1ST SOURCE CORP

Previous wording

Allowance for Credit Losses — The allowance for credit losses represents management’s estimate of expected credit losses over the expected contractual life of our existing loan and lease portfolio and the establishment of an allowance that is sufficient to absorb those losses. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In determining an appropriate allowance, management makes numerous judgments, assumptions, and estimates which are inherently subjective, as they require material estimates that may be susceptible to significant change. These estimates are derived based on continuous review of the loan and lease portfolio, assessments of client performance, movement through delinquency stages, probability of default, losses given default, collateral values, and disposition, as well as expected cash flows, economic forecasts, and qualitative factors, such as changes in current economic conditions.

Current wording

Allowance for Credit Losses — The allowance for credit losses represents management’s estimate of expected credit losses over the expected contractual life of our existing loan and lease portfolio and the establishment of an allowance that is sufficient to absorb those losses. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In determining an appropriate allowance, management makes numerous judgments, assumptions, and estimates which are inherently subjective, as they require material estimates that may be susceptible to significant change. These estimates are derived based on continuous review of the loan and lease portfolio, assessments of client performance, movement through delinquency stages, probability of default, losses given default, collateral values, and disposition, as well as expected cash flows, economic forecasts, and qualitative factors, such as changes in current economic conditions.

Previous wording

Additionally, we are required to use forecasts about future economic conditions to determine the expected credit losses over the remaining life of the asset. Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with widespread geopolitical uncertainty, continued elevated inflation, and high interest rates. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions. We use a two-year reasonable and supportable period across all loan and lease segments to forecast economic conditions. We believe the two-year time horizon aligns with available industry guidance and various forecasting sources. Following this two-year forecasting period, we use a two-year reversion period to revert forecast rates to historical loss rates.

Current wording

Additionally, we are required to use forecasts about future economic conditions to determine the expected credit losses over the remaining life of the asset. Forecast adjustments are inherently challenging for many reasons including, the current macroeconomic environment, a softening labor market, heightened geopolitical uncertainty, inflation which remains above long-term policy targets, and interest rates that are still restrictive despite recent easing. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions. We use a two-year reasonable and supportable period across all loan and lease segments to forecast economic conditions. We believe the two-year time horizon aligns with available industry guidance and various forecasting sources. Following this two-year forecasting period, we use a two-year reversion period to revert forecast rates to historical loss rates.

Previous wording

Net income available to common shareholders in 2024 was $132.62 million, up from $124.93 million in 2023 and up from $120.51 million in 2022. Diluted net income per common share was $5.36 in 2024, $5.03 in 2023, and $4.84 in 2022. Return on average total assets was 1.52% in 2024 compared to 1.48% in 2023, and 1.49% in 2022. Return on average common shareholders’ equity was 12.54% in 2024 versus 13.48% in 2023, and 13.81% in 2022.

Current wording

Net income available to common shareholders in 2025 was $158.28 million, up from $132.62 million in 2024 and up from $124.93 million in 2023. Diluted net income per common share was $6.41 in 2025, $5.36 in 2024, and $5.03 in 2023. Return on average total assets was 1.76% in 2025 compared to 1.52% in 2024, and 1.48% in 2023. Return on average common shareholders’ equity was 13.16% in 2025 versus 12.54% in 2024, and 13.48% in 2023.

Previous wording

Net income in 2024, as compared to 2023, was positively impacted by a $22.17 million or 7.96% increase in net interest income, which was offset by a $6.60 million increase in provision for credit losses, a $4.32 million or 4.76% decrease in noninterest income and a $1.88 million or 0.93% increase in noninterest expense. Net income in 2023, as compared to 2022, was positively impacted by a $15.18 million or 5.76% increase in net interest income and a $7.38 million decrease in the provision for credit losses which was offset by a $17.03 million or 9.22% increase in noninterest expense.

Current wording

Net income in 2025, as compared to 2024, was positively impacted by a $47.36 million or 15.74% increase in net interest income, which was partially offset by a $13.24 million or 6.50% increase in noninterest expense. Net income in 2024, as compared to 2023, was positively impacted by a $22.17 million or 7.96% increase in net interest income, which was offset by a $6.60 million increase in provision for credit losses, a $4.32 million or 4.76% decrease in noninterest income and a $1.88 million or 0.93% increase in noninterest expense.

