1ST SOURCE CORP

Previous wording

The following management’s discussion and analysis is presented to provide information concerning 1st Source Corporation and its subsidiaries’ (collectively referred to as “the Company”, “we”, and “our”) financial condition as of September 30, 2024, as compared to December 31, 2023, and the results of operations for the three and nine months ended September 30, 2024 and 2023. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2023 Annual Report.

Current wording

The following management’s discussion and analysis is presented to provide information concerning 1st Source Corporation and its subsidiaries’ (collectively referred to as “the Company”, “we”, and “our”) financial condition as of March 31, 2025, as compared to December 31, 2024, and the results of operations for the three months ended March 31, 2025 and 2024. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2024 Annual Report.

Previous wording

Our total assets at September 30, 2024 were $8.76 billion, an increase of $35.99 million or 0.41% from December 31, 2023. Total investment securities available-for-sale were $1.56 billion, a decrease of $59.14 million or 3.64% from December 31, 2023. The largest contributor to the decrease in investment securities available-for-sale was expected redemptions, which were used to fund loan growth and pay down borrowings. Federal funds sold and interest bearing deposits with other banks were $69.46 million, an increase of $17.27 million or 33.08% from December 31, 2023. The increase in federal funds sold and interest bearing deposits with other banks was due to higher interest bearing deposits at other banks.

Current wording

Our total assets at March 31, 2025 were $8.96 billion, an increase of $31.18 million or 0.35% from December 31, 2024. Total investment securities available-for-sale were $1.50 billion, a decrease of $34.42 million or 2.24% from December 31, 2024. The largest contributor to the decrease in investment securities available-for-sale was expected redemptions. Federal funds sold and interest bearing deposits with other banks were $135.00 million, an increase of $87.01 million or 181.32% from December 31, 2024. The increase in federal funds sold and interest bearing deposits with other banks was due to higher interest bearing deposits at other banks as a result of growth in deposit balances and the expected maturities of investment securities.

Previous wording

Total loans and leases were $6.62 billion, an increase of $97.60 million or 1.50% from December 31, 2023. The largest contributors to the increase in loans and leases was growth in the renewable energy, construction equipment, commercial real estate and residential real estate and home equity portfolios, offset by decreases in the commercial and agricultural, auto and light truck, medium and heavy duty truck, and aircraft portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars were $304.00 million and $302.41 million as of September 30, 2024 and December 31, 2023, respectively. Foreign loans and leases are in aircraft financing. Loan and lease balances to borrowers in Brazil and Mexico were $132.57 million and $137.72 million as of September 30, 2024, respectively, compared to $119.38 million and $147.61 million as of December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, there was not a significant concentration in any other country.

Current wording

Total loans and leases were $6.86 billion, an increase of $8.59 million or 0.13% from December 31, 2024. The largest contributors to the increase in loans and leases was growth in the renewable energy, commercial real estate, residential real estate and home equity, and auto and light truck portfolios, offset by decreases in the construction equipment, consumer, and aircraft portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars were $299.00 million and $301.18 million as of March 31, 2025 and December 31, 2024, respectively. Foreign loans and leases are in aircraft financing. Loan and lease balances to borrowers in Brazil and Mexico were $133.26 million and $136.55 million as of March 31, 2025, respectively, compared to $129.12 million and $145.85 million as of December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, there was not a significant concentration in any other country.

Previous wording

Equipment owned under operating leases was $13.01 million, a decrease of $7.36 million, or 36.11% compared to December 31, 2023. The largest contributors to the decrease in equipment owned under operating leases was reduced leasing volume primarily due to a change in customer preferences and continued competitive pricing pressure for new business.

Current wording

Equipment owned under operating leases was $9.86 million, a decrease of $1.62 million, or 14.10% compared to December 31, 2024. The largest contributors to the decrease in equipment owned under operating leases was reduced leasing volume primarily due to a change in customer preferences and continued competitive pricing pressure for new business.

Previous wording

Total deposits were $7.13 billion, an increase of $87.36 million or 1.24% from the end of 2023. The largest contributors to the increase in total deposits was higher time, savings, and interest-bearing public fund deposits offset by lower brokered time deposits, consumer and business interest-bearing demand deposits and noninterest-bearing demand deposits. Rate competition for deposits persisted during the third quarter across our footprint from various sources, including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.

