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 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.

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 June 30, 2025, as compared to December 31, 2024, and the results of operations for the three and six months ended June 30, 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 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.

Current wording

Our total assets at June 30, 2025, were $9.09 billion, an increase of $155.22 million or 1.74% from December 31, 2024. Total investment securities available-for-sale were $1.46 billion, a decrease of $80.14 million or 5.22% 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 $60.30 million, an increase of $12.31 million or 25.65% 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 $6.86 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.

Current wording

Total loans and leases were $7.10 billion, an increase of $243.16 million or 3.55% from December 31, 2024. The largest contributors to the increase in loans and leases was growth in the renewable energy, commercial and agricultural, commercial real estate and residential real estate and home equity portfolios, offset by decreases in the consumer and medium and heavy duty truck portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars were $301.53 million and $301.18 million as of June 30, 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 $138.16 million and $146.11 million as of June 30, 2025, respectively, compared to $129.12 million and $145.85 million as of December 31, 2024, respectively. As of June 30, 2025, and December 31, 2024, there was not a significant concentration in any other country.

Previous 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.

Current wording

Equipment owned under operating leases was $8.65 million, a decrease of $2.83 million, or 24.65% 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 $7.42 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.

Current wording

Total deposits were $7.44 billion, an increase of $212.63 million or 2.94% from the end of 2024. The largest contributors to the increase in total deposits were higher savings, time and interest-bearing demand deposits offset by a decrease in non-interest bearing deposits. Rate competition for deposits persisted during the second 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 $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.

Current wording

Short-term borrowings were $110.06 million, a decrease of $139.14 million or 55.84% 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 $41.85 million, an increase of $2.69 million or 6.88% from December 31, 2024, due primarily to an increase in mandatorily redeemable securities. Accrued expenses and other liabilities were $176.40 million, an increase of $3.12 million or 1.80% from December 31, 2024, mainly due to increased accrued accounts payable and unfunded partnership commitments offset by a decrease in accrued interest payable.

Previous 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.

Current wording

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

Previous 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.

Current wording

As of June 30, 2025, total shareholders’ equity was $1.20 billion, up $87.52 million, or 7.88% from the $1.11 billion at December 31, 2024. In addition to net income of $74.84 million, other significant changes in shareholders’ equity during the first six months of 2025 included $18.22 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity decreased to $56.76 million at June 30, 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 13.19% as of June 30, 2025, compared to 12.44% at December 31, 2024. Book value per common share increased to $48.86 at June 30, 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 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.

Current wording

We declared and paid cash dividends per common share of $0.38 during the second quarter of 2025. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 25.57%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

Previous 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.

Current wording

Our loan to asset ratio was 78.11% at June 30, 2025, compared to 76.74% at December 31, 2024, and 74.94% at June 30, 2024. Cash and cash equivalents totaled $149.11 million at June 30, 2025, compared to $124.83 million at December 31, 2024, and $269.24 million at June 30, 2024. The increase in cash and cash equivalents for the six month period ended June 30, 2025 was primarily due to an increase in deposits and the expected redemptions of investment securities available-for-sale. The decrease in cash and cash equivalents compared to June 30, 2024, was primarily due to funding loan growth and the repayment of short-term borrowings. At June 30, 2025, the Consolidated Statements of Financial Condition was rate sensitive by $462.18 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 $1.28 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 $1.48 billion.

Previous 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.

Current wording

Net income available to common shareholders for the three and six month periods ended June 30, 2025, was $37.32 million and $74.84 million compared to $36.79 million and $66.25 million for the same periods in 2024. Diluted net income per common share was $1.51 and $3.02 for the three and six month periods ended June 30, 2025, compared to $1.49 and $2.68 earned for the same periods in 2024. Return on average common shareholders’ equity was 12.96% for the six months ended June 30, 2025, compared to 13.10% in 2024. The return on total average assets was 1.69% for the six months ended June 30, 2025, compared to 1.53% in 2024.

Previous 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.

Current wording

Net income increased for the six months ended June 30, 2025, compared to the first six months of 2024. Net interest income and noninterest income increased offset partially by an increase in the provision for credit losses and 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 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.

Current wording

The taxable-equivalent net interest income for the three months ended June 30, 2025, was $85.35 million, an increase of 15.03% over the same period in 2024. The net interest margin on a fully taxable-equivalent basis was 4.01% for the three months ended June 30, 2025, compared to 3.59% for the three months ended June 30, 2024.

Previous 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.