Previous wording

Dividends paid on common stock in 2024 amounted to $1.40 per share, compared to $1.30 per share in 2023, and $1.26 per share in 2022. The level of earnings reinvested and dividend payouts are determined by the Board of Directors based on various considerations, including liquidity needs, capital requirements, and management’s assessment of future growth opportunities and the level of capital necessary to support them.

Current wording

Dividends paid on common stock in 2025 amounted to $1.52 per share, compared to $1.40 per share in 2024, and $1.30 per share in 2023. The level of earnings reinvested and dividend payouts are determined by the Board of Directors based on various considerations, including liquidity needs, capital requirements, and management’s assessment of future growth opportunities and the level of capital necessary to support them.

Previous wording

Net Interest Income — Our primary source of earnings is net interest income, the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and securities while deposits and borrowings represent the major portion of interest-bearing liabilities. For purposes of the following discussion, comparison of net interest income is done on a tax-equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those which are fully taxable.

Current wording

Net Interest Income — Our primary source of earnings is net interest income, the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and leases and investment securities while deposits and borrowings represent the major portion of interest-bearing liabilities. For purposes of the following discussion, comparison of net interest income is done on a tax-equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those which are fully taxable.

Previous wording

Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 3.64% in 2024, compared to 3.51% in 2023 and 3.45% in 2022. Net interest income was $300.82 million for 2024, compared to $278.65 million for 2023 and $263.47 million for 2022. Tax-equivalent net interest income totaled $301.40 million for 2024, up $22.02 million from the $279.39 million reported in 2023. Tax-equivalent net interest income for 2023 was up $15.29 million from the $264.10 million reported for 2022.

Current wording

Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 4.07% in 2025, compared to 3.64% in 2024 and 3.51% in 2023. Net interest income was $348.18 million for 2025, compared to $300.82 million for 2024 and $278.65 million for 2023. Tax-equivalent net interest income totaled $348.79 million for 2025, up $47.38 million from the $301.40 million reported in 2024. Tax-equivalent net interest income for 2024 was up $22.02 million from the $279.39 million reported for 2023.

Previous wording

During 2024, average earning assets increased $327.89 million or 4.12% while average interest-bearing liabilities increased $315.75 million or 5.72% over the comparable period in 2023. The yield on average earning assets increased 60 basis points to 5.85% for 2024 from 5.25% for 2023 primarily due to higher rates and average balances on loans and leases, higher rates on taxable investment securities and higher average balances 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. Total cost of average interest-bearing liabilities increased 64 basis points to 3.14% during 2024 from 2.50% in 2023 as a result of the higher interest rate environment and its impact on deposit competition. The result to the fully taxable-equivalent net interest margin was an increase of 13 basis points.

Current wording

During 2025, average earning assets increased $279.10 million or 3.37% while average interest-bearing liabilities increased $128.46 million or 2.20% over the comparable period in 2024. The yield on average earning assets increased 16 basis points to 6.01% for 2025 from 5.85% for 2024 primarily due to higher loan and lease average balances and higher rates on investment 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. Total cost of average interest-bearing liabilities decreased 35 basis points to 2.79% during 2025 from 3.14% in 2024 mainly as a result of repricing of interest-bearing deposits and lower rates and average balances of other short-term borrowings which is primarily short-term FHLB borrowings offset by higher rates on mandatorily redeemable securities. The result to the fully taxable-equivalent net interest margin was an increase of 43 basis points.

Previous wording

The largest contributor to the increase in the yield on average earning assets in 2024 was the 59 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates and higher average balances. Average loans and leases increased $394.47 million or 6.36% in 2024 from 2023 while the yield increased to 6.84%. Strong growth primarily within our Construction Equipment, Auto and Light Truck and Renewable Energy portfolios, and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year. Net interest recoveries positively contributed five basis points to the yield on average loans and leases during 2024 and four basis points to the average loans and leases yield during 2023.

Current wording

The largest contributors to the increase in the yield on average earning assets in 2025 was an increase in average loan and lease balances and higher rates on taxable investment securities. During 2025, average loans and leases increased $336.29 million or 5.10% from 2024 while the yield decreased to 6.79% from 6.84% in 2024. Strong growth primarily within our Renewable Energy portfolio and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year. Net interest recoveries positively contributed seven basis points to the yield on average loans and leases during 2025 and three basis points to the average loans and leases yield during 2024. The tax-equivalent yield on investment securities increased 81 basis points to 2.53% while the average balance decreased $73.56 million or 4.68% with the largest decreases in U.S. treasury and federal agency securities and state and municipal securities. Average mortgages held for sale increased $0.66 million or 20.45% during 2025 while the yield decreased 33 basis points. Average other investments increased $15.71 million or 13.96% during 2025 while the yield decreased 72 basis points. The average balance increase in other investments was primarily a result of higher balances held at the Federal Reserve Bank.