Current wording

Total deposits were $7.42 billion, an increase of $187.73 million or 2.60% from the end of 2024. The largest contributors to the increase in total deposits was higher savings and time deposits offset by lower interest-bearing demand deposits. Rate competition for deposits persisted during the first quarter across our footprint from various sources, including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.

Previous wording

Short-term borrowings were $165.68 million, a decrease of $146.68 million or 46.96% from December 31, 2023, due primarily to pay downs of short-term FHLB borrowings offset by an increase in repurchase agreements. Long-term debt and mandatorily redeemable securities were $39.22 million, a decrease of $8.69 million or 18.14% from December 31, 2023, due primarily to maturities of long-term FHLB borrowings. Accrued expenses and other liabilities were $199.14 million, a decrease of $2.94 million or 1.46% from December 31, 2023, mainly due to decreased unfunded partnership commitments, offset by increased accrued interest payable.

Current wording

Short-term borrowings were $61.18 million, a decrease of $188.02 million or 75.45% from December 31, 2024, due primarily to the maturity and pay off of $100 million in borrowings from the Federal Reserve’s Bank Term Funding Program and pay downs of short-term FHLB borrowings. Long-term debt and mandatorily redeemable securities were $41.21 million, an increase of $2.05 million or 5.25% from December 31, 2024, due primarily to an increase in mandatorily redeemable securities. Accrued expenses and other liabilities were $163.66 million, a decrease of $9.62 million or 5.55% from December 31, 2024, mainly due to decreased accrued interest payable, annual incentive-related payments to employees, and decreased unfunded partnership commitments offset by an increase in accounts payable and the reserve for unfunded commitments.

Previous wording

The largest contributors to the decrease in accrued income and other assets from December 31, 2023, were decreases in partnership investments, the fair value of interest rate swap contracts with customers, accounts receivable and deferred tax assets, offset by increased bank owned life insurance cash surrender value during the period.

Current wording

The largest contributors to the decrease in accrued income and other assets from December 31, 2024 were decreases in accounts receivable, partnership investments, and deferred tax assets offset by increased repossessions.

Previous wording

As of September 30, 2024, total shareholders’ equity was $1.10 billion, up $114.69 million, or 11.59% from the $989.57 million at December 31, 2023. In addition to net income of $101.19 million, other significant changes in shareholders’ equity during the first nine months of 2024 included $25.54 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity decreased to $71.23 million at September 30, 2024, compared to $106.32 million at December 31, 2023, due to changes in market conditions on our available-for-sale investment portfolio. Our shareholders’ equity-to-assets ratio was 12.60% as of September 30, 2024, compared to 11.34% at December 31, 2023. Book value per common share increased to $45.05 at September 30, 2024, from $40.50 at December 31, 2023, primarily due to increased retained earnings and decreased accumulated other comprehensive losses.

Current wording

As of March 31, 2025, total shareholders’ equity was $1.16 billion, up $50.39 million, or 4.54% from the $1.11 billion at December 31, 2024. In addition to net income of $37.52 million, other significant changes in shareholders’ equity during the first three months of 2025 included $8.87 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity decreased to $67.88 million at March 31, 2025, compared to $87.23 million at December 31, 2024, due to changes in market conditions on our available-for-sale investment portfolio. Our shareholders’ equity-to-assets ratio was 12.96% as of March 31, 2025, compared to 12.44% at December 31, 2024. Book value per common share increased to $47.29 at March 31, 2025, from $45.31 at December 31, 2024, primarily due to increased retained earnings and decreased accumulated other comprehensive losses.

Previous wording

We declared and paid cash dividends per common share of $0.36 during the third quarter of 2024. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 26.34%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

Current wording

We declared and paid cash dividends per common share of $0.36 during the first quarter of 2025. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 24.96%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

Previous wording

External sources as listed in the table above are managed to approved guidelines by our Board of Directors. Total net available liquidity was $3.38 billion at September 30, 2024, which accounted for approximately 51% of total deposits net of brokered and listing services certificates of deposit.

Current wording

External sources as listed in the table above are managed to approved guidelines by our Board of Directors. Total net available liquidity was $3.44 billion at March 31, 2025, which accounted for approximately 50% of total deposits net of brokered and listing services certificates of deposit.

