Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying footnotes presented in Part II Item 8 “ Financial Statements and Supplementary Data .” To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of Bancorp’s future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.
Cautionary Statement Regarding Forward-Looking Statements
This document contains statements relating to future results of Bancorp that are considered “forward-looking” as defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part II Item 7 “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations ” and Part I Item 1A “ Risk Factors. ”
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the statement. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “conclude,” “continue,” “could,” “estimate,” “expect,” “forecast,” “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.
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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. ”
Issued but Not Yet Effective Accounting Standards Updates
For disclosure regarding the impact to Bancorp’s financial statements of issued-but-not-yet-effective ASUs, see the footnote titled “ Summary of Significant Accounting Policies ” of Part II Item 8 “ Financial Statements and Supplementary Data .”
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Critical Accounting Estimates
Bancorp’s consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.
Management continually evaluates the accounting estimates that it uses to prepare the consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, accounting and regulatory guidance, and information obtained from independent third-party professionals. Actual results may differ from those estimates made by management.
Critical accounting estimates are those that management believes are the most important to the portrayal of Bancorp’s financial condition and operating results and require management to make estimates that are difficult, subjective and complex. Most accounting estimates are not considered by management to be critical accounting estimates. Several factors are considered in determining whether or not an estimate is critical in the preparation of the financial statements. These factors include, among other things, whether the estimates have a significant impact on the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including independent third parties or available pricing, sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under GAAP. Management has discussed each critical accounting estimate and the methodology for the identification and determination of critical accounting estimates with Bancorp’s Audit Committee. As of December 31, 2025, the significant accounting estimate considered the most critical in preparing Bancorp’s consolidated financial statements is the determination of the ACL on loans.
Allowance for Credit Losses on Loans and Provision for Credit Losses
For purposes of establishing the general reserve of the ACL, Bancorp stratifies the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculates the net amount expected to be collected over the life of the loans to estimate the credit losses in the loan portfolio. Bancorp’s methodologies for estimating the ACL on loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.
The ACL on loans is established through credit loss expense charged to current earnings. The amount maintained in the ACL reflects management’s estimate of the net amount not expected to be collected on the loan portfolio at the balance sheet date over the life of the loan. The ACL is comprised of specific reserves assigned to certain loans that do not share general risk characteristics and general reserves on pools of loans that do share general risk characteristics. Factors contributing to the determination of specific reserves include the creditworthiness of the borrower and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate, an expected loss ratio based on historical losses adjusted as appropriate for qualitative factors, or the fair value of the collateral for certain collateral-dependent loans.
Provision for credit losses can be subject to volatility as ACL calculations and the resulting expense are significantly impacted by changes in CECL model assumptions, such as macroeconomic factors and conditions, credit quality and loan portfolio composition and growth.
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Business Segment Overview
Bancorp is divided into two reportable segments: Commercial Banking and WM&T:
Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, leasing, treasury management services, merchant services, international banking, correspondent banking, credit card services and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment.
WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.
Overview – Operating Results (FTE)
The following table presents an overview Bancorp’s financial performance for the years ended December 31, 2025, 2024 and 2023:
Years Ended December 31,
Variance
(dollars in thousands, except per share data)
Net income available to stockholders
Diluted earnings per share
ROA
bps
bps
ROE
bps
bps
Additional discussion follows under the section titled “ Results of Operations. ”
General highlights for the year ended December 31, 2025 compared to December 31, 2024:
In 2025, Bancorp set the following financial records :
Net income of $140.2 million, and as a result, diluted EPS of $4.75, driven by significant average earning asset growth, a higher interest rate environment and solid contributions from Bancorp’s diversified non-interest revenue streams.
Total revenue, comprising net interest income (FTE) and non-interest income, of $397.6 million, surpassing the previous record of $352.6 million in 2024.
Solid loan growth of $521 million, or 8%, which led to record total loans of $7.04 billion at December 31, 2025.
Non-interest income of $96.9 million, surpassing the previous record of $95.2 million from 2024, driven by record treasury management fees and brokerage income in addition to solid contributions from all non-interest revenue streams.
NIM increased 22 bps to 3.53% for the year ended December 31, 2025 compared to 3.31% for the prior year, driven by earning asset yield expansion and a decline in interest-bearing liability cost.
Interest income experienced a $54.7 million, or 13%, increase over the prior year associated with the benefits of higher yields and average earning asset growth, far outpacing an $11.4 million, or 7%, increase in interest expense driven by growth in interest-bearing liabilities attributed largely to the success of competitive time deposit offerings.
While Bancorp continued to experience a shift in the deposit mix, with non-interest bearing deposits and lower-yielding deposits migrating to higher-yielding options, particularly time deposits, the overall cost of deposits remained relatively flat, as Bancorp lowered deposit rates in tandem with the FRB’s interest rate reductions during the year.
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Yields on interest earning assets increased 19 bps, or 4%, to 5.50% for the year ended December 31, 2025 compared to 5.31% for the prior year. Providing additional benefit to NIM, the cost of interest bearing liabilities, declined 12 bps, or 4%, to 2.61% compared to 2.73% for the prior year, driving net interest spread and NIM expansion.
Total loans increased $521 million, or 8%, compared to December 31, 2024, driven primarily by growth in the CRE and C&D segments, with C&I and residential real estate also contributing solid growth. Average loans increased $713 million, or 12%, for the year ended December 31, 2025 compared to the prior year.
Bancorp’s ACL on loans increased $4.9 million, or 6%, compared to December 31, 2024. Provision for credit losses on loans totaled $5.6 million for the year ended December 31, 2025, compared to $8.8 million for the prior year.
Provision for the year ended December 31, 2025 totaled $5.6 million, driven by solid loan growth and slight deterioration within the FRB’s national unemployment forecast, which were partially offset by annual CECL model updates and a decline in specific reserves. Net charge offs of $626,000 were recorded for the year ended December 31, 2025.
Provision for the prior year was attributed mainly to substantial loan growth and to a lesser extent, an improved unemployment forecast and other factors within the CECL model. Further, net charge offs of $1.2 million were recorded for the year ended December 31, 2024.
Total deposits increased $625 million, or 9%, at December 31, 2025 compared to December 31, 2024.
Interest-bearing deposits increased $645 million, or 11%, for the year ended December 31, 2025 compared to the prior year, led most notably by a $499 million, or 40%, increase in time deposits associated with the competitive time deposit offerings. Non-interest bearing deposits declined $20 million, or 1%.
Non-interest income increased $1.7 million, or 2%, for the year ended December 31, 2025, compared to the prior year, attributed to solid contributions from all non-interest revenue streams, including record treasury management fees and brokerage income.
Non-interest expenses increased $14.2 million, or 7%, for the year ended December 31, 2025, compared to the prior year, driven by higher compensation expenses associated with increased bonus accrual levels tied to Bancorp’s record results in addition to broad expense increases attributed Bancorp’s general growth over the past year, including expansion of the branch network.
Bancorp’s efficiency ratio (FTE) for the year ended December 31, 2025 was 53.41% compared to 56.20% for the prior year. The improvement in this ratio was attributed primarily to strong net interest income growth, which outpaced growth in non-interest expenses. See the section titled “ Non-GAAP Financial Measures ” for a reconcilement of non-GAAP to GAAP measures.
Total stockholder’s equity to total assets was 11.28% as of December 31, 2025 compared to 10.61% at December 31, 2024. Total equity increased to $1.08 billion in 2025, driven by net income of $140.2 million and a $30 million improvement in AOCI, offset partially by $37 million of dividends declared. The improvement in AOCI from December 31, 2024 to December 31, 2025 was the result of the changing interest rate environment and its corresponding impact on the valuation of the AFS debt securities portfolio.
TCE is a measure of a company’s capital, which is useful in evaluating the quality and adequacy of capital. Bancorp’s ratio of TCE to total tangible assets was 9.32% as of December 31, 2025, compared to 8.44% at December 31, 2024, the improvement driven mainly by growth in stockholder’s equity associated with the year’s record operating results and to a lesser extent, the positive change in AOCI related to the valuation of the AFS debt securities portfolio. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures.
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General highlights for the year ended December 31, 2024 compared to December 31, 2023:
In 2024, Bancorp set the following financial records :
Net income of $114.5 million, and as a result, diluted EPS of $3.89, besting the previous records of $107.7 million and diluted EPS of $3.67 from 2023, which was driven by significant organic loan growth, a higher interest rate environment and the continued growth of Bancorp’s diversified non-interest revenue streams.
Total revenue, comprising net interest income (FTE) and non-interest income, of $352.6 million, surpassing the previous record of $340.1 million in 2023.
Strong loan production drove $749 million, or 13%, of loan growth, leading to record total loans of $6.52 billion at December 31, 2024.
WM&T revenue of $42.8 million, driven by strong equity market appreciation and higher estate fee income and served to offset a net new business decline.
Debit and credit card income of $20.1 million, consistent with higher transaction volume, growth in the customer base and larger processor incentives.
Treasury management fee income of $11.1 million, consistent with customer base expansion, increased transaction volume, record international services fee income and new product sales.
Net investment product sales commissions and fee income of $3.6 million stemming from organic growth and general market appreciation.
While NIM decreased 8 bps to 3.31% for the year ended December 31, 2024 compared to 3.39% for the prior year, net interest income (FTE) increased $9.5 million, or 4%, compared to the prior year, reaching a record $257.4 million.
Interest income experienced a $66.0 million, or 19%, increase over the prior year associated with the benefits of higher yields and average earning asset growth, outpacing the $56.5 million, or 57%, increase in interest expense driven by the rising cost of funds and growth in interest-bearing liabilities.
As a result of deposit pricing pressure/competition, Bancorp experienced a significant shift in the deposit mix, as non-interest bearing deposits and lower-yielding deposits migrated to higher-yielding options, particularly time deposits, which drove a substantial increase in the overall cost of deposits. Further, continued loan growth and deposit balance fluctuations necessitated more borrowing activity in 2024 compared to the prior year, contributing to the overall increase in interest expense.
Yields on interest earning assets increased 56 bps, or 12%, to 5.31% for the year ended December 31, 2024 compared to 4.75% for the prior year. However, these yields were outpaced by the cost of interest bearing liabilities, which expanded 76 bps, or 39%, to 2.73% compared to 1.97% for the prior year, driving net interest spread and NIM compression.
Total loans increased $749 million, or 13%, compared to December 31, 2023, attributed to growth in most loan portfolio segments. Average loans increased $663 million, or 12%, for the year ended December 31, 2024 compared to the prior year.
Bancorp’s ACL on loans increased $8 million, or 10%, as of December 31, 2024 compared to December 31, 2023. Provision for credit losses on loans totaled $8.8 million for the year ended December 31, 2024, compared to $12.5 million for the prior year.
Provision for the year ended December 31, 2024 was attributed mainly to substantial loan growth and to a lesser extent, an improved unemployment forecast and other factors within the CECL model. Further, net charge offs of $1.2 million were recorded for the year ended December 31, 2024.