Previous wording

Average interest-bearing deposits increased $305.86 million or 5.88% during 2024 while the effective rate paid on those deposits increased 66 basis points. The increased average balance was primarily due to increases in time deposits, money market accounts, and brokered deposits. The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix. The deposit mix change which began during 2022 carried over into 2023 and 2024 with clients moving their funds from non-maturity accounts to higher yielding certificates of deposit and money market accounts due to the elevated interest rate environment. Average noninterest-bearing demand deposits decreased $144.15 million or 8.22% during 2024 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.

Current wording

Average interest-bearing deposits increased $270.38 million or 4.91% during 2025 while the effective rate paid on those deposits decreased 33 basis points. The increased average balance was primarily due to increases in non-brokered time deposits and money market accounts. The decrease in the average cost of interest-bearing deposits was primarily the result of Fed rate cuts during the second half of 2024 and second half of 2025. Average noninterest-bearing demand deposits decreased $7.05 million or 0.44% during 2025 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.

Previous wording

Average short-term borrowings increased $15.24 million or 7.13% during 2024 while the effective rate paid increased 63 basis points due to higher Federal Reserve Bank Term Funding Program borrowings offset with decreased FHLB borrowings and lower securities sold under agreements to repurchase balances. Average long-term debt and mandatorily redeemable securities balances decreased $5.35 million or 11.55% during 2024 while the effective rate decreased 68 basis points primarily due to a lower imputed interest on mandatorily redeemable securities from a reduced improvement in book value per share during 2024 compared to 2023. Mandatorily redeemable shares 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 $142.22 million or 62.15% during 2025 while the effective rate paid decreased 209 basis points primarily due to the maturity and pay off of $100 million in borrowings from the Federal Reserve’s Bank Term Funding Program. Average long-term debt and mandatorily redeemable securities balances increased $0.31 million or 0.75% during 2025 while the effective rate increased 364 basis points primarily due to a higher imputed interest on mandatorily redeemable securities from an increased improvement in book value per share during 2025 compared to 2024. Mandatorily redeemable shares 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

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased in 2024 from 2023 compared to an increase in 2023 over 2022. 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 December 31, 2024 and 2023 was $5.97 billion and $5.46 billion, respectively. The positive performance of the stock and bond markets primarily during the first nine months of 2024 resulted in an increase in the market value of trust assets under management compared to 2023. At December 31, 2024, these trust assets were comprised of $4.03 billion of personal and agency trusts and estate administration assets, $1.18 billion of employee benefit plan assets, $0.59 million of individual retirement accounts, and $0.17 million of custody assets.

Current wording

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased in 2025 from 2024, compared to an increase in 2024 over 2023. 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 December 31, 2025 and 2024 was $6.28 billion and $5.97 billion, respectively. The positive performance of the stock and bond markets during 2025 resulted in an increase in the market value of trust assets under management compared to 2024. At December 31, 2025, these trust assets were comprised of $4.37 billion of personal and agency trusts and estate administration assets, $1.05 billion of employee benefit plan assets, $0.66 billion of individual retirement accounts, and $0.20 billion of custody assets.

Previous wording

Service charges on deposit accounts increased in 2024 from 2023 compared to an increase in 2023 from 2022. The growth in service charges on deposit accounts in 2024 was primarily due to a higher volume of business deposit account fees. The growth in service charges on deposit accounts in 2023 was primarily due to increased consumer and business overdraft transactions.

Current wording

Service charges on deposit accounts increased in 2025 from 2024, compared to an increase in 2024 from 2023. The growth in service charges on deposit accounts in 2025 was primarily due to higher consumer nonsufficient fund and overdraft transactions. The growth in service charges on deposit accounts in 2024 was primarily due to a higher volume of business deposit account fees.

Previous wording

Debit card income declined during 2024 following a slight decrease during 2023. The decline in 2024 to 2023 was related to shifts in both client transaction behavior and the networks over which those merchants are routing transactions. During 2023, regulatory changes to web commerce transactions implemented by the Federal Reserve had a negative impact.