Previous wording

Our loan to asset ratio was 75.49% at September 30, 2024 compared to 74.69% at December 31, 2023 and 74.53% at September 30, 2023. Cash and cash equivalents totaled $169.36 million at September 30, 2024 compared to $129.67 million at December 31, 2023 and $111.14 million at September 30, 2023. The increase in cash and cash equivalents was primarily due to an increase in core deposits and the expected redemptions of investment securities available-for-sale. At September 30, 2024, the Consolidated Statements of Financial Condition was rate sensitive by $496.59 million more liabilities than assets scheduled to reprice within one year, or approximately 0.89%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

Current wording

Our loan to asset ratio was 76.57% at March 31, 2025 compared to 76.74% at December 31, 2024 and 75.71% at March 31, 2024. Cash and cash equivalents totaled $222.82 million at March 31, 2025 compared to $124.83 million at December 31, 2024 and $80.91 million at March 31, 2024. The increase in cash and cash equivalents was primarily due to an increase in deposits and the expected redemptions of investment securities available-for-sale. At March 31, 2025, the Consolidated Statements of Financial Condition was rate sensitive by $442.12 million more liabilities than assets scheduled to reprice within one year, or approximately 0.90%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

Previous wording

Under Indiana law governing the collateralization of public fund deposits, the Indiana Board of Depositories determines which financial institutions are required to pledge collateral based on the strength of their financial ratings. We have been informed that no collateral is required for our public fund deposits. However, the Board of Depositories could alter this requirement in the future and adversely impact our liquidity. Our potential liquidity exposure if we must pledge collateral is approximately $1.24 billion.

Current wording

Under Indiana law governing the collateralization of public fund deposits, the Indiana Board of Depositories determines which financial institutions are required to pledge collateral based on the strength of their financial ratings. We have been informed that no collateral is required for our public fund deposits. However, the Board of Depositories could alter this requirement in the future and adversely impact our liquidity. Our potential liquidity exposure if we must pledge collateral is approximately $1.28 billion.

Previous wording

Net income available to common shareholders for the three and nine month periods ended September 30, 2024 was $34.94 million and $101.19 million compared to $32.94 million and $96.50 million for the same periods in 2023. Diluted net income per common share was $1.41 and $4.09 for the three and nine month periods ended September 30, 2024, compared to $1.32 and $3.87 earned for the same periods in 2023. Return on average common shareholders’ equity was 13.02% for the nine months ended September 30, 2024, compared to 14.04% in 2023. The return on total average assets was 1.55% for the nine months ended September 30, 2024, compared to 1.54% in 2023.

Current wording

Net income available to common shareholders for the three month period ended March 31, 2025 was $37.52 million compared to $29.46 million for the same period in 2024. Diluted net income per common share was $1.52 for the three month period ended March 31, 2025, compared to $1.19 earned for the same period in 2024. Return on average common shareholders’ equity was 13.33% for the three months ended March 31, 2025, compared to 11.77% in 2024. The return on total average assets was 1.72% for the three months ended March 31, 2025, compared to 1.37% in 2024.

Previous wording

Net income increased for the nine months ended September 30, 2024, compared to the first nine months of 2023. Net interest income increased and noninterest expense decreased offset by an increase in the provision for credit losses and a decrease in noninterest income. Details of the changes in the various components of net income are discussed further below.

Current wording

Net income increased for the three months ended March 31, 2025, compared to the first three months of 2024. Net interest income and noninterest income increased and the provision for credit losses decreased offset partially by an increase in noninterest expense. Details of the changes in the various components of net income are discussed further below.

Previous wording

The taxable-equivalent net interest income for the three months ended September 30, 2024 was $75.63 million, an increase of 8.97% over the same period in 2023. The net interest margin on a fully taxable-equivalent basis was 3.64% for the three months ended September 30, 2024, compared to 3.46% for the three months ended September 30, 2023.

Current wording

The taxable-equivalent net interest income for the three months ended March 31, 2025 was $81.09 million, an increase of 12.52% over the same period in 2024. The net interest margin on a fully taxable-equivalent basis was 3.90% for the three months ended March 31, 2025, compared to 3.54% for the three months ended March 31, 2024.