Provision for credit losses on loans for the year ended December 31, 2023 were driven by substantial loan growth, a flat unemployment forecast and other factors within the CECL model. Bancorp also recorded net charge offs of $6.6 million for the year ended December 31, 2023, driven by the charge off of two isolated and unrelated C&I relationships.
Total deposits increased $496 million, or 7%, at December 31, 2024 compared to December 31, 2023. While total deposit growth was experienced compared to the prior year, a continued shift in the deposit base mix was also experienced, as pricing pressure/competition for deposits was strong during 2024.
Interest-bearing deposits increased $588 million, or 11%, for the year ended December 31, 2024 compared to the prior year, led in part by a $255 million, or 26%, increase in time deposits associated with Bancorp’s successful promotional product offerings, offsetting a $92 million, or 6%, decline in non-interest bearing deposits.
Non-interest income increased $3.0 million, or 3%, for the year ended December 31, 2024, compared to the prior year, attributed largely to strong WM&T revenue, treasury management fees and card income.
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Non-interest expenses increased $10.4 million, or 6%, for the year ended December 31, 2024, compared to the prior year, driven by higher compensation and employee benefit expenses associated with annual merit-based salary increases and higher bonus levels, full-time employee growth and higher health insurance claims activity, in addition to increased technology and communication expense, attributed to various security and compliance-related software upgrades.
Bancorp’s efficiency ratio (FTE) for the year ended December 31, 2024 was 56.20% compared to 55.23% for the prior year. The increase in this ratio compared to the prior year was the result of non-interest expense growth (on a percentage basis) outpacing net interest income and non-interest income expansion, as net interest income was hampered by rising funding costs. See the section titled “ Non-GAAP Financial Measures ” for a reconcilement of non-GAAP to GAAP measures.
Total stockholder’s equity to total assets was 10.61% as of December 31, 2024 compared to 10.50% at December 31, 2023. Total equity increased to $940 million in 2024, driven by net income of $114.5 million and a small improvement in AOCI, offset partially by $36 million of dividends declared. The small improvement in AOCI from December 31, 2023 to December 31, 2024 was the result of the changing interest rate environment and its corresponding impact on the valuation of the AFS debt securities portfolio. Further, a $2.5 million increase in retained earnings was recorded in relation to the adoption of ASU 2023-02 effective January 1, 2024.
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Potential Challenges for 2026:
We have identified the following potential challenges for fiscal year 2026:
While the economic outlook for 2026 is generally positive, projecting modest growth, expectations are regularly changing as new economic data becomes available. Continued monetary policy changes by the FRB, including projected interest rate reductions, and the corresponding effects such changes have on local, national and global economic conditions could present challenges in 2026.
Pricing pressure and competition for both loans and deposits could present challenges in 2026, driven by uncertainty within the current interest rate environment, a flattened yield curve and overall liquidity management.
Net loan growth will remain a top priority for us in 2026. This will be impacted by competition, prevailing interest rates, economic conditions, line of credit utilization, loan prepayments and potential payoff activity. While we believe there is continued opportunity for loan growth in all of our markets, the potential for elevated payoff activity, which stems largely from borrowers within our C&D portfolio securing permanent long-term financing through other financial institutions, could hamper overall loan growth. Our ability to deliver solid loan growth over the long-term is a key component of our overall success.
The continued development of the relationships and opportunities in our newer markets will be a priority for 2026. The Company’s growing footprint has allowed us to provide broader product offerings, increased lending capabilities and an expanded branch delivery system to existing and prospective customers alike, creating solid growth opportunities and a larger platform for future expansion.
In December of 2025, we announced the appointment of a market president to lead our expansion into the south-central Kentucky market, which we feel is a natural extension of the growth strategies we’ve implemented over the past several years. Building brand recognition, developing and growing a talented team of relationship managers and successfully implementing our full-service, community banking model in this market will pose a new challenge for us in 2026, but one we feel provides ample opportunities.
Bancorp expects to complete the merger of Field & Main Bancorp, Inc. in the second quarter of 2026, subject to satisfaction or waiver of remaining closing conditions. Acquisitions require integration of different corporate cultures, loan and deposit products, pricing strategies, data processing systems and other technologies, accounting, internal audit and financial reporting systems, operating systems and internal controls, and marketing programs and personnel. Bancorp will need to manage the transition effectively to maximize retention of Field and Main’s customers and employees, integrate personnel and systems efficiently, and maximize anticipated economic benefits.
Strategically managing our balance sheet in anticipation of growing above $10 billion in total assets will be a major priority in 2026. While we are keenly aware of the impact crossing this regulatory threshold will have on our business, our long-standing goal of pursuing both organic and acquisition-related growth is unchanged. However, our strategies around the $10 billion threshold include crossing at a time that we feel maximizes profitability and efficiency considering the increased costs and reduced interchange income driven by related regulation. As such, we may decide to manage our balance sheet to temporarily remain under $10 billion in total assets. Managing growth accordingly could present challenges in 2026.
We derive significant non-interest income from WM&T services. Most of these fees are based upon the market value of AUM at respective period ends. Absent fixed income and equity market movements, growing this revenue stream may prove challenging, as competition to attract new customers and retain existing customers remains intense. Growth in market values of AUM and fees is dependent upon positive returns in the overall capital markets, which could be threatened should economic conditions worsen. We have no control over market volatility.
After experiencing several years of substantial increases in other non-interest income revenue streams, including treasury management fees and card income, we saw such growth slow in 2025, due in part to having already capitalized on the opportunities afforded to us by acquisition and exposure to new markets in previous years. While our strategies continue to focus on growing our diversified non-interest revenue streams and we feel that opportunities exist in all of our markets, total non-interest income growth is expected to be challenged in 2026.
Over the past several years, our asset quality metrics have trended within a relatively low range, periodically exceeding benchmarks and reaching historically strong levels. We realize that current asset quality metrics remain solid and, recognizing the cyclical nature of the lending business and current economic conditions, we anticipate this trend will likely normalize over time.
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Results of Operations
Net Interest Income - Overview
As is the case with most banks, Bancorp’s primary revenue sources are net interest income and fee income from various financial services provided to customers. Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and interest rates earned on those loans are critical to overall profitability. Similarly, deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. New business volume is influenced by numerous economic factors including market interest rates, business spending, liquidity, consumer confidence and various competitive conditions within the marketplace. The discussion that follows is based on FTE net interest income data.
Interest income, yields and ratios on a FTE basis are considered non-U.S. GAAP financial measures. Management believes net interest income on a FTE basis provides insight into net interest margin for comparison purposes. The FTE basis also allows management to assess to comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal corporate income tax rate of 21%.
Comparative information regarding net interest income follows:
As of and for the Years Ended December 31,
Variance
(dollars in thousands)
Net interest income
Net interest income (FTE)*
Net interest spread (FTE)*
bps
bps
Net interest margin (FTE)*
bps
bps
Average interest earning assets
Average interest bearing liabilities
Five year Treasury note rate at year end
bps
bps
Average five year Treasury note rate
bps
bps
Prime rate at year end
bps
bps
Average Prime rate
bps
bps
One month term SOFR at year end
bps
bps
Average one month term SOFR
bps
bps
*See table titled, "Average Balance Sheets and Interest Rates (FTE)" for detail of Net interest income (FTE).
NIM and net interest spread calculations in the preceding table exclude the sold portion of certain participation loans, which totaled $2 million, $2 million and $4 million for the years ended December 31, 2025, 2024 and 2023, respectively. These sold loans are on Bancorp’s balance sheet as required by GAAP because Bancorp retains some form of effective control; however, Bancorp receives no interest income on the sold portion. These participation loans sold are excluded from NIM and spread analysis, because Bancorp believes it provides a more accurate depiction of loan portfolio performance.
At December 31, 2025, Bancorp’s loan portfolio consisted of approximately 64% fixed and 36% variable rate loans. At inception, most of Bancorp’s fixed rate loans are 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, generally repricing as those rates change. At December 31, 2025, 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 table to provide a general indication of the interest rate environment Bancorp has operated in during the past three years, a period marked by interest rate volatility. A rising rate environment that was driven by the FRB’s strategy to combat decades-high inflation via numerous, incremental rate increases over the course of 2022 and 2023 took the FFTR to a range of 5.25% - 5.50%, and Prime to 8.50%, by July of 2023. These levels were sustained until September of 2024, when the FRB began its attempt to engineer a “soft landing,” with several rate reductions that brought the FFTR to a range of 4.25% - 4.50%, and Prime to 7.50%, as of December 31, 2024.
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Bancorp experienced significant benefit from the rate increases that began in 2022, as the majority of Bancorp’s variable rate loans eventually rose above their 4.00% floors and deposit rates remained relatively low. However, as interest rates continued to rise in 2023, the positive impact rising rates had on the loan portfolio began to be offset by higher deposit rates stemming from intense pricing pressure and competition, which began to drive NIM compression. While this trend continued into 2024, significant average loan growth and the benefit of higher rates upon average interest earning assets eventually managed to outpace rising funding costs in the latter half of 2024, as deposit cost expansion began to moderate.
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 year, as 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 prior year.
Towards the end of 2025, a semblance of 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. However, despite a slight improvement in the overall yield curve’s trajectory, the shorter end of the curve that is most critical to Bancorp’s business (overnight through 5 years) remains flat and/or inverted and to the extent that trend continues, NIM and net interest spread expansion could be challenged in 2026.
Discussion of 2025 vs 2024:
Net interest spread (FTE) and NIM (FTE) were 2.89% and 3.53%, for the year ended December 31, 2025, compared to 2.58% and 3.31% for the prior year, respectively.
Net interest income (FTE) increased $43.3 million, or 17%, for the year ended December 31, 2025 compared to the prior year, as the impact of significant loan growth on interest income far surpassed the increase in interest expense tied to interest bearing deposit growth.
Total average interest earning assets increased $731 million, or 9%, for the year ended December 31, 2025, as compared to the prior year, attributed to substantial average loan growth. The average rate earned on total average interest earning assets climbed 19 bps to 5.50%.
Average total loan balances increased $713 million, or 12%, for the year ended December 31, 2025, compared to the prior year. While the CRE and C&D segments drove a significant portion of the period over period growth, the C&I and residential real estate segments also experienced solid growth.
Average investment securities declined $210 million, or 14%, for the year ended December 31, 2025 compared to the prior year, mainly as the result of scheduled maturities within the treasury portfolio, and to a lesser extent, normal amortization activity. The liquidity provided by this activity helped fund Bancorp’s substantial loan growth, pay down FHLB borrowings and/or shifted into interest-bearing cash balances consistent with current balance sheet management strategies.
Average FFS and interest bearing due from bank balances increased $229 million, or 128%, for the year ended December 31, 2025 compared to the prior year, which was largely the result of the previously mentioned liquidity provided by the investment securities portfolio.