Current wording

Debit card income remained relatively flat during 2025 following a slight decrease during 2024. The decline in 2024 to 2023 was related to shifts in both client transaction behavior and the networks over which those merchants are routing transactions.

Previous wording

Mortgage banking income increased in 2024 over 2023, compared to a decrease in 2023 from 2022. During 2024, 2023, and 2022, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2024 mortgage banking income increased due to higher production of loans originated for the secondary market resulting in increased income on loans sold into the secondary market. During 2023, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market.

Current wording

Mortgage banking income decreased in 2025 over 2024, compared to an increase in 2024 from 2023. During 2025, 2024, and 2023, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2025, mortgage banking income decreased due to lower margins on loans originated for the secondary market and a reduction in servicing fees resulting from fewer loans being serviced for others. During 2024, mortgage banking income increased due to higher production of loans originated for the secondary market resulting in increased income on loans sold into the secondary market.

Previous wording

Insurance commissions decreased in 2024 compared to 2023 and increased in 2023 compared to 2022. The decrease in 2024 was primarily due to fewer contingent commissions received. The rise in 2023 was primarily due to a larger book of business and more contingent commissions received.

Current wording

Insurance commissions increased in 2025 compared to 2024, and decreased in 2024 compared to 2023. The increase in 2025 was primarily due tohigher contingent commissions received and an increased book of business. The decrease in 2024 was primarily due to fewer contingent commissions received.

Previous wording

Equipment rental income generated from operating leases decreased during 2024 from 2023 compared to a similar reduction during 2023 from 2022. The average equipment rental portfolio decreased in 2024 over 2023 and decreased in 2023 over 2022 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business. In 2024 and 2023, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.

Current wording

Equipment rental income generated from operating leases decreased during 2025 from 2024, compared to a similar reduction during 2024 from 2023. The average equipment rental portfolio decreased in 2025 and 2024 as a result of reduced leasing volume primarily in the medium and heavy duty truck and construction equipment portfolios due to changing customer preferences and competitive pricing pressures for new business. In 2025 and 2024, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.

Previous wording

Losses on investment securities available-for-sale during 2024 were exclusively the result of repositioning the portfolio during the fourth quarter. In the repositioning, approximately $63 million of securities with a weighted average yield of 0.71% were sold and used to purchase approximately $63 million of securities with a weighted average yield of 4.64%. Losses during 2023 were primarily the result of repositioning the investment securities portfolio. In the 2023 repositioning, approximately $40 million of securities with a weighted average yield of 1.10% were sold and used to purchase approximately $40 million of securities with a weighted average yield of 4.80%. The remaining 2023 losses were the result of sales to support liquidity and fund loan growth during the first quarter. Losses during 2022 were from the sale of Federal agency securities with the goal of managing portfolio risk and liquidity.

Current wording

Losses on investment securities available-for-sale during 2025 were exclusively the result of repositioning the portfolio during the second, third, and fourth quarters. In the combined repositioning trades, approximately $256 million of securities with a weighted average yield of 0.92% were sold and used to purchase approximately $254 million of securities with a weighted average yield of 3.66%. In the 2024 repositioning, approximately $63 million of securities with a weighted average yield of 0.71% were sold and used to purchase approximately $63 million of securities with a weighted average yield of 4.64%. In the 2023 repositioning, approximately $40 million of securities with a weighted average yield of 1.10% were sold and used to purchase approximately $40 million of securities with a weighted average yield of 4.80%. The remaining 2023 losses were the result of sales to support liquidity and fund loan growth during the first quarter.

Previous wording

Other income decreased in 2024 from 2023 compared to an increase in 2023 from 2022. The decrease in 2024 was mainly a result of lower partnership investment gains on sale of renewable energy tax equity investments, a writedown of $0.86 million on a small business capital investment and a reduction in customer interest rate swap fees of $0.48 million, offset by increased brokerage commissions and fees of $0.84 million and rental income of $0.23 million related to a repossessed asset. The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer interest rate swap fees of $1.23 million and higher bank owned life insurance policy claims.

Current wording

Other income increased in 2025 from 2024, compared to a decrease in 2024 from 2023. The increase in 2025 was mainly a result of higher partnership investment gains on sale of renewable energy tax equity investments of $2.07 million, an increase in brokerage commissions and fees of $0.41 million, and increased customer interest rate swap fees of $0.54 million offset by a write-down of $0.77 million on a small business capital investment. The decrease in 2024 was mainly a result of lower partnership investment gains on sale of renewable energy tax equity investments, a writedown of $0.86 million on a small business capital investment and a reduction in customer interest rate swap fees of $0.48 million, offset by increased brokerage commissions and fees of $0.84 million and rental income of $0.23 million related to a repossessed asset.