Previous wording

During the three month period ended September 30, 2024, average earning assets increased $309.76 million, up 3.89% over the comparable period in 2023. Average interest-bearing liabilities increased $240.11 million or 4.31%. The yield on average earning assets increased 57 basis points to 5.93% from 5.36% at September 30, 2023, primarily due to higher rates on loans and leases and higher balances of other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper. Total cost of average interest-bearing liabilities increased 56 basis points to 3.27% from 2.71% as a result of higher rates on interest-bearing deposits and a rise in imputed interest on mandatorily redeemable securities. The result to the tax-equivalent net interest margin, or the ratio of tax-equivalent net interest income to average earning assets, was an increase of 18 basis points.

Current wording

During the three month period ended March 31, 2025, average earning assets increased $252.63 million, up 3.09% over the comparable period in 2024. Average interest-bearing liabilities increased $136.78 million or 2.36%. The yield on average earning assets increased 21 basis points to 5.94% from 5.73% at March 31, 2024, primarily due to higher loan and lease average balances and higher rates on investment securities. Total cost of average interest-bearing liabilities decreased 20 basis points to 2.90% from 3.10% as a result of lower rates on interest-bearing deposits and other short-term borrowings. The result to the tax-equivalent net interest margin, or the ratio of tax-equivalent net interest income to average earning assets, was an increase of 36 basis points.

Previous wording

The largest contributors to the improved yield on average earning assets for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was an increase in yields on loans and leases and higher balances of other investments, primarily excess reserves held at the Federal Reserve Bank. The yield on loans and leases grew 57 basis points, mainly from rising interest rates. Average loans and leases increased $359.79 million or 5.76%, primarily in the commercial real estate, renewable energy, construction equipment, auto and light truck, and residential real estate portfolios. Net interest recoveries positively contributed four basis points to the yield on average loans and leases during the quarter and four basis points to the average loans and leases yield during the prior year third quarter. Average investment securities decreased $106.69 million or 6.48%, primarily due to the use of proceeds from matured securities to fund loan growth. Average other investments, primarily held at the Federal Reserve Bank, increased $56.07 million or 81.76%.

Current wording

The largest contributors to the improved yield on average earning assets for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was an increase in average loan and lease balances and higher rates on investments securities offset by lower rates on other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper. The yield on loans and leases grew two basis points, mainly from higher net interest recoveries. Average loans and leases increased $294.88 million or 4.53%, primarily in the commercial real estate, construction equipment, and renewable energy portfolios. Net interest recoveries positively contributed nine basis points to the yield on average loans and leases during the quarter and seven basis points to the average loans and leases yield during the prior year first quarter. Average investment securities decreased $88.92 million or 5.53%, due to the expected redemption of securities used partially to pay down short-term borrowings. Average other investments, primarily held at the Federal Reserve Bank, increased $46.08 million or 67.59%.

Previous wording

Average interest-bearing deposits increased $287.03 million, or 5.47% for the third quarter of 2024 over the same period in 2023 primarily in savings, time, and interest-bearing public fund deposits. The effective rate on average interest-bearing deposits increased 55 basis points to 3.15% from 2.60%, in line with the competitive rate environment. Average noninterest-bearing deposits declined $102.71 million or 6.03% for the third quarter of 2024 over the same period in 2023, largely due to greater utilization of excess funds by our business customers, and a heightened rate sensitivity in our customer base given the overall level of market yields.

Current wording

Average interest-bearing deposits increased $350.28 million, or 6.49% for the first quarter of 2025 over the same period in 2024 primarily in time, savings, and interest-bearing demand deposits. The effective rate on average interest-bearing deposits decreased 15 basis points to 2.81% from 2.96%, primarily as a result of Fed rate cuts during the second half of 2024. Average noninterest-bearing deposits declined $27.84 million or 1.72% for the first quarter of 2025 over the same period in 2024, largely due to greater utilization of excess funds by our business customers, and a heightened rate sensitivity in our customer base given the overall level of market yields.