Total interest income (FTE) increased $54.7 million, or 13%, to $468 million for the year ended December 31, 2025, as compared to the prior year.
Interest and fee income (FTE) on loans increased $47.5 million, or 13%, to $417 million for the year ended December 31, 2025, compared to the prior year, driven by significant average loan growth, and to a lesser extent, yield expansion. The yield on the overall loan portfolio increased 7 bps to 6.14% for the year ended December 31, 2025 compared to 6.07% for the prior year. The year ended December 31, 2025 also benefitted from the payoff of three non-accrual loans during the year, which included approximately $930,000 of interest income and provided approximately 2 bps of benefit to related loan yields.
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Consistent with the decline in average investment securities, there was a $725,000, or 2%, decrease in interest income (FTE) on the portfolio for the year ended December 31, 2025 compared to the prior year. However, the corresponding yield on the portfolio climbed 29 bps to 2.44% for the year ended December 31, 2025, compared to 2.15% for the prior year, as a portion of maturities within the portfolio were temporarily reinvested for collateral pledging purposes during the year at higher short-term rates, but ultimately rolled into interest-earning cash balances by year-end.
Interest income on FFS and interest bearing due from bank balances increased $8.0 million, or 86%, for the year ended December 31, 2025, as compared to the prior year, consistent with the average balance increase. The yield on these assets decreased 96 bps to 4.23% for the year ended December 31, 2025 compared to the prior year, consistent with rate reductions enacted by the FRB during the year.
Total average interest bearing liabilities increased $693 million, or 12%, to $6.41 billion for the year ended December 31, 2025 compared to the prior year.
Average interest bearing deposits increased $758 million, or 15%, for the year ended December 31, 2025 compared to the prior year. Bancorp experienced a $492 million, or 45%, increase in average time deposits and increases of $186 million, or 8%, and $85 million, or 7%, increase in average interest bearing demand and money market deposits, respectively, as a result of depositors seeking higher-yielding deposit products.
Average FHLB advances decreased $27 million, or 7%, for the year ended December 31, 2025 compared to the prior year. Bancorp’s utilization of overnight borrowings ultimately ended early in the year, consistent with substantial interest-bearing deposit growth. No overnight borrowings were outstanding as of December 31, 2025. 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 December 31, 2025.
Average SSUAR decreased $35 million, or 23%, for the year ended December 31, 2025 compared to the prior year, driven by both normal fluctuation and a number of clients moving into other deposit offerings.
Total interest expense increased $11.4 million, or 7%, for the year ended December 31, 2025 compared to the prior year, driven almost entirely by increased time deposit expense associated with successful CD promotion, which was only partially offset by smaller declines in virtually every other interest-bearing liability category. Despite the increased expense, the cost of interest-bearing deposits declined 6 bps to 2.53% and total interest-bearing liability cost declined 12 bps 2.61%, which was attributed to the impact of the FRB’s interest rate reductions enacted during the year.
Total interest bearing deposit expense increased $16.0 million, or 12%, driven by growth in the time deposit portfolio associated with successful promotional CD products offered through April of this year. The cost of interest bearing deposits declined 6 bps compared to the prior year, which was driven by Bancorp’s ability to reduce deposit rates consistent with the rate reductions implemented by the FRB during the year.
Interest expense on FHLB borrowings decreased $3.0 million, or 18%, for the year ended December 31, 2025, as compared to the prior year. Both overnight borrowing volume and cost declined consistent with interest-bearing deposit growth and the FRB’s previously mentioned rate cuts.
Interest expense on SSUAR decreased $1.0 million, or 30%, for the year ended December 31, 2025, as compared to the prior year, consistent with the average balance decrease and rate reductions.
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Discussion of 2024 vs 2023:
Net interest spread (FTE) and NIM (FTE) were 2.58% and 3.31%, for the year ended December 31, 2024, compared to 2.78% and 3.39% for the prior year, respectively.
Net interest income (FTE) increased $9.5 million, or 4%, for the year December 31, 2024 compared to the prior year, as significant average loan growth and the benefit of higher yields upon average interest earning assets managed to outpace rising funding costs stemming from intense pricing pressure/competition for deposits and increased borrowing activity.
Total average interest earning assets increased $475 million, or 7%, for the year ended December 31, 2024, as compared to the prior year, attributed to substantial average loan growth that was partially offset by a decline in average investment securities associated with scheduled maturities and normal amortization. As a result of a higher interest rate environment, the average rate earned on total interest earning assets climbed 56 bps to 5.31%.
Average total loan balances increased $663 million, or 12%, for the year ended December 31, 2024, compared to the prior year, driven by contributions from every loan category and every market.
Average investment securities declined $205 million, or 12%, for the year ended December 31, 2024 compared to the prior year, mainly the result of significant scheduled maturities within the treasury portfolio, and to a lesser extent, normal amortization activity. This activity has benefitted interest-earning asset yields and overall NIM, as the low-yielding treasury security maturities shifted into higher-yielding interest-bearing cash and ultimately helped fund Bancorp’s substantial loan growth.
Average FFS and interest bearing due from bank balances increased $14 million, or 8%, for the year ended December 31, 2024, as a result of the previously mentioned liquidity provided by the investment securities portfolio and increased FHLB borrowing activity, which was partially offset by loan funding.
Total interest income (FTE) increased $66.0 million, or 19%, to $413.2 million for the year ended December 31, 2024, as compared to the prior year.
Interest and fee income (FTE) on loans increased $67.2 million, or 22%, to $369.6 million for the year ended December 31, 2024, compared to the prior year, driven by the higher rate environment and significant average loan growth. The yield on the overall loan portfolio increased 49 bps to 6.07% for the year ended December 31, 2024 compared to 5.58% for the prior year.
Consistent with the decline in average investment securities, there was a $2.8 million, or 8%, decrease in interest income (FTE) on the portfolio for the year ended December 31, 2024 compared to the prior year. The corresponding yield on the portfolio increased 10 bps, or 5%, to 2.15% for the year ended December 31, 2024, compared to 2.05% for the prior year, due to the maturity of lower-yielding treasury securities.
Interest income on FFS and interest bearing due from bank balances increased $845,000, or 10%, for the year ended December 31, 2024, stemming mainly from the higher FFTR experienced for most of the year. The yield on these assets increased 7 bps to 5.19% for the year ended December 31, 2024 compared to the prior year.
Total average interest bearing liabilities increased $660 million, or 13%, to $5.71 billion for the year ended December 31, 2024 compared to the prior year.
Average interest bearing deposits increased $545 million, or 12%, for the year ended December 31, 2024 compared to prior year. Bancorp experienced a $358 million, or 49%, increase in average time deposits and a $144 million, or 13%, increase in average money market deposits compared to the prior year period, as a result of depositors seeking higher-yielding deposit products in the higher rate environment.
Average FHLB advances increased $89 million, or 32%, for the year ended December 31, 2024 compared to the prior year. In an effort to secure longer-term funding at a more favorable rate, Bancorp began utilizing a $200 million term advance in conjunction with three separate interest rate swaps of varying maturities during 2023. An additional interest rate swap was added during 2024 for the same purpose, bringing the total related advances to $300 million as of December 31, 2024. Bancorp also utilized overnight borrowings more heavily in 2024 to fund loan growth and manage deposit fluctuations.
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Average SSUAR increased $31 million, or 25%, for the year ended December 31, 2024 compared to the prior year, as customers were attracted to the collateralized protection provided by this product.
Total interest expense increased $56.5 million, or 57%, for the year ended December 31, 2024 compared to the prior year, driven by a significant rise in rates paid on deposits and increased borrowing activity. As a result, the cost of interest bearing liabilities increased 76 bps to 2.73% for the year ended December 31, 2024 compared to the prior year.
Total interest bearing deposit expense increased $52.0 million, or 64%, as a result of deposit rate increases, $38.3 million of which was attributed to time deposit and money market deposits, as customers continued to shift to higher-yielding deposit products. This activity resulted in an 82 bps increase in the cost of interest bearing deposits for the year ended December 31, 2024 compared to the prior year. While Bancorp expects pricing pressure/competition to continue into the coming quarters, the pace of deposit cost expansion began to moderate in the second half of 2024.
Interest expense on FHLB borrowings increased $3.7 million, or 29%, for the year ended December 31, 2024, as compared to the prior year, driven by both increased borrowing activity and higher costs associated with overnight borrowings.
Interest expense on SSUAR increased $1.3 million, or 64%, for the year ended December 31, 2024 compared to the prior year, consistent with average balance growth and rising rates.
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Average Balance Sheets and Interest Rates (FTE)
Average
Average
Average
Average
Average
Average
Years ended December 31, (dollars in thousands)
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Interest earning assets:
Federal funds sold and interest bearing due from banks
Mortgage loans held for sale
Investment securities:
Taxable
Tax-exempt
Total securities
Federal Home Loan Bank stock
Loans
Total interest earning assets
Less allowance for credit losses on loans
Non-interest earning assets:
Cash and due from banks
Premises and equipment, net
Bank owned life insurance
Goodwill
Accrued interest receivable and other
Total assets
Interest bearing liabilities:
Deposits:
Interest bearing demand
Savings
Money market
Time
Total interest bearing deposits
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank advances
Subordinated debentures
Total interest bearing liabilities
Non-interest bearing liabilities:
Non-interest bearing demand deposits
Accrued interest payable and other
Total liabilities
Stockholders ’ equity
Total liabilities and stockholder's equity
Net interest income
Net interest spread
Net interest margin
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Supplemental Information - Total Company Average Balance Sheets and Interest Rates (FTE)
Average loan balances include the principal balance of non-accrual loans, as well as unearned income such as loan premiums, discounts, fees/costs and exclude participation loans accounted for as secured borrowings. Participation loans averaged $2 million, $3 million and $4 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Interest income on a FTE basis includes additional amounts of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal taxes yielding the same after-tax income. Interest income on municipal securities and tax-exempt loans has been calculated on a FTE basis using a federal income tax rate of 21%. Approximate tax equivalent adjustments to interest income were $343,000, $360,000 and $537,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
Interest income includes loan fees of $5.7 million, $6.3 million and $5.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. Interest income on loans may be impacted by the level of prepayment fees collected and net accretion income related to loans purchased. Net accretion income/ (amortization expense) related to acquired loans totaled $1.5 million, $2.2 million and $2.4 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense. The level of net interest income is determined by mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates.
NIM represents net interest income on a FTE basis as a percentage of average interest earning assets.
Net interest spread (FTE) is the difference between taxable equivalent rates earned on interest earning assets less the cost of interest bearing liabilities.
The fair market value adjustment on investment securities resulting from ASC 320, Investments – Debt and Equity Securities is included as a component of other assets.
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The following table illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Bancorp’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate. Tax-equivalent adjustments are based on a federal income tax rate of 21%. The change in interest due to both rate and volume has been allocated to the change due to rate and the change due to volume in proportion to the relationship of the absolute dollar amounts of the change in each.
