asset growth associated with the FM acquisition. 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 June 30, 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 June 30, 2026 and December 31, 2025, subordinated notes totaled $27 million, respectively.
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:
Total stockholders' equity - GAAP (a)
Less: Goodwill
Less: Core deposit and other intangibles
Tangible common equity - Non-GAAP (c)
Total assets - GAAP (b)
Tangible assets - Non-GAAP (d)
Total stockholders' equity to total assets - GAAP (a/b)
Tangible common equity to tangible assets - Non-GAAP (c/d)
Total shares outstanding (e)
Book value per share - GAAP (a/e)
Tangible common equity per share - Non-GAAP (c/e)
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.
Total non-interest expenses (a)
Less: Non-recurring merger expenses
Total non-interest expenses - Non-GAAP (c)
Total net interest income, FTE
Total revenue - Non-GAAP (b)
Less: Gain/loss on sale of premises and equipment
Total adjusted revenue - Non-GAAP (d)
Efficiency ratio - Non-GAAP (a/b)
Adjusted efficiency ratio - Non-GAAP (c/d)
Information required by this item is included in Part I Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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 June 30, 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 June 30, 2026, Bancorp’s disclosure controls and procedures were effective.
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.
The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended June 30, 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
price paid
per share
Maximum number of
shares that may yet be
purchased under the
April 1 - April 30
May 1 - May 31
June 1 - June 30
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.
(c) During the three months ended June 30, 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.
The following exhibits are filed or furnished as a part of this report:
Exhibit
Number
Description of exhibit
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 June 30, 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 June 30, 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.
(Registrant)
Date: August 4, 2026
/s/ James A. Hillebrand
James A. Hillebrand
Chairman and CEO (Principal Executive Officer)
/s/ T. Clay Stinnett
T. Clay Stinnett
EVP, Treasurer and CFO (Principal Financial
Officer)