Previous wording

Average short-term borrowings decreased $39.52 million or 18.44% for the third quarter of 2024 compared to the same period in 2023. Interest on short-term borrowings decreased 52 basis points due to lower short-term FHLB borrowings and utilization of the Federal Reserve’s Bank Term Funding Program. Interest on subordinated notes decreased two basis points during the third quarter of 2024 from the same period a year ago due to a slight variable rate decrease on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $7.40 million or 15.91%, primarily from the maturity of long-term debt. Interest on long-term debt and mandatorily redeemable securities increased 1,006 basis points during the third quarter of 2024 from the same period in 2023, primarily due to higher imputed interest on mandatorily redeemable securities from a larger increase in book value per share during the quarter compared to the previous year’s third quarter. Mandatorily redeemable securities are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense.

Current wording

Average short-term borrowings decreased $205.96 million or 72.87% for the first quarter of 2025 compared to the same period in 2024. Interest on short-term borrowings decreased 315 basis points due to the maturity and pay off of $100 million in borrowings from the Federal Reserve’s Bank Term Funding Program and lower short-term FHLB borrowings. Interest on subordinated notes decreased 26 basis points during the first quarter of 2025 from the same period a year ago due to a variable rate decrease on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $7.54 million or 15.97%, primarily from the maturity of long-term debt. Interest on long-term debt and mandatorily redeemable securities increased 752 basis points during the first quarter of 2025 from the same period in 2024, primarily due to higher imputed interest on mandatorily redeemable securities from a larger increase in book value per share during the quarter compared to the previous year’s first quarter. Mandatorily redeemable securities are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense.

Previous wording

The provision for credit losses for the three and nine months ended September 30, 2024, was $3.11 million and $9.76 million compared to $0.86 million and $3.96 million during the three and nine months ended September 30, 2023. Net charge-offs of $0.85 million or 0.05% of average loans and leases were recorded for the third quarter of 2024, compared to net charge-offs of $0.33 million or 0.02% of average loans and leases for the same quarter a year ago. Year-to-date net charge-offs of $4.99 million or 0.10% of average loans and leases have been recorded in 2024, compared to net recoveries of $0.85 million or 0.02% of average loans and leases through September 30, 2023. Net charge-offs recognized in 2024 are principally concentrated in the commercial and agricultural portfolio.

Current wording

The provision for credit losses for the three months ended March 31, 2025, was $3.27 million compared to $7.48 million during the three months ended March 31, 2024. Net charge-offs of $0.18 million or 0.01% of average loans and leases were recorded for the first quarter of 2025, compared to net charge-offs of $6.12 million or 0.38% of average loans and leases for the same quarter a year ago. Net charge-offs recognized during the quarter were modest, principally distributed between the construction equipment, consumer, and commercial and agricultural portfolios and largely offset by net recoveries in our auto and light truck and aircraft portfolios.

Previous wording

The provision for credit losses for the three months ended September 30, 2024, was driven by a change in quantitative assumptions regarding the treatment of renewals for loans in special attention which increased historical loss rates primarily in the commercial and agricultural and construction equipment portfolios, a slight increase in the forecast adjustment due to a mixed forward economic outlook, and an increase in special attention outstandings which carry higher reserves, most notably in the auto and light truck and commercial and agricultural portfolios. Risks include a fragile domestic GDP outlook, heightened geopolitical instability, tightened credit conditions, a softening labor market, and continued elevated levels of inflation and interest rates. We remain concerned about the potential risks in our small business portfolio, as liquidity provided by government programs afforded to our lending clients dissipates. Clients in our auto and light truck portfolio are experiencing softening rental rates and pockets of excess fleet inventory. Consumers remain under stress and economic imbalances are prevalent as rising consumer costs have tended to outpace income growth. Impairment reserves for assets individually evaluated total $1.55 million this quarter, consisting of accounts in our construction equipment and commercial and agricultural portfolios.

Current wording

The provision for credit losses for the three months ended March 31, 2025, was driven by an accretive change in the forecast adjustment due to a weakened forward economic outlook with increased uncertainty and downside risks, partially offset by a decline in special attention outstandings which carry higher reserves, most notably in the auto and light truck portfolio due to defleeting activity. Risks include an unpredictable trade environment, a weakened domestic GDP outlook, heightened geopolitical instability, continued tight credit conditions, limited softening in the labor market, and continued elevated levels of inflation and interest rates. We remain concerned about the potential risks in our small business portfolio, as domestic trade proposals increase the potential for pricing instability and shifting demand dynamics which may impact our customers. Clients in our auto and light truck portfolio are experiencing softening rental rates and pockets of excess fleet inventory. The potential for pricing volatility may impact clients in multiple portfolios which operate under long-term contracts that can often lack adequate cost escalators. Consumers remain under stress and economic imbalances are prevalent as rising consumer costs have tended to outpace income growth. Impairment reserves for assets individually evaluated total $0.64 million this quarter, consisting of accounts in our aircraft, construction equipment, and auto and light truck portfolios.