Rate/Volume Analysis (FTE)
Year ended December 31, 2025
Year ended December 31, 2024
Compared to
Compared to
Year ended December 31, 2024
Year ended December 31, 2023
Total Net
Increase (Decrease) Due to
Total Net
Increase (Decrease) Due to
(in thousands)
Change
Rate
Volume
Change
Rate
Volume
Interest income:
Federal funds sold and interest bearing due from banks
Mortgage loans held for sale
Investment securities:
Taxable
Tax-exempt
Federal Home Loan Bank stock
Loans
Total interest income
Interest expense:
Deposits:
Interest bearing demand
Savings
Money market
Time
Total interest bearing deposits
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank advances
Subordinated debt
Total interest expense
Net interest income
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Asset/Liability Management and Interest Rate Risk
Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, management evaluates interest rate sensitivity with the goal of optimizing net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.
Interest Rate Simulation Sensitivity Analysis
Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one-year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing liabilities. By estimating effects of interest rate fluctuations, the model can approximate interest rate risk exposure. This simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and may not indicate actual or expected results.
The results of the interest rate sensitivity analysis performed as of December 31, 2025 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.
Basis Points
Basis Points
Basis Points
Basis Points
% Change from base net interest income at December 31, 2025
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 note at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 55%) or one month term 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, gains or losses are reported as a component of OCI and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged forecasted transaction affects earnings.
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Provision for Credit Losses
Provision for credit losses on loans at December 31, 2025 represents the amount of expense that, based on Management’s judgment, is required to maintain the ACL for loans at an appropriate level under the CECL model. The determination of the amount of the ACL for loans is complex and involves a high degree of judgment and subjectivity. See the footnote titled “ Summary of Significant Accounting Policies ” for detailed discussion regarding Bancorp’s ACL methodology by loan segment.
An analysis of the changes in the ACL on loans, including provision, and selected ratios follow:
As of and for the years ended December 31, (dollars in thousands)
Beginning balance
Provision for credit losses on loans
Total charge-offs
Total recoveries
Net loan charge offs
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
Discussion of 2025 vs 2024:
The ACL for loans totaled $92 million as of December 31, 2025 compared to $87 million at December 31, 2024, representing an ACL to total loans ratio of 1.30% and 1.33% for the respective periods.
Provision expense for credit losses on loans of $5.6 million was recorded for the year ended December 31, 2025, driven by strong loan growth and slight deterioration within the FRB’s national unemployment forecast, which were partially offset by annual CECL model updates and a decrease in specific reserves. Net charge offs of $626,000 were recorded for the year ended December 31, 2025.
Provision expense for credit losses on loans of $8.8 million was recorded for the year ended December 31, 2024, which was driven mainly by strong loan growth, net charge offs of $1.2 million, and to a much lesser extent, an improved unemployment forecast and other factors within the CECL model.
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also increased between December 31, 2024 and December 31, 2025. Provision expense of $1.2 million for off balance sheet credit exposures was recorded for the year ended December 31, 2025, driven by higher C&D availability assumptions. The ACL for off balance sheet exposures totaled $7.9 million as of December 31, 2025.
Provision for off balance sheet credit exposures of $925,000 was recorded for the year ended December 31, 2024, driven largely by an increase in expected future utilization within the C&D portfolio. The ACL for off balance sheet credit exposures totaled $6.8 million as of December 31, 2024.
Bancorp’s loan portfolio is well-diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets. The adequacy of the ACL is monitored on an ongoing basis and it is the opinion of management that the balance of the ACL at December 31, 2025 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.
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Discussion of 2024 vs 2023:
The ACL for loans totaled $87 million as of December 31, 2024 compared to $79 million at December 31, 2023, representing an ACL to total loans ratio of 1.33% and 1.38% for the respective periods.
Provision expense for credit losses on loans of $8.8 million was recorded for the year ended December 31, 2024, which was driven mainly by strong loan growth, net charge offs of $1.2 million, and to a much lesser extent, an improved unemployment forecast and other factors within the CECL model.
Provision expense for credit losses on loans of $12.5 million was recorded for the year ended December 31, 2023. In addition to strong loan growth, a flat unemployment forecast and other factors within the CECL allowance model, provision expense for the year ended December 31, 2023 was impacted significantly by net charge offs of $6.6 million. Net charge off activity for the year ended December 31, 2023 was attributed mainly to the charge off of two isolated and unrelated C&I relationships, one of which was fully reserved for in a prior period.
Provision for off balance sheet credit exposures of $925,000 was recorded for the year ended December 31, 2024, driven largely by an increase in expected future utilization within the C&D portfolio. The ACL for off balance sheet credit exposures totaled $6.8 million as of December 31, 2024.
Provision for off balance sheet credit exposures of $1.3 million was recorded for the year ended December 31, 2023, driven largely by the addition of new C&D and C&I lines of credit. The ACL for off balance sheet credit exposures totaled $5.9 million as of December 31, 2023.
Non-Interest Income
Variance
(dollars in thousands)
Years Ended December 31,
Wealth management and trust services
Deposit service charges
Debit and credit card income
Treasury management fees
Mortgage banking income
Loss on sale of securities AFS
Net investment products sales commissions and fees
Bank owned life insurance
Gain (loss) on sale of premises and equipment
Other
Total non-interest income
Discussion of 2025 vs 2024:
Total non-interest income increased $1.7 million, or 2%, for the year ended December 31, 2025 compared to the same period of 2024. Non-interest income comprised 24% and 27% of total revenue, defined as net interest income and non-interest income, for the years ended December 31, 2025 and 2024, respectively. WM&T revenue comprised 44% of total non-interest income for the year ended December 31, 2025 compared to 45% for the same period of 2024, respectively.
WM&T Services:
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue decreased $35,000, or less than 1%, for the year ended December 31, 2025, as compared with the same period of 2024, the latter of which marked a record year for WM&T. Despite the decrease compared to prior year, which was driven in part by lower non-recurring estate fees, solid WM&T revenue for 2025 was attributed to strong equity and fixed income market appreciation in addition to positive net new business.
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Net new business refers to revenue generated from newly acquired customers, excluding revenue from upselling or cross-selling to existing active customers. It plays a crucial role in expanding Bancorp’s financial base and ensuring long-term sustainability and success. In the latter part of 2024, the WM&T department experienced negative net new business for the first time in several years, driven by employee attrition associated with aggressive recruiting and market competition for clients, which drove AUM contraction and hampered revenue growth for several months. Positions impacted by attrition have since been filled and Bancorp experienced positive net new business during the year ended December 31, 2025.
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 $340,000, or 1% for the year ended December 31, 2025, as compared with the same period of 2024. The increase was driven largely by equity market appreciation over the past year in addition to the impact of net new business expansion.
A portion of WM&T revenue, most notably estate and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees decreased $375,000 for the year ended December 31, 2025, as compared with the same period of 2024, driven by a decline in estate fee income.
AUM, stated at market value, totaled $7.64 billion at December 31, 2025 compared with $7.07 billion at December 31, 2024. The increase in AUM between December 31, 2024 and December 31, 2025 is attributed mainly to market appreciation, and to a lesser extent, the previously mentioned impact of net new business.
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 Services Income by Account Type:
(in thousands)
Years Ended December 31,
Investment advisory
Personal trust
Personal investment retirement
Company retirement
Foundation and endowment
Custody and safekeeping
Brokerage and insurance services
Other
Total WM&T services income
The preceding table demonstrates that WM&T fee revenue is concentrated within investment advisory and personal trust accounts. WM&T fees are predominantly based on AUM and tailored for individual/company accounts and/or relationships with fee structures customized based on account type and other factors, with larger relationships paying a lower percentage of AUM in fees. For example, recurring AUM fee structures are in place for investment management, irrevocable and revocable trusts, personal investment retirement accounts and accounts holding only fixed income securities. 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.
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Assets Under Management by Account Type:
Total AUM (not included on balance sheet) increased to $7.64 billion at December 31, 2025 from $7.07 billion at December 31, 2024 as follows:
December 31, 2025
December 31, 2024
(in thousands)
Managed
Non-managed (1)
Total
Managed
Non-managed (1)
Total
Investment advisory
Personal trust
Personal investment retirement
Company retirement
Foundation and endowment
Subtotal
Custody and safekeeping
Total AUM
(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion.
As of December 31, 2025 and 2024, approximately 80% and 79%, respectively, of total AUM were actively managed. Company retirement plan accounts primarily consist of participant-directed assets. The amount of custody and safekeeping accounts are insignificant to overall WM&T operations.
Managed Trust AUM by Class of Investment:
(in thousands)
December 31, 2025
December 31, 2024
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 65% in equities and 35% in fixed income securities as of both December 31, 2025 and December 31, 2024, respectively. This composition has been relatively consistent from period to period.
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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, decreased $174,000, or 2%, for the year ended December 31, 2025, as compared with the same period of 2024. Consistent with the banking industry generally, Bancorp has experienced a steady decline in the volume of fees earned on overdrawn checking accounts over the past several years. This trend has been driven by lower check presentment volume, which has in turn led to fewer overdrawn accounts in general. Further, Bancorp anticipates that future growth of this revenue stream could be significantly impacted by changing industry practices. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the future, which could negatively impact the contributions made by this, or similar, revenue streams.
Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue decreased $209,000, or 1%, for the year ended December 31, 2025, as compared with the same period of 2024, driven mainly by lower transaction volumes. Total debit card income decreased $86,000, or less than 1%, and total credit card income decreased $123,000, or 2% for the year ended December 31, 2025, compared the same period of the prior year. While Bancorp generally expects this revenue stream to grow with continued expansion of the customer base, interchange rate compression and fluctuations in business and consumer spend levels could serve as challenges to future growth.
Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp and increased $615,000, or 6%, for the year ended December 31, 2025, as compared with the same period of 2024, driven by broad fee increases implemented towards the end of the first quarter of 2025 in addition to organic growth and new product sales. Treasury management fees have seen significant annual growth over the past several years, due in large part to acquisition-related customer base expansion and organic growth that was augmented by new product sales, including increased demand for fraud prevention services, in addition to the fee increases implemented in 2025. To the extent such activity cannot be replicated, future treasury management fee revenue will likely grow at a slower pace than has been experienced in recent years.
Mortgage banking income primarily includes gains on sales of mortgage loans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue increased $265,000, or 7%, for the year ended December 31, 2025, as compared with the same period of 2024, driven by higher origination volumes related largely to the addition of new sales officers.
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 $650,000, or 18%, for the year ended December 31, 2025 compared to the same period of 2024, attributed to the addition of new brokers and a general shift towards more profitable wrap-fee based business.
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 $73,000, or 3%, for the year ended December 31, 2025 compared to the same period of the prior year, consistent with yields compared to the prior year.