Previous wording

Employee salaries grew $7.45 million or 7.97% in 2024 from 2023 compared to an increase of $7.17 million or 8.31% in 2023 from 2022. The increase in 2024 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover as well as an increase in incentive compensation. The increase in 2023 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover.

Current wording

Employee salaries grew $5.21 million or 5.16% in 2025 from 2024, compared to an increase of $7.45 million or 7.97% in 2024 from 2023. The increase in 2025 was mainly a result of higher base salaries due to normal merit increases and a rise in incentive compensation. The increase in 2024 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover as well as an increase in incentive compensation.

Previous wording

Employee benefits decreased $1.15 million or 5.20% in 2024 from 2023, compared to a $3.33 million or 17.73% increase in 2023 from 2022. During 2024, group insurance costs were lower due to fewer claims experienced and the utilization of accumulated plan forfeitures of $0.65 million to offset current year employer contribution expense. During 2023, group insurance costs were higher due to a rise in claims experienced and increased company contributions to employee retirement accounts compared to levels in 2022.

Current wording

Employee benefits increased $2.45 million or 11.67% in 2025 from 2024, compared to a $1.15 million or 5.20% decrease in 2024 from 2023. During 2025, group insurance costs were higher due to overall higher health insurance claims experienced and an increase in employer profit sharing contribution expense due to the utilization of accumulated plan forfeitures to offset employer contributions in the prior year. During 2024, group insurance costs were lower due to fewer claims experienced and the utilization of accumulated plan forfeitures of $0.65 million to offset current year employer contribution expense.

Previous wording

Occupancy expense rose in 2024 from 2023, compared to an increase in 2023 from 2022. The expense increase in 2024 was primarily the result of increased premises expenses and higher rents. The elevated expense in 2023 was primarily the result of higher premises repairs.

Current wording

Occupancy expense rose in 2025 from 2024, compared to an increase in 2024 from 2023. The expense increase in 2025 was primarily the result of higher building depreciation and increased premises expenses. The expense increase in 2024 was primarily the result of increased premises expenses and higher rents.

Previous wording

Furniture and equipment expense, including depreciation, was relatively flat in 2024 from 2023 compared to an increase in 2023 from 2022. The higher expense in 2023 was primarily due to increased computer-related hardware replacement costs.

Current wording

Furniture and equipment expense, including depreciation, increased in 2025 from 2024, and was relatively flat in 2024 from 2023. The increase in 2025 was primarily due to an increase in equipment repairs and maintenance and higher equipment depreciation.

Previous wording

Data processing expense rose in 2024 from 2023, following an increase in 2023 from 2022. The increases in 2024 and 2023 were both due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.

Current wording

Data processing expense rose in 2025 from 2024, following an increase in 2024 from 2023. The increases in both 2025 and 2024 were due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.

Previous wording

Professional fees increased in 2024 from 2023, compared to a decrease in 2023 from 2022. The higher expense in 2024 can primarily be attributed 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 the utilization of consulting services for technology projects and compliance services during the year. The lower expense in 2023 can primarily be attributed to a decline in the utilization of consulting services for technology projects and compliance services as well as the aforementioned reversal of accrued legal fees during the first quarter of 2023.

Current wording

Professional fees remained flat in 2025 from 2024, compared to an increase in 2024 from 2023. The higher expense in 2024 can primarily be attributed 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 the utilization of consulting services for technology projects and compliance services during the year.

Previous wording

FDIC and other insurance expense grew in 2024 from 2023 and increased in 2023 from 2022. The increase in 2024 was mainly the result of higher general insurance premiums during 2024 and higher blanket bond insurance premiums. The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023.

Current wording

FDIC and other insurance expense decreased in 2025 from 2024, and increased in 2024 from 2023. The decrease in 2025 was mainly the result of lower insurance premiums due to a more cost effective policy renewal. The increase in 2024 was mainly the result of higher insurance premiums during 2024. FDIC insurance premiums remained relatively stable during 2025 and 2024.

Previous wording

Business development and marketing expenses decreased in 2024 from 2023 following an increase in 2023 from 2022. The decreased expense in 2024 was mainly the result of a charitable contribution of $1.00 million made during 2023 offset with higher marketing promotions during the year. The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million and higher marketing promotions.