Previous wording

We continually evaluate risks which may impact our loan portfolios. Such risks include a cautious economic outlook and increased uncertainty fueled by widening conflicts around the world, and the Federal Reserve’s challenge of maintaining full employment, while balancing inflation and interest rate concerns in the effort to maintain overall economic stability. The possibility for economic disruption remains a concern, as geopolitical events and fragile growth prospects raise the potential for adverse impacts in the domestic and global economies. Higher interest rates apply downward pressure to asset values which collateralize our loans. Credit market conditions remain tightened. The growth outlook in the U.S. is mixed, and is susceptible to disruption caused by global conflicts and an environment of heightened instability. The upcoming domestic election presents additional uncertainty while highlighting increasing division within the electorate and uncompromising political partisanship. Political discord is also an ever-present threat in our Latin American markets. Corruption scandals persist and U.S. border concerns are heightened. Globally, there is an ever-present threat of terrorism.

Current wording

We continually evaluate risks which may impact our loan portfolios. Such risks include a weakened economic outlook and increased uncertainty fueled by proposed significant changes in domestic trade policy, ongoing conflicts around the world with the potential to impact commodity prices and shipping routes, and the Federal Reserve’s challenge of maintaining full employment, while balancing inflation and interest rate concerns in an effort to maintain overall economic stability. The possibility for a downside economic scenario is heightened as disruptive trade policy, geopolitical uncertainty, and fragile growth prospects raise the potential for adverse impacts in the domestic and global economies. The potential for trade disruption increases asset price volatility and higher interest rates apply downward pressure to asset values which collateralize our loans. Credit market conditions remain tightened, and uncertainty has increased. The growth outlook in the U.S. has weakened and is susceptible to disruption caused by global conflicts and an environment of heightened instability. Our domestic political environment is fraught with uncompromising partisanship. Political discord and corruption scandals are also an ever-present threat in our Latin American markets. Globally, there is an ongoing threat of terrorism.

Previous wording

Our aircraft portfolio exhibits collateral concentration and contains $304 million of foreign exposure at September 30, 2024, the majority of which is in Mexicoand Brazil. We review political and economic data for these countries on a regular basis to assess the impact the environment may have on our customers. Historically, we have experienced volatile and unanticipated losses in both the foreign and domestic segments of our aircraft portfolios. Losses have been primarily attributable to unexpected declines in the value of specific aircraft collateral at a time when the borrower is experiencing financial difficulties. We review and assess aircraft values on an ongoing basis and use a tiered approach to establish advance rates and amortization schedules to limit collateral exposure. We continually monitor individual customer performance and assess risks in the overall portfolio.

Current wording

Our aircraft portfolio exhibits collateral concentration and contains $299 million of foreign exposure at March 31, 2025, the majority of which is in Mexicoand Brazil. We review political and economic data for these countries on a regular basis to assess the impact the environment may have on our customers. We have recognized minimal credit losses in recent years in the aircraft portfolio. However, historically, we have experienced brief periods of volatile and unanticipated losses in both the foreign and domestic aircraft segments. Losses have been primarily attributable to unexpected declines in the value of specific aircraft collateral at a time when the borrower is experiencing financial difficulties. We review and assess aircraft values on an ongoing basis and use a tiered approach to establish advance rates and amortization schedules to limit collateral exposure. We continually monitor individual customer performance and assess risks in the overall portfolio.

Previous wording

On September 30, 2024, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.31%, compared to 0.10% on September 30, 2023. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.30% compared to 2.27% one year ago. A summary of loan and lease loss experience during the three and nine months ended September 30, 2024 and 2023 is located in Note 5 of the Consolidated Financial Statements.

Current wording

On March 31, 2025, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.09%, compared to 0.08% on March 31, 2024. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.29% compared to 2.26% one year ago. A summary of loan and lease loss experience during the three months ended March 31, 2025 and 2024 is located in Note 5 of the Consolidated Financial Statements.