Current wording

During the three month period ended June 30, 2025, average earning assets increased $240.42 million, up 2.90% over the comparable period in 2024. Average interest-bearing liabilities increased $74.71 million or 1.26%. The yield on average earning assets increased 10 basis points to 5.98% from 5.88% at June 30, 2024, primarily due to higher loan and lease average balances and higher rates on investment securities. Total cost of average interest-bearing liabilities decreased 39 basis points to 2.81% from 3.20% primarily 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 42 basis points.

Previous 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%.

Current wording

The largest contributors to the improved yield on average earning assets for the three months ended June 30, 2025, compared to the three months ended June 30, 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 decreased 14 basis points, mainly from lower rates on loans during the quarter compared to the prior year second quarter. Average loans and leases increased $362.25 million or 5.48%, primarily in the renewable energy, commercial real estate, commercial and agricultural, and construction equipment portfolios. Net interest reversals during the quarter had no impact on the yield on average loans and leases while net interest recoveries contributed five basis points to the average loans and leases yield during the prior year second quarter. Average investment securities decreased $77.74 million or 5.00%, due to the expected redemption of securities used to fund loan growth and pay down short-term borrowings. Average other investments, primarily held at the Federal Reserve Bank, decreased $43.30 million or 31.20% and were used to fund loan growth.

Previous 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.

Current wording

Average short-term borrowings decreased $98.90 million or 44.61% for the second quarter of 2025 compared to the same period in 2024. Interest on short-term borrowings decreased 124 basis points due to the maturity and pay off of $100 million in borrowings from the Federal Reserve’s Bank Term Funding Program during the first quarter of this year along with lower rates on short-term FHLB borrowings. Interest on subordinated notes decreased 39 basis points during the second 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 increased $2.74 million or 7.10%. Interest on long-term debt and mandatorily redeemable securities increased 231 basis points during the second 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 second 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

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.

Current wording

Average interest-bearing deposits increased $260.66 million or 4.74% for the first six months of 2025 over the same period in 2024 primarily due to the increased interest-bearing demand deposits, savings, and time deposit balances. The effective rate paid on average interest-bearing deposits decreased 27 basis points to 2.76% from 3.03% mainly from Fed rate cuts during the second half of 2024. Average noninterest-bearing deposits declined $16.69 million or 1.04% for the first six months of 2025 over the same period in 2024 primarily due to persistent rate competition for deposits and greater utilization of excess funds by our business customers.

Previous 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.

Current wording

The provision for credit losses for the three and six months ended June 30, 2025, was $7.69 million and $10.96 million compared to a recovery of $0.31 million and a provision of $7.16 million during the three and six months ended June 30, 2024. Net charge-offs of $1.87 million or 0.11% of average loans and leases were recorded for the second quarter of 2025, compared to net recoveries of $1.99 million or 0.12% of average loans and leases for the same quarter a year ago. Year-to-date net charge-offs of $2.05 million or 0.06% of average loans and leases have been recorded in 2025, compared to net charge-offs of $4.14 million or 0.13% of average loans and leases through June 30, 2024. Net charge-offs recognized in 2025 are principally concentrated in the construction equipment, consumer, and auto and light truck portfolios.

Previous 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.

Current wording

The provision for credit losses for the three months ended June 30, 2025, was principally driven by loan growth and an increase in special attention balances which are reserved at higher rates, most notably in the auto and light truck portfolio. The forecast adjustment was unchanged as the previous assumptions continue to be applicable to economic conditions expected during the forecast period. 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 the small business portion of the commercial and agricultural portfolio, as domestic trade proposals increase the potential for pricing instability and shifting demand dynamics which may impact our customers. The agricultural portion of this portfolio is reporting increased special attention activity as financial performance has been adversely impacted by lower commodity prices. Clients in our auto and light truck portfolio are experiencing lower rental rates, higher fleet carrying costs, and overcapacity. A modest qualitative adjustment was made in the current quarter to account for higher special attention balances along with increasing delinquency and nonperforming rates in the auto rental portion of the portfolio. Consumers remain under stress, economic imbalances are prevalent, and confidence is waning. Reserves for assets individually evaluated total $2.26 million this quarter, consisting largely of accounts in our auto and light truck and commercial and agricultural portfolios.

Previous 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.

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 is pervasive. The growth outlook in the U.S. remains 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 $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.

Current wording

Our aircraft portfolio exhibits collateral concentration and contains $302 million of foreign exposure at June 30, 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 foreign and domestic aircraft. 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 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.