Gains on the sale of premises and equipment totaled $72,000 for the year ended December 31, 2025 and stemmed mainly from the sale of a property owned through a prior acquisition that had been held for sale. Losses on the sale of premises and equipment for the prior year totaled $100,000 and were the result of sales/disposals of various nominal fixed assets.
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Other non-interest income increased $361,000, or 14%, for the year ended December 31, 2025 compared with the same period of 2024, attributed mainly to higher swap fee income and gains recorded in relation to the sale of OREO.
Discussion of 2024 vs 2023:
Total non-interest income increased $3.0 million, or 3%, for the year ended December 31, 2024 compared to the same period of 2023. Non-interest income comprised 27% of total revenue, defined as net interest income and non-interest income, for the years ended both December 31, 2024 and 2023, respectively. WM&T revenue comprised 45% of total non-interest income for the year ended December 31, 2024 compared to 43% for the same period of 2023, respectively.
WM&T revenue increased $3.0 million, or 8%, for the year ended December 31, 2024, as compared with the same period of 2023, consistent with strong equity market appreciation and higher estate fee income, which more than offset a decline in net new business expansion.
Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased $40,000, or less than 1%, for the year ended December 31, 2024, as compared with the same period of 2023.
Debit and credit card revenue increased $644,000, or 3%, for the year ended December 31, 2024, as compared with the same period of 2023, driven by higher transaction volume and customer base expansion. Total debit card income increased $174,000, or 1%, and total credit card income increased $470,000, or 8% for the year ended December 31, 2024, compared the same period of the prior year.
Treasury management fees increased $1.0 million, or 10%, for the year ended December 31, 2024, as compared with the same period of 2023, driven by customer base expansion, increased transaction volume, growing international services and new product sales.
Mortgage banking revenue increased $153,000, or 4%, for the year ended December 31, 2024, as compared with the same period of 2023, driven by an increase in origination volume in addition to lower MSR amortization expense.
Net investment product sales commissions and fees increased $366,000, or 11%, for the year ended December 31, 2024 compared to the same period of 2023 consistent with organic growth and general market appreciation over the respective period.
BOLI income increased $190,000, or 8%, for the year ended December 31, 2024 compared to the same period of the prior year, attributed to general market appreciation and a reallocation of investments within the policy plans.
Losses on the sale of premises and equipment totaling $100,000 were recorded for the year ended December 31, 2024 and were the result of sales/disposals of various nominal fixed assets. Activity for the prior year was the result of the sale of an acquired property in addition to other merger-related disposal activity.
Other non-interest income decreased $2.4 million, or 49%, for the year ended December 31, 2024 compared with the same period of 2023. The decrease was driven largely by Bancorp’s decision not to renew the Captive in late 2023, which contributed approximately $1.6 million of other non-interest income for the year ended December 31, 2023. Further, the prior year benefitted from a plethora of non-recurring activity, including higher swap fee income and gains on the sale of acquired VISA class B stock and an OREO property.
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Non-interest Expenses
Variance
Years Ended December 31, (dollars in thousands)
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
Intangible amortization
Amortization of investments in tax credit partnerships
Other
Total non-interest expenses
Discussion of 2025 vs 2024:
Total non-interest expenses increased $14.2 million, or 7%, for the year ended December 31, 2025 compared to the same period of 2024. Compensation and employee benefits comprised 62% of Bancorp’s total non-interest expenses for the year ended December 31, 2025, compared to 61% for the same period of 2024.
Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased 9.7 million, or 10%, for the year ended December 31, 2025, as compared with the same period of 2024. The increase was attributed primarily to higher bonus accrual levels associated with strong operating results for the year and growth in full time equivalent employees. Net full time equivalent employees totaled 1,123 at December 31, 2025 compared to 1,080 at December 31, 2024.
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 $992,000, or 5%, for the year ended December 31, 2025, as compared with the same period of 2024, driven mainly by the previously mentioned growth in FTEs and to a lesser extent, higher health insurance claims activity.
Net occupancy and equipment expenses primarily include depreciation, rent, property taxes, utilities and maintenance. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense. Net occupancy expense increased $1.3 million, or 9%, for the year ended December 31, 2025, as compared with the same period of 2024, consistent with higher rent and depreciation expense in addition to general increases associated with branch network expansion, as three new branch locations were opened during the year. At December 31, 2025, Bancorp’s branch network consisted of 75 locations throughout Louisville, central, eastern and Northern Kentucky, as well as the MSAs of Indianapolis, Indiana and Cincinnati, Ohio.
Technology and communication expenses include computer software usage and licensing fees, equipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources. Technology expense increased $88,000, or less than 1%, for the year ended December 31, 2025 compared to the same period of 2024. The minimal growth compared to the prior year was attributed largely to changes in the timing of various planned technology investments.
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 $351,000, or 5%, for the year ended December 31, 2025 compared to the same period of last 2024, driven by higher processing fees, including increased fraud-mitigation and prevention expenses.
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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 $602,000, or 9%, for the year ended December 31, 2025, as compared to the same period of 2024, driven in large part by higher advertising expense tied to deposit product promotions in addition to various Bank initiatives, sponsorships and campaigns.
Postage, printing and supplies expense increased $101,000, or 3%, for the year ended December 31, 2025 compared to the same period of 2024, consistent with the previously mentioned deposit product promotions and other initiatives.
Legal and professional fees increased $104,000, or 3%, for the year ended December 31, 2025 compared to the same period of 2024, driven primarily by legal fees related to general corporate matters.
FDIC insurance expense increased $266,000, or 6%, for the year ended December 31, 2025, as compared to the same period of 2024, consistent with Bancorp’s growth in addition to changes in loan mix, as higher assessments are levied on C&D lending concentrations, a segment which has grown as a percentage of total loans.
Capital and deposit based taxes, which consist primarily of capital-based local income taxes and franchise taxes, increased $634,000, or 23%, for the year ended December 31, 2025 compared to the same period of 2024. Bancorp’s capital and deposit based tax expense is based on deposits held within various local taxing districts, as well as gross revenues generated within/appropriated to the state of Ohio, which is the only state Bancorp operates in with a capital-based deposit tax. The increase over the prior year stemmed mainly from the substantial deposit growth experienced during the year.
Intangible amortization expense consists of amortization associated with the CDI of acquired deposit portfolios, as well as an intangible related to customer list of the WM&T business line added through a past acquisition. The intangibles are amortized on an accelerated basis over a period of approximately ten years. Intangible amortization expense decreased $826,000, or 18%, for the year December 31, 2025 compared to the same period of 2024, which is attributed to the accelerated depreciation method for which intangible assets are amortized.
Other non-interest expenses increased $818,000, or 9%, for the year ended December 31, 2025, as compared to the same period of 2024, driven mainly by higher credit card rewards, increases in premiums for insurance policies related to general bank liabilities and costs associated with the new ICS deposit product offering.
Bancorp’s efficiency ratio (FTE) for the years ended December 31, 2025 and 2024 was 53.41% and 56.20%, respectively. The improvement in this ratio was the result of net interest income expansion outpacing growth in non-interest expenses.
Discussion of 2024 vs 2023:
Total non-interest expenses increased $10.4 million, or 6%, for the year ended December 31, 2024 compared to the same period of 2023. Compensation and employee benefits comprised 61% of Bancorp’s total non-interest expenses for the year ended December 31, 2024, compared to 59% for the same period of 2023.
Compensation expense increased $9.0 million, or 10%, for the year ended December 31, 2024, as compared with the same period of 2023. The increase was attributed to annual merit-based salary increases, higher bonus accruals and to a lesser extent, increased incentive compensation. Net full time equivalent employees totaled 1,080 at December 31, 2024 compared to 1,075 at December 31, 2023.
Employee benefits increased $1.8 million, or 10%, for the year ended December 31, 2024, as compared with the same period of 2023, driven mainly by an increase in health insurance claims activity.
Net occupancy expense decreased $1.2 million, or 7%, for the year ended December 31, 2024, as compared with the same period of 2023, as the prior year period included additional expense associated with centralizing the WM&T group into a singular location. At December 31, 2024, Bancorp’s branch network consisted of 72 locations throughout Louisville, central, eastern and Northern Kentucky, as well as the MSAs of Indianapolis, Indiana and Cincinnati, Ohio.
Technology expense increased $1.9 million, or 11%, for the year ended December 31, 2024 compared to the same period of 2023, consistent with Bancorp’s growth and continued investment in technology, including various security and compliance-related software upgrades.
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Debit and credit card processing expense increased $781,000, or 12%, for the year ended December 31, 2024 compared to the same period of last 2023, driven by increased transaction volume, customer base expansion and additional expense associated with fraud detection/mitigation services.
Marketing and business development expenses increased $934,000, or 16%, for the year ended December 31, 2024, as compared to the same period of 2023, driven in large part by higher advertising expense tied to time deposit product promotions. Bancorp also increased its contribution to the Bank’s foundation established to support various community initiatives.
Postage, printing and supplies expense increased $41,000, or 1%, for the year ended December 31, 2024 compared to the same period of 2023.
Legal and professional fees increased $153,000, or 4%, for the year ended December 31, 2024 compared to the same period of 2023. The increase related to compliance-related consulting projects associated with Bancorp approaching $10 billion in total assets.
FDIC insurance expense increased $628,000, or 16%, for the year ended December 31, 2024, as compared to the same period of 2023, consistent with Bancorp’s growth in addition to changes in loan mix, as higher assessments are levied on C&D lending concentrations, a segment which grew as a percentage of total loans.
Effective January 1, 2024, Bancorp adopted ASU 2023-02 and began booking tax credit amortization expense for all historical and low income tax credit projects as a component of income tax expense via the proportional amortization method. Such expense had previously been recorded as a component of non-interest expenses. As such, no tax credit amortization expense was recorded as non-interest expense for the year ended December 31, 2024. Expense of $1.3 million was recorded for the year ended December 31, 2023.
Capital and deposit based taxes increased $305,000, or 12%, for the year ended December 31, 2024 compared to the same period of 2023, consistent with general growth experienced during 2024.
Intangible amortization expense decreased $201,000, or 4%, for the year December 31, 2024 compared to the same period of 2023, which is attributed to the accelerated depreciation method for which intangible assets are amortized.
Other non-interest expenses decreased $2.5 million, or 22%, for the year ended December 31, 2024, as compared to the same period of 2023, driven largely by Bancorp’s decision not to renew the Captive in late 2023, in addition to the benefit of modifications made to the corporate credit card reward program and a decline in fraudulent check and card losses.
Bancorp’s efficiency ratio (FTE) for the years ended December 31, 2024 and 2023 was 56.20% and 55.23%, respectively. The increase in this ratio was the result of non-interest expense growth (on a percentage basis) outpacing net interest income and non-interest income expansion, as net interest income was hampered by rising funding costs.