Previous wording

Nonperforming assets totaled $30.89 million at September 30, 2024, an increase of 27.45% from the $24.24 million reported at December 31, 2023, and a 80.40% increase from the $17.12 million reported at September 30, 2023. The increase in nonperforming assets during the first nine months of 2024 was related to higher nonaccrual loans and leases. The increase in nonperforming assets at September 30, 2024 from September 30, 2023, was also related to an increase in nonaccrual loans and leases. There were no properties held in other real estate at September 30, 2024.

Current wording

Nonperforming assets totaled $43.07 million at March 31, 2025, an increase of 37.46% from the $31.33 million reported at December 31, 2024, and a 92.02% increase from the $22.43 million reported at March 31, 2024. The increase in nonperforming assets during the first three months of 2025 was primarily related to higher nonaccrual loans and leases and repossessions. The increase in nonperforming assets as of March 31, 2025 from March 31, 2024, was also related to an increase in nonaccrual loans and leases and repossessions. There were no properties held in other real estate as of March 31, 2025.

Previous wording

The increase in nonaccrual loans and leases at September 30, 2024 from December 31, 2023, was predominantly in our construction equipment portfolio offset by lower balances in our commercial and agricultural portfolio due to charge-off activity during the year. A summary of nonaccrual loans and leases and past due aging for the period ended September 30, 2024, and December 31, 2023, is located in Note 4 of the Consolidated Financial Statements.

Current wording

The increase in nonaccrual loans and leases at March 31, 2025 from December 31, 2024, was predominantly in our auto and light truck portfolio as a large account was transferred to nonaccrual status during the quarter along with modest increases in our aircraft and commercial and agricultural portfolios. A summary of nonaccrual loans and leases and past due aging for the period ended March 31, 2025, and December 31, 2024, is located in Note 4 of the Consolidated Financial Statements.

Previous wording

Repossessions consisted of a few loans in the construction equipment and consumer portfolios at September 30, 2024. At the time of repossession, the recorded amount of the loan or lease is written down to the fair value of the equipment or vehicle by a charge to the allowance for loan and lease losses or other income, if a positive adjustment, unless the equipment is in the process of immediate sale. Any subsequent fair value write-downs or write-ups, to the extent of previous write-downs, are included in noninterest expense.

Current wording

Repossessions consisted primarily of a loan relationship in the construction equipment portfolio, coupled with minimal amounts in our auto and light truck, commercial and agricultural, and consumer portfolios at March 31, 2025. At the time of repossession, the recorded amount of the loan or lease is written down to the fair value of the equipment or vehicle by a charge to the allowance for loan and lease losses or other income, if a positive adjustment, unless the equipment is in the process of immediate sale. Any subsequent fair value write-downs or write-ups, to the extent of previous write-downs, are included in noninterest expense.

Previous wording

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased during the three and nine months ended September 30, 2024, compared with the same periods a year ago. Trust and wealth advisory fees are largely based the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at September 30, 2024, December 31, 2023, and September 30, 2023, was $6.03 billion, $5.46 billion, and $4.96 billion, respectively. Positive equity market returns during the first nine months of 2024 resulted in an increase in assets under management.

Current wording

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased during the three months ended March 31, 2025, compared with the same period a year ago. Trust and wealth advisory fees are largely based the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at March 31, 2025, December 31, 2024, and March 31, 2024, was $5.93 billion, $5.97 billion, and $5.71 billion, respectively. Negative equity market returns during the first quarter of 2025 resulted in adecrease in assets under management compared to December 31, 2024.

Previous wording

Debit card income increased during the three months ended September 30, 2024, but decreased for the first nine months of 2024 compared to the same periods a year ago. The increase during the third quarter was due to an overall increase in client transactions. The primary driver of the decrease for the nine months ending September 30, 2024 was related to shifts in both client transaction behavior and the networks over which those merchants are routing transactions.

Current wording

Debit card income decreased during the three months ended March 31, 2025, compared to the same period a year ago. The decrease during the first quarter was due to shifts in both client transaction behavior and the networks over which those merchants are routing transactions.

Previous wording

Mortgage banking income increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023. The increase was primarily a result of higher production and margins on loans originated for the secondary market.