Current wording

On June 30, 2025, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.52%, compared to 0.36% on June 30, 2024. 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 2.26% one year ago. A summary of loan and lease loss experience during the three and six months ended June 30, 2025, and 2024 is located in Note 5 of the Consolidated Financial Statements.

Previous 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.

Current wording

Nonperforming assets totaled $75.54 million at June 30, 2025, an increase of 141.08% from the $31.33 million reported at December 31, 2024, and a 262.59% increase from the $20.83 million reported at June 30, 2024. The increase in nonperforming assets during the first six months of 2025 was primarily related to higher nonaccrual loans and leases and repossessions. The increase in nonperforming assets as of June 30, 2025, from June 30, 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 June 30, 2025.

Previous 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.

Current wording

The increase in nonaccrual loans and leases at June 30, 2025, from December 31, 2024, was predominantly in our auto and light truck portfolio as several large accounts were transferred to nonaccrual status during the year. A summary of nonaccrual loans and leases and past due aging for the periods ended June 30, 2025, and December 31, 2024, is located in Note 4 of the Consolidated Financial Statements.

Previous 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.

Current wording

Repossessions consisted primarily of two loan relationships in the construction equipment portfolio and one in the domestic aircraft portfolio, coupled with minimal amounts in our auto and light truck, and consumer portfolios at June 30, 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 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.

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 and six months ended June 30, 2025, compared with the same periods a year ago. Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at June 30, 2025, December 31, 2024, and June 30, 2024, was $5.94 billion, $5.97 billion, and $5.83 billion, respectively. Larger than average customer withdrawals to meet income tax payments during the first six months of 2025 resulted in adecrease in assets under management compared to December 31, 2024.

Previous wording

Service charges on deposit accounts remained flat for the comparable period in 2024.

Current wording

Service charges on deposit accounts remained flat for the comparable periods in 2024.

Previous 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.

Current wording

Debit card income remained flat during the three months ended June 30, 2025, but decreased during the six months ended June 30, 2025, compared to the same periods a year ago. The decrease during the first six months was due to shifts in both client transaction behavior and the networks over which those merchants are routing transactions.

Previous 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.

Current wording

Mortgage banking income decreased during the three and six months ended June 30, 2025, compared to the same periods 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 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.

Current wording

Insurance commissions increased during the three and six months ended June 30, 2025, compared to the same periods a year ago. The increase was mainly due to higher contingent commissions received and an increased book of business.

Previous 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.

Current wording

Equipment rental income decreased for the three and six months ended June 30, 2025, over the comparable periods in 2024. The decline was the result of a reduction in the average equipment rental portfolio by 44.04% over the same period a year ago, due to changing customer preferences and competitive pricing pressures for new business.

Previous 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.

Current wording

Other income increased for the three and six months ended June 30, 2025, compared to the same periods in 2024. The increase was primarily the result of gains on sale of renewable energy tax equity investments, gains from a small business capital investment, increased customer interest rate swap fees, and higher brokerage and commission fees.

Previous 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.

Current wording

Salaries and employee benefits increased during the three and six months ended June 30, 2025, compared to the same periods in 2024. Higher salaries and employee benefits were a result of normal merit increases, increased incentive compensation as well as higher group insurance costs as a result of overall higher health insurance claims experienced.

Previous 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.

Current wording

Net occupancy expense increased during the three and six months ended June 30, 2025, compared to the same periods in 2024. The increase was primarily due to higher building depreciation and increased premises expenses.

Previous 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.

Current wording

Furniture and equipment expenses, including depreciation, increased during the three and six months of 2025 compared to the same periods a year ago. The increase was mainly due to an increase in equipment repairs and maintenance and higher equipment depreciation.

Previous 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.

Current wording

Data processing expense grew during the three and six months ended June 30, 2025, compared to the same periods 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 months ended March 31, 2025, compared to the same period in 2024. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Current wording

Depreciation on leased equipment decreased for the three and six months ended June 30, 2025, compared to the same periods in 2024. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Previous 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.

Current wording

Professional fees were lower during the three months ended June 30, 2025, compared to the same period a year ago and higher during the first half of 2025 compared with the same period in 2024. The decrease during the second quarter was mainly due to lower legal and professional consulting fees offset by an increase in audit fees. The increase during the first six months was primarily due to an increase in audit and legal fees offset by a reduction in professional consulting fees.

Previous 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.

Current wording

FDIC and other insurance was lower during the three and six months ended June 30, 2025, compared to the same periods in 2024. The decrease was the result of lower blanket bond insurance premiums due to a more cost effective policy renewal.