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Income Taxes
A comparison of income tax expense and ETR follows:
Years Ended December 31, (dollars in thousands)
Income before income tax expense
Income tax expense
Effective tax rate
Discussion of 2025 vs 2024:
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 2.90% for the year ended December 31, 2025, compared to an increase of 3.12% for the same period of 2024. The impact to the ETR attributed to state income taxes for the current year was lower compared to the prior year, despite higher pre-tax income, due to recognizing more interest income from U.S. treasury securities, which is tax-exempt at the state level.
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 reduced by 0.34% for the year ended December 31, 2025 compared to an decrease of 0.76% for the same period of 2024, 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 0.53% and 0.61% for the year ended December 31, 2025 and 2024, 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 year ended December 31, 2025 and 2024 served to reduce the ETR 1.67% and 1.54%, respectively.
Tax-exempt interest income earned on loans and investment securities reduced the ETR by 0.31% and 0.43% for the year ended December 31, 2025 and 2024, respectively.
Discussion of 2024 vs 2023:
Fluctuations in the ETR are primarily attributed to the following:
Stock based compensation activity reduced the ETR by 0.76% for the year ended December 31, 2024 compared to a reduction of 0.31% for the same period of 2023, consistent with exercise activity driven by the rise in Bancorp’s stock price during 2024.
Changes in the cash surrender value of life insurance policies decreased the ETR by 0.61% and 0.64% for the years ended December 31, 2024 and 2023, respectively.
Effective January 1, 2024, Bancorp adopted ASU 2023-02 and began booking tax credit amortization expense for all tax credit projects as a component of income tax expense via the proportional amortization method. The cumulative impact of the adoption of ASU 2023-02 and tax credit amortization for the year ended December 31, 2024 served to reduce the ETR by 1.54%. The ETR was reduced by 0.54% by tax credit activity for the year ended December 31, 2023.
Tax-exempt interest income earned on loans and investment securities reduced the ETR by 0.43% and 0.50% for the years ended December 31, 2024 and 2023, respectively.
Activity related to the Captive, which previously provided tax advantages associated with the tax-deductible/exempt nature of insurance premiums paid to/received by the Captive, reduced the ETR by 0.20% for the year ended December 31, 2023. Bancorp elected not to renew the Captive during the third quarter of 2023 and subsequently dissolved it as of December 31, 2023. No tax benefit associated with the Captive was recorded for the year ended December 31, 2024.
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Financial Condition – December 31, 2025 Compared to December 31, 2024
Overview
Total assets increased $673 million, or 8%, to $9.54 billion at December 31, 2025 from $8.86 billion at December 31, 2024. The increase for 2025 was attributed to strong loan growth of $521 million, or 8%, and a $595 million, or 205%, increase in cash and cash equivalents, which was partially offset by a decline of $439 million, or 32%, in the investment securities portfolio attributed mainly to scheduled maturity activity.
Total liabilities increased $537 million, or 7%, to $8.46 billion at December 31, 2025 from $7.92 billion at December 31, 2024, with total deposit growth of $625 million, or 9%, which was driven in large part by successful deposit promotions and only offset partially by smaller declines in SSURA and other liabilities.
Stockholders’ equity increased $135 million, or 14%, to $1.08 billion at December 31, 2025 from $940 million at December 31, 2024, as net income of $140.2 million and a $29.9 million improvement in AOCI was offset by $37.1 million of cash dividends declared during 2025. The improvement in AOCI was associated with changes in the interest rate environment and the corresponding impact on the valuation of the AFS debt securities portfolio and cash flow hedging derivatives.
Cash and Cash Equivalents
Cash and cash equivalents increased $595 million, or 205%, ending at $886 million at December 31, 2025 compared to $291 million at December 31, 2024, which was attributed to the previously mentioned maturity activity within the investment securities portfolio in addition to deposit growth outpacing loan growth during 2025. The elevated cash levels held by Bancorp as of December 31, 2025 are consistent with current balance sheet management strategies implemented in preparation for approaching the $10 billion regulatory threshold for total assets.
Investment Securities
The primary purpose of the investment securities portfolio is to provide another source of interest income, as well as a tool for liquidity management. In managing the composition of the balance sheet, Bancorp seeks a balance between earnings sources, credit and liquidity considerations.
Investment securities decreased $439 million, or 32%, to $921 million at December 31, 2025 compared to $1.36 billion at December 31, 2024. This decline was driven mainly by scheduled maturities within the treasury portfolio specifically, and to a lesser extent, normal pay down activity. Investment in the securities portfolio during 2025 consisted of purchasing short-term treasury securities to put excess liquidity to work and provide collateral to meet pledging requirements, while still offering the funding flexibility allowed by their short duration. Bancorp opted to let these short-term investments mature in the latter part of the year, providing liquidity to fund continued loan growth and the ability to strategically manage the balance sheet.
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The maturity distribution (based on contractual maturity) and weighted average yields of the AFS and HTM investment security portfolios follow:
AFS
Due after one but
Due after five but
December 31, 2025
Due within one year
within five years
within ten years
Due after ten years
(dollars in thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Government sponsored enterprise obligations
Mortgage backed securities
Obligations of states and political subdivisions
Other
HTM
Due after one but
Due after five but
December 31, 2025
Due within one year
within five years
within ten years
Due after ten years
(dollars in thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
U.S. Treasury and other U.S. Government obligations
Government sponsored enterprise obligations
Mortgage backed securities
Actual maturities for mortgage-backed securities may differ from contractual maturities due to prepayments on underlying collateral.
FHLB Stock
FHLB stock holdings decreased $886,000, or 4%, to $21 million at December 31, 2025 compared to $22 million at December 31, 2024. The decrease was driven by a decline in FHLB borrowing activity during 2025, as FHLB members are required to hold certain levels of FHLB stock in relation to the amount of their borrowings. Bancorp’s reliance on overnight borrowings through the FHLB was gradually eliminated during 2025, consistent with substantial deposit growth. Bancorp’s FHLB stock holdings are expected to fluctuate consistent with borrowing activity from period to period.
Loans
Total loans increased $521 million, or 8%, from December 31, 2024 to December 31, 2025. The loan growth experienced during 2025 was well spread across loan categories, with CRE and C&D leading the way in addition to solid contributions from the C&I and residential real estate segments.
Total line of credit utilization has experienced steady improvement over the past several quarters, ending at 48.0% as of December 31, 2025 compared to 45.9% at December 31, 2024. Similarly, utilization within the C&I portfolio improved to 37.0% at December 31, 2025 compared to 33.7% at December 31, 2024, which was evidenced by the solid growth seen within the C&I line of credit segment of the loan portfolio.
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Bancorp’s credit exposure is diversified between businesses and individuals. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s ability to honor loan agreements is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass the Louisville, Kentucky MSA, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio MSAs.
CRE represents the largest segment of Bancorp’s loan portfolio, totaling $3.04 billion, or 43%, of total loans as of December 31, 2025. While a combination of higher interest rates and rising central business district vacancies across the country created credit and collateral concerns within the CRE sector generally over the past few years, Bancorp believes the quality of its CRE portfolio, and the overall loan portfolio, remains solid.
Office building exposure, which is a sub-segment of CRE and perceived to be of particular risk in the current environment, is a smaller component of Bancorp’s loan portfolio, totaling $605 million, or 9%, of total loans as of December 31, 2025. Approximately $255 million, or 42%, of Bancorp’s office building exposure is medical-related, which in management’s opinion presents reduced risk compared to other CRE uses. In addition, approximately $335 million, or 55%, of the office building exposure is owner-occupied and is generally accompanied by a full commercial banking relationship. This sub-segment is concentrated in Bancorp’s primary markets, with no exposure to large office towers and minimal exposure to central business districts, and continues to perform well with minimal substandard/non-accrual and past due loans as of December 31, 2025.
During the latter part of 2025, additional credit concerns surrounding lending to non-depository financial institutions (NDFIs) arose within the banking industry generally as a result of a few regional banks experiencing larger loan losses related to such borrowers and alleged fraud. In response, the FDIC implemented new reporting requirements related to NDFI lending, which were aimed mainly at institutions with $10 billion or more in total assets, to enable more insight into the underlying risks an institution may be exposed to.
While NDFIs include bank holding companies, mortgage companies and insurance companies, they can also include real estate investment trusts, private equity firms and hedge funds, which are perceived to carry greater risk. Bancorp’s exposure to NDFIs is minimal, totaling approximately $53 million, or less than 1% of total loans, as of December 31, 2025, and relates entirely to bank holding companies that maintain correspondent banking relationships with Bancorp.
Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain participation loans sold, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their ownership share of the loan without permission from Bancorp. The participated portion of these loans are recorded as secured borrowings. These participated loans are included in the C&I and CRE loan portfolio segments with a corresponding liability recorded in other liabilities. At both December 31, 2025 and December 31, 2024, the total participated portion of loans of this nature totaled $2 million.
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The following table presents the maturity distribution and rate sensitivity of the loan portfolio at December 31, 2025:
Maturity
December 31, 2025 (dollars in thousands)
Within one
year
After one
but within
five years
After five
but within
fifteen years
After
fifteen
years
Total
% of Total
Commercial real estate - non-owner occupied
Fixed rate
Variable rate
Total
Commercial real estate - owner-occupied
Fixed rate
Variable rate
Total
Commercial and industrial - term
Fixed rate
Variable rate
Total
Commercial and industrial - lines of credit
Fixed rate
Variable rate
Total
Residential real estate - owner occupied
Fixed rate
Variable rate
Total
Residential real estate - non-owner occupied
Fixed rate
Variable rate
Total
Construction and land development
Fixed rate
Variable rate
Total
Home equity lines of credit
Fixed rate
Variable rate
Total
Consumer
Fixed rate
Variable rate
Total
(continued)
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(continued)
Maturity
December 31, 2025 (dollars in thousands)
Within one
year
After one
but within
five years
After five
but within
fifteen years
After
fifteen
years
Total
% of Total
Leases
Fixed rate
Variable rate
Total
Credit Cards
Fixed rate
Variable rate
Total
Total Loans
Fixed rate
Variable rate
Total
In the event Bancorp structures a loan with a maturity exceeding five years (typically CRE loans), an automatic rate adjustment will typically be set in place at five years from origination date to limit overall interest rate sensitivity.
Non-performing Loans and Assets
Information summarizing non-performing loans and assets follows:
December 31, (dollars in thousands)
Non-accrual loans
Modifications to borrowers experiencing financial difficulty
Loans past due 90 days or more and still accruing
Total non-performing loans
Other real estate owned
Total non-performing assets
Non-performing loans to total loans
Non-performing assets to total assets
ACL for loans to non-performing loans
Non-performing assets totaled $13 million at December 31, 2025 compared to $22 million at December 31, 2024. The decrease in total non-accrual loans between December 31, 2024 and December 31, 2025 stemmed from three larger non-accrual relationships finding resolution during the year, two of which came in the form of payoffs and the other through the sale of a property.