Current wording

Mortgage banking income decreased during the three months ended March 31, 2025, compared to the same period in 2024. The decrease was primarily a result of lower production of loans originated for the secondary market along with a reduction in servicing fees resulting from fewer loans being serviced for others.

Previous wording

Insurance commissions decl ined during the three and nine months ended September 30, 2024, compared to the same periods a year ago. The decrease was mainly due to decreased contingent commissions received.

Current wording

Insurance commissions increased during the three months ended March 31, 2025, compared to the same period a year ago. The increase was mainly due to increased contingent commissions received.

Previous wording

Equipment rental income decreased for the three and nine months ended September 30, 2024, over the comparable periods in 2023. The decline was the result of a reduction in the average equipment rental portfolio by 42.4% over the same period a year ago, due to changing customer preferences and competitive pricing pressures for new business.

Current wording

Equipment rental income decreased for the three months ended March 31, 2025, over the comparable period in 2024. The decline was the result of a reduction in the average equipment rental portfolio by 47.28% over the same period a year ago, due to changing customer preferences and competitive pricing pressures for new business.

Previous wording

Other income decreased for the three and nine months ended September 30, 2024, compared to the comparable periods in 2023. The decrease was primarily the result of decreased partnership investment gains on sale of renewable energy tax equity investments, customer interest rate swap fees, and a decline in bank owned life insurance policy claims recognized offset by a rise in brokerage commissions and fees.

Current wording

Other income increased for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily the result of increased partnership investment gains on sale of renewable energy tax equity investments, customer interest rate swap fees, and higher brokerage and commission fees.

Previous wording

Salaries and employee benefits increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023. Higher base salaries were a result of normal merit increases, wage inflation, as well as a higher headcount due to fewer open positions compared to the previous year. Additionally, increases in incentive compensation were offset by a reduction in group insurance claims.

Current wording

Salaries and employee benefits increased during the three months ended March 31, 2025, compared to the same period in 2024. Higher base salaries were a result of normal merit increases, increased incentive compensation as well as higher group insurance costs.

Previous wording

Net occupancy expense increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023. The increase for both periods was primarily due to increased premises expenses and higher rent.

Current wording

Net occupancy expense increased during the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to increased snow removal costs due to seasonal weather, higher depreciation and increased premises repairs.

Previous wording

Furniture and equipment expenses, including depreciation, increased during the third quarter of 2024, and were relatively flat during the nine months ended September 30, 2024, compared to the same periods a year ago. The increase in the quarter was primarily due to increased equipment repairs and purchases of furniture and equipment.

Current wording

Furniture and equipment expenses, including depreciation, increased during the first quarter of 2025 compared to the same period a year ago. The increase in the quarter was primarily due to an increase in equipment repairs and higher equipment depreciation.

Previous wording

Data processing expense grew during the three and nine months ended September 30, 2024, compared to the same periods a year ago due primarily to higher computer processing charges and software maintenance expense on technology projects.

Current wording

Data processing expense grew during the three months ended March 31, 2025, compared to the same period a year ago due primarily to higher computer processing charges and software maintenance expense on technology projects.

Previous wording

Depreciation on leased equipment decreased for the three and nine months ended September 30, 2024, compared to the same periods in 2023. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Current wording

Depreciation on leased equipment decreased for the three months ended March 31, 2025, compared to the same period in 2024. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Previous wording

Professional fees were higher during the three and nine months ended September 30, 2024, compared to the same periods a year ago. The increase was primarily due to a $1.08 million reversal of accrued legal fees in the first quarter of 2023, as well as an increase in audit and examination fees and professional consulting fees during the year.

Current wording

Professional fees were higher during the three months ended March 31, 2025, compared to the same period a year ago. The increase was primarily due to an increase in audit and legal fees.

Previous wording

FDIC and other insurance was lower during the third quarter of 2024, and was higher during the nine months ended September 30, 2024, compared to the same periods in 2023. The decrease for the quarter was the result of lower blanket bond insurance premiums due to a more cost effective policy renewal during the quarter. The increase for the first nine months of 2024 was mainly due to higher blanket bond insurance premiums as compared to the prior year.

Current wording

FDIC and other insurance was lower during the first quarter of 2025 compared to the same period in 2024. The decrease for the quarter was the result of lower blanket bond insurance premiums due to a more cost effective policy renewal.