In total, non-performing assets as of December 31, 2025 were comprised of approximately 90 loans ranging in individual amounts up to $1.2 million and one residential real estate property held as OREO.
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The following table presents the major classifications of non-accrual loans by portfolio class:
December 31, (in thousands)
Commercial real estate - non-owner occupied
Commercial real estate - owner occupied
Total commercial real estate
Commercial and industrial - term
Commercial and industrial - lines of credit
Total commercial and industrial
Residential real estate - owner occupied
Residential real estate - non-owner occupied
Total residential real estate
Construction and land development
Home equity lines of credit
Consumer
Leases
Credit cards
Total non-accrual loans
Loans are placed in a non-accrual income status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more, unless such a loan is well- secured and in the process of collection or renewal. Interest income recorded on non-accrual loans as principal payments totaled $538,000, $624,000, and $342,000 for 2025, 2024, and 2023. Interest income that would have been recorded if non-accrual loans were on a current basis in accordance with their original terms totaled $2.0 million, $1.3 million, and $1.5 million for 2025, 2024, and 2023.
In addition to non-performing loans discussed above, there were loans, which are accruing interest, for which payments were current or less than 90 days past due where borrowers are experiencing elevated financial difficulties. These substandard loans totaled approximately $46 million and $60 million at December 31, 2025 and 2024, respectively, the decrease over the prior year being attributed to a number of CRE and C&I relationships being upgraded or paying off during 2025. These relationships are monitored closely for possible future reclassification as non-performing loans. Management believes it has adequately reflected credit exposure in these loans in its determination of the allowance.
During the years ended December 31, 2025 and 2024, 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.
Delinquent Loans
Delinquent loans (consisting of all loans 30 days or more past due) totaled $26 million and $32 million at December 31, 2025 and December 31, 2024. Delinquent loans to total loans were 0.38% and 0.50% at December 31, 2025 and December 31, 2024, respectively. The decrease in delinquent loans over this period was driven mainly by two larger and unrelated CRE and C&I relationships that were past due at December 31, 2024 and ultimately paid off during the year.
Classified Loans
Classified loans, which consist of loans defined as OAEM, substandard, substandard non-performing (including non-accrual loans discussed above) and doubtful, totaled $151 million and $162 million at December 31, 2025 and December 31, 2024. The decrease over this period was driven mainly by payoff activity for previously classified loans.
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Loans classified as OAEM have potential weaknesses requiring management’s heightened attention that may result in deterioration of repayment prospects on the loan or of Bancorp’s credit position at some future date. OAEM loans totaled $92 million and $81 million as of December 31, 2025 and December 31, 2024, respectively. The increase in OAEM loans experienced between December 31, 2024 and December 31, 2025 was driven largely by CRE and C&I loans that were upgraded from substandard during the year. As of December 31, 2025, all loans classified as OAEM were current with their contractual payments.
Allowance for Credit Losses on Loans
The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP. When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See the footnote titled “ Summary of Significant Accounting Policies ” for discussion of Bancorp’s ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp’s judgment, should be charged-off.
Bancorp’s ACL for loans was $92 million as of December 31, 2025 compared to $87 million as of December 31, 2024. Provision expense for credit losses on loans of $5.6 million was recorded for the year December 31, 2025, consistent with strong loan growth, changes in the FRB’s national unemployment forecast, a decrease in specific reserves and annual CECL model updates. Net charge offs of $626,000 were recorded for the year ended December 31, 2025, serving to decrease the ACL for loans.
The ACL for loans calculation and resulting credit loss expense is significantly impacted by changes in forecasted economic conditions. Should the forecast for economic conditions change, Bancorp could experience further adjustments in its required ACL for loans credit loss expense.
The table below details net charge-offs to average loans outstanding by portfolio class:
(dollars in thousands)
Years ended December 31,
Net
(charge
offs)/
recoveries
Average loans
Net
(charge
offs)/
recoveries
to average
loans
Net
(charge
offs)/
recoveries
Average loans
Net
(charge
offs)/
recoveries
to average
loans
Net
(charge
offs)/
recoveries
Average loans
Net
(charge
offs)/
recoveries
to average
loans
Commercial real estate - non-owner occupied
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
Credit cards
Total
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The following table sets forth the ACL by portfolio class:
December 31, 2025
December 31, 2024
(dollars in thousands)
Allocated
Allowance
% of Total
ACL for
loans
ACL for
loans to Total
Loans
Allocated
Allowance
% of Total
ACL for
loans
ACL for
loans to
Total Loans
Commercial real estate - non-owner occupied
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
Credit cards
Total
Selected ratios relating to the ACL on loans follow:
Years Ended December 31,
Provision for credit losses on loans to average total loans
Net (charge offs)/recoveries to average total loans
ACL for loans to average loans
ACL for loans to total loans
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures experienced an increase between December 31, 2024 and December 31, 2025. Provision expense of $1.2 million was recorded for off balance sheet credit exposures for the year ended December 31, 2025, driven by higher construction loan availability assumptions. The ACL for off balance sheet credit exposures totaled $7.9 million and $6.8 million as of December 31, 2025 and December 31, 2024.
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 $6.0 million, or 5%, between December 31, 2024 and December 31, 2025, driven primarily by the addition of three new branch locations during the year. Bancorp’s branch network currently consists of 75 locations throughout Louisville, central, eastern and northern, Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio markets.
Premises held for sale totaling $1.7 million and $2.3 million was recorded on Bancorp’s consolidated balance sheets as of December 31, 2025 and December 31, 2024, respectively. The decrease during 2025 was attributed to the sale of a former administrative building owned through a prior acquisition during the second quarter. Premises held for sale consisted of three vacant parcels of land and one former branch location as of December 31, 2025.
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BOLI
Bank-owned life insurance assets increased $3 million, or 3%, to $92 million at December 31, 2025, compared to $89 million at December 31, 2024, the increase being attributed to general appreciation of the cash surrender values within the policy plans experienced during the year.
Goodwill
At December 31, 2025 and December 31, 2024, Bancorp had $194 million in goodwill recorded on its balance sheet.
Events that could potentially trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price declining below tangible book value), negative trends in overall financial performance and regulatory actions. In 2025, Bancorp changed its goodwill impairment testing date from September 30 to October 1. The change was applied prospectively and was not material to the Company’s consolidated financial statements, as it did not delay, accelerate or avoid an impairment charge. At September 30, 2025 and 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 December 31, 2025 and December 31, 2024, Bancorp’s CDI assets totaled $7 million and $9 million, respectively. As of December 31, 2025 and December 31, 2024, Bancorp’s CLI assets totaled $5 million and $7 million, respectively, and were attributed entirely to the WM&T segment.
As of December 31, 2024, Bancorp did not incur any impairment with respect to its intangible assets or other long-lived assets.
Other Assets and Other Liabilities
Other assets decreased $4 million, or 1%, to $305 million between December 31, 2024 and December 31, 2025. Other liabilities decreased $37 million, or 14%, to $221 million over the same period. The decrease in other assets was associated mainly with declines in DTAs and interest rate swap assets driven by changes in the interest rate environment generally, which were only partially offset by additional tax credit investments. The decrease in other liabilities was driven largely by a reduction in accrued tax credit investment contributions, which are made according to scheduled contractual commitments related to the respective investments.
Deposits
Total deposits increased $625 million, or 9%, from December 31, 2024 to December 31, 2025. Interest bearing deposits increased $645 million, or 11%, tied primarily to the success of deposit promotions during the first half of the year, which more than offset a $20 million, or 1%, decline in non-interest bearing deposits.
Bancorp continues to experience a shift in the deposit portfolio mix, as customers have sought higher-yielding alternatives in the current interest rate environment. However, the cost of interest-bearing deposits declined during the year from 2.59% to 2.53% for the year ended December 31, 2025, as Bancorp lowered deposit rates in tandem with the FRB’s interest rate reductions during the year. While this provided benefit to NIM, the cost of total deposits (including non-interest bearing deposits) increased 1 bp from 2.01% to 2.02% for the year ended December 31, 2025 as interest-bearing deposits have become a larger proportion of total deposits. Bancorp is cautious regarding deposit costs due to potential deposit pricing pressure/competition and the continued shift in deposit mix.
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Average deposit balances and average rates paid on such deposits for the years indicated are summarized as follows:
Years Ended December 31, (dollars in thousands)
Average
balance
Average
rate
Average
balance
Average
rate
Average
balance
Average
rate
Non-interest bearing demand deposits
Interest bearing demand deposits
Savings deposits
Money market deposits
Time deposits
Total average deposits
Bancorp is a commercial bank, and as a result, is dependent on large commercial deposit relationships as a primary funding source. While this dependance drives an uninsured deposit ratio that may be higher than some of Bancorp’s similarly-sized peers, the majority of these deposits are considered to be core funds, as they represent long-standing, full-service relationships and are a testament to Bancorp’s commitment to partner with business customers by providing exemplary service and competitive products. Bancorp monitors and evaluates this primary funding source frequently and maintains numerous secondary funding sources as part of a multifaceted contingency funding plan.
The maturity distribution of time deposits exceeding FDIC insurance limits and the uninsured portion of those time deposits as of December 31, 2025 follows:
(in thousands)
Time Deposits Over FDIC
Insurance Limits
Uninsured Portion of
Time Deposits Exceeding
FDIC Insurance Limits
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
As of December 31, 2025 and 2024, Bancorp estimates that approximately $3.3 billion and $3.2 billion of its deposit portfolio was uninsured, respectively. The uninsured amounts are estimates based on methodologies and assumptions used by Bancorp in accordance with regulatory reporting requirements. Included in these totals are certain public fund and other deposits for which Bancorp pledges investment securities as collateral. In conjunction with FDIC insurance, the pledged collateral effectively guarantees the full amount of these deposits, which totaled $598 million and $852 million as of December 31, 2025 and 2024. The decrease between December 31, 2024 and December 31, 2025 is attributed to Bancorp’s implementation of the ICS (insured cash sweep) deposit offering, which provides an alternative collateralization option to pledging investment securities.
During 2025, Bancorp implemented ICS, a new deposit product offering for larger depositors that require collateralization. This product was added to the portfolio of offerings to allow flexibility for both liquidity needs and strategic balance sheet management, as we continue to grow towards $10 billion in total assets. ICS allows us to provide the necessary collateralization for public funds clients and other larger depositors in the form of a reciprocal network of other banks, which effectively spreads large deposit balances amongst enough participating banks to achieve FDIC coverage for each client. In turn, we receive deposits from other banks, helping them to achieve a similar goal. As collateral is provided to our clients through this network, the investments securities we would have otherwise had to pledge as collateral are now unrestricted from a liquidity perspective.
Additionally, the ICS network provides a one-way sell service, which will enable us to move large deposit balances off balance sheet temporarily by sending an equivalent amount of cash to the same network of participating banks. In this scenario, we do not receive any deposits, effectively helping us lower total assets (and total liabilities by lowering total deposits) to remain under the $10 billion threshold. Such activity occurs overnight and the deposits (and cash) are brought back on balance sheet the next day.
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While both the reciprocal and one-way sell services offered by the ICS network may be utilized by Bancorp, the deposit customers of the Bank remain our customers. ICS effectively sweeps balances back and forth, so customers are minimally affected by the operational requirements and are provided the security of FDIC coverage.
Securities Sold Under Agreement to Repurchase
SSUAR declined $51 million, or 31%, between December 31, 2024 and December 31, 2025, driven mainly by a number of clients within the product switching into other deposit offerings, primarily to the previously mentioned ICS offering.
SSUAR represent a funding source of Bancorp and are used by commercial customers in conjunction with collateralized corporate cash management accounts. Such repurchase agreements are considered financing agreements and mature within one business day from the transaction date. At December 31, 2025 and December 31, 2024, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and mortgage-backed securities that were owned and controlled by Bancorp.
SSUAR are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under Bancorp’s control.
Federal Funds Purchased and Other Short-Term Borrowing
FFP and other short-term borrowing balances decreased $764,000 between December 31, 2024 and December 31, 2025. At December 31, 2024, FFP related to excess liquidity held by downstream correspondent bank customers of Bancorp.
Subordinated debentures
As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of December 31, 2025, subordinated notes added through the CB acquisition totaled $27 million.
FHLB advances
FHLB advances outstanding totaled $300 million at both December 31, 2025 and December 31, 2024, 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. ”
Average FHLB advances decreased $27 million, or 7%, for the year ended December 31, 2025 compared to the prior year. The utilization of overnight borrowings in the current year was eliminated after the first quarter as deposit growth and investment maturities provided significant liquidity for the remainder of the year. No overnight borrowings were outstanding as of December 31, 2025, nor December 31, 2024.
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 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.
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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 $816 million and $212 million at December 31, 2025 and December 31, 2024, respectively. The significant increase experienced between 2024 and 2025 was driven by the previously mentioned deposit growth and investment maturities. FFS normally have overnight maturities while interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity purposes.
The fair value of the AFS debt security portfolio was $722 million and $990 million at December 31, 2025 and December 31, 2024, respectively. The decrease in AFS debt security portfolio for 2025 was attributed mainly to scheduled treasury maturities, and to a lesser extent, normal amortization. The investment portfolio (HTM and AFS) includes total cash flows on amortizing debt securities of approximately $199 million (based on assumed prepayment speeds and contractual maturities as of December 31, 2025) expected over the next 12 months. Combined with FFS and interest bearing deposits from banks, AFS debt securities offer substantial resources to meet either loan growth or reductions in Bancorp’s deposit funding base.
Bancorp pledges portions of its investment securities portfolio to secure public funds, cash balances of certain WM&T accounts and SSUAR. At December 31, 2025, the total carrying value of investment securities pledged for these purposes comprised 77% of the debt securities portfolio, leaving approximately $214 million of unpledged debt securities, compared to 63% and $508 million at December 31, 2024. The decrease in pledged securities between 2024 and 2025 was attributed mainly to Bancorp’s utilization of the ICS deposit network.
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 December 31, 2025, such deposits totaled $6.44 billion and represented 83% of Bancorp’s total deposits, as compared with $6.14 billion, or 86% of total deposits at December 31, 2024. Because core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they normally do not place undue pressure on liquidity. However, deposits may generally be more sensitive to market rates, with potential decreases possibly straining Bancorp’s liquidity position.
As of both December 31, 2025 and December 31, 2024, Bancorp held no brokered deposits.
Included in total deposit balances at December 31, 2025 are $781 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, 2024, public funds deposits totaled $663 million.
Bancorp is a member of the FHLB of Cincinnati. As a member of the FHLB, Bancorp has access to credit products of the FHLB. Bancorp views these borrowings as a potential low cost alternative to brokered deposits. At December 31, 2025 and December 31, 2024, available credit from the FHLB totaled $1.47 billion and $1.25 billion, respectively. Bancorp also had unsecured FFP lines with correspondent banks totaling $80 million at both December 31, 2025 and December 31, 2024, 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 December 31, 2025, the Bank could pay an amount equal to $263 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank.
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Sources and Uses of Cash
Cash flow is provided primarily through financing activities of Bancorp, which include raising deposits and borrowing funds from institutional sources such as advances from the FHLB and FFP, as well as scheduled loan repayments and cash flows from AFS debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which include making loans and purchasing securities for the investment portfolio. Another important source of cash is net income of the Bank from operating activities. For further detail regarding the sources and uses of cash, see the “Consolidated Statements of Cash Flows” in Bancorp’s consolidated financial statements.
Commitments
In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in Bancorp’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt.
Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of credit. Unused loan commitments decreased $108 million, or 4%, as of December 31, 2025 compared to December 31, 2024, largely as a result of a decrease in future loan commitments.
Most commitments to extend credit are an agreement to lend to a customer as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.
Additional detail regarding credit-related financial instruments, including both commitments to extend credit and letters of credit at December 31, 2025 are as follows:
Amount of commitment expiration per period
Less than
One-three
Three-five
Over five
(in thousands)
one year
years
years
years
Total
Unused loan commitments
Standby letters of credit
The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, was $7.9 million and $6.8 million as of December 31, 2025 and December 31, 2024, respectively. Provision expense for off balance sheet credit exposures of $1.2 million was recorded for the year ended December 31, 2025, driven by higher construction loan availability assumptions. Provision expense for off balance sheet credit exposures of $925,000 was recorded for the year ended December 31, 2024.
Standby letters of credit are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party beneficiary. Those guarantees are primarily issued to support commercial transactions. Standby letters of credit generally have maturities of one to two years.
In addition to owned banking facilities, Bancorp has entered into long-term leasing arrangements for certain branch facilities. Bancorp also has required future payments for a non-qualified defined benefit retirement plan, time deposit maturities and other obligations.
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Required payments under such commitments at December 31, 2025 are as follows:
Payments due by period
Less than
One-three
Three-five
Over five
(in thousands)
one year
years
years
years
Total
Time deposit maturities
FHLB advances
Tax credit partnership contributions
Subordinated debentures
Operating leases (1)
Defined benefit retirement plan
Other (2)
(1) Includes assumed lease renewals.
(2) Consists primarily of contractual requirements relating to community sponsorships.
See the footnote titled “ Commitments and Contingent Liabilities ” for additional detail regarding commitments.
Capital
Information pertaining to Bancorp’s capital balances and select ratios follow:
Years ended December 31, (dollars in thousands, except per share data)
Stockholders’ equity
Dividends per share
Dividend payout ratio, based on basic EPS
Annual dividend yield
At December 31, 2025, stockholders’ equity totaled $1.08 billion, representing an increase of $135 million, or 14%, compared to December 31, 2024, as net income of $140.2 million and an $29.9 million improvement in AOCI was offset by $37.1 million of dividends declared during 2025. The improvement in AOCI was associated with changes in the interest rate environment and the corresponding impact on the valuation of the AFS debt securities portfolio and cash flow hedging derivatives. See the “ Condensed Consolidated Statement of Changes in Stockholders ’ Equity ” for further detail of changes in equity.
Bancorp’s TCE ratio and tangible book value per share, both non-GAAP disclosures, experienced improvement between December 31, 2024 and December 31, 2025, which stemmed largely from recording net income of $140.2 million. TCE was 9.32% at December 31, 2025 compared to 8.44% at December 31, 2024, while tangible book value per share was $29.50 at December 31, 2025, compared to $24.82 at December 31, 2024. See the section titled “ Non-GAAP Financial Measures ” for reconcilement of non-GAAP to GAAP measures.
In July 2025, Bancorp’s Board of Directors adopted a share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4%, of Bancorp’s total common shares outstanding. This share repurchase program replaces the program that expired in May and will expire in two years unless otherwise extended or completed at an earlier date. The plan does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan’s expiration. Bancorp has not repurchased shares under any share repurchase program since 2019.
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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 December 31, 2025 increased compared December 31, 2024, as a result of record operating results, which served to offset strong risk-weighted asset growth from the loan portfolio. Bancorp continues to exceed the regulatory requirements for all calculations. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.
Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized for prompt corrective action requirements, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.
Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered adequately-capitalized. At December 31, 2025, the adequately-capitalized minimums, including the capital conservation buffer, were a 7.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio. Bancorp exceeded these levels as of December 31, 2025 and 2024.
As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of December 31, 2025, subordinated notes totaled $27 million.
As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, Bancorp elected the option to delay the estimated impact on regulatory capital related to the adoption of ASC 326 “ Financial Instruments – Credit Losses, ” or CECL , which was effective January 1, 2020. The initial impact of adoption of ASC 326, as well as 25% of the quarterly increases in the ACL subsequent to adoption of ASC 326 (collectively the “transition adjustments”) were delayed for two years. After two years, the cumulative amount of the transition adjustments became fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four and 25% recognized in year five. After five years, the temporary regulatory capital benefits were fully reversed. 2024 represented the fifth and final year of the transition period for Bancorp. Had Bancorp not elected to defer the regulatory capital impact of CECL, the post ASC 326 adoption capital ratios of Bancorp and the Bank would still have exceeded the well-capitalized level.
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Non-GAAP Financial Measures
The following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity (“TCE”), a non-GAAP disclosure. Bancorp provides the TCE per share, a non-GAAP measure, in addition to those defined by banking regulators, based on its widespread use by investors as a means to evaluate capital adequacy:
December 31, (dollars and shares in thousands, except per share data)
Total stockholders' equity - GAAP (a)
Less: Goodwill
Less: Core deposit and other intangibles
Tangible common equity - Non-GAAP (c)
Total assets - GAAP (b)
Less: Goodwill
Less: Core deposit and other intangibles
Tangible assets - Non-GAAP (d)
Total stockholders' equity to total assets - GAAP (a/b)
Tangible common equity to tangible assets - Non-GAAP (c/d)
Total shares outstanding (e)
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.
Years ended December 31, (dollars in thousands)
Total non-interest expenses (a)
Less: Amortization of investments in tax credit partnerships
Total non-interest expenses - Non-GAAP (c)
Total net interest income, FTE
Total non-interest income
Total revenue - Non-GAAP (b)
Less: (Gain)/loss on sale of premises and equipment
Less: Loss on sale of securities
Total adjusted revenue - Non-GAAP (d)
Efficiency ratio - Non-GAAP (a/b)
Adjusted efficiency ratio - Non-GAAP (c/d)
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Interest income on a FTE basis includes the additional amount 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, state and local taxes yielding the same after-tax income. Interest income, yields and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal corporate income tax rate of 21%.
Years ended December 31, (dollars in thousands)
Total interest income - GAAP (a)
FTE adjustment for tax-exempt loans
FTE adjustment for tax-exempt securities
Total interest income, FTE - Non-GAAP (b)