Current wording

Business development and marketing expenses increased in 2025 from 2024, following a decrease in 2024 from 2023. The increased expense in 2025 was mainly the result of a $1.00 million dollar charitable contribution, increased business development expenses, and marketing promotions. The decreased expense in 2024 was mainly the result of a charitable contribution of $1.00 million made during 2023 offset with higher marketing promotions during the year.

Previous wording

During 2024, we reclassified the provision for unfunded loan commitments out of Other Noninterest Expense and into the Provision for Credit Losses in the Consolidated Statements of Income. We believe this reclassification more appropriately reflects the nature of this expense item and will enhance comparability for peer comparison purposes. We have not reclassified the 2023 and 2022 presentation. The increase in 2023 compared to 2022 was primarily the result of an increase in non-cancelable outstanding loan commitments and a lengthening of the average contractual draw period.

Current wording

During 2024, we reclassified the provision for unfunded loan commitments out of Other Noninterest Expense and into the Provision for Credit Losses in the Consolidated Statements of Income. We believe this reclassification more appropriately reflected the nature of this expense item and enhances comparability for peer comparison purposes.

Previous wording

Other expenses decreased in 2024 as compared to 2023 and increased in 2023 as compared to 2022. The lower expense in 2024 was primarily the result of higher gains on the sale of fixed assets and leased equipment, lower printing and postage costs, reduced data communication line charges and a reduction in employment and relocation costs offset by a $0.85 million stolen check fraud loss. The higher expense in 2023 was primarily the result of higher postage and shipping costs and a rise in data communication line charges as bandwidth was improved.

Current wording

Other expenses increased in 2025 as compared to 2024, and decreased in 2024 as compared to 2023. The higher expense in 2025 was primarily the result of fewer gains related to the sale of fixed assets and off-lease equipment, higher collection and repossession expenses, and increased intangible asset amortization offset by a reduction in fraud losses. The lower expense in 2024 was primarily the result of higher gains on the sale of fixed assets and leased equipment, lower printing and postage costs, reduced data communication line charges and a reduction in employment and relocation costs offset by a $0.85 million stolen check fraud loss.

Previous wording

Income Taxes — 1st Source recognized income tax expense in 2024 of $38.44 million, compared to $36.75 million in 2023, and $36.26 million in 2022. The effective tax rate in 2024 was 22.47% compared to 22.73% in 2023, and 23.12% in 2022.

Current wording

Income Taxes — 1st Source recognized income tax expense in 2025 of $46.12 million, compared to $38.44 million in 2024, and $36.75 million in 2023. The effective tax rate in 2025 was 22.57% compared to 22.47% in 2024, and 22.73% in 2023.

Previous wording

Loans and leases, net of unearned discount, at December 31, 2024, were $6.85 billion and were 76.74% of total assets, compared to $6.52 billion and 74.69% of total assets at December 31, 2023. Average loans and leases, net of unearned discount, increased $394.47 million or 6.36% and increased $637.16 million or 11.45% in 2024 and 2023, respectively.

Current wording

Loans and leases, net of unearned discount, at December 31, 2025, were $7.05 billion and were 77.82% of total assets, compared to $6.85 billion and 76.74% of total assets at December 31, 2024. Average loans and leases, net of unearned discount, increased $336.29 million or 5.10% and increased $394.47 million or 6.36% in 2025 and 2024, respectively.

Previous wording

Commercial and agricultural lending, excluding those loans secured by real estate, increased $6.75 million or 0.88% in 2024 over 2023. Commercial and agricultural lending outstandings were $772.97 million and $766.22 million at December 31, 2024 and December 31, 2023, respectively. Consistent with what we saw in 2023, loan growth continued to be difficult as higher interest rates caused borrowers to manage their cash closely. We saw this in the form of reduced line of credit (LOC) balances throughout the year although we did experience an increase from a small number of specialty finance borrowers at year end. Further, the agriculture sector is in its second consecutive year of depressed commodity prices which caused lower LOC usage as well as reduced investment in equipment from these borrowers. Finally, our commercial and industrial loan outstandings were impacted by the acquisition and subsequent pay-off of three of our larger credit exposures.

Current wording

Commercial and agricultural lending, excluding those loans secured by real estate, increased $24.62 million or 3.18% in 2025 over 2024. Commercial and agricultural lending outstandings were $797.59 million and $772.97 million at December 31, 2025 and December 31, 2024, respectively. Commercial loan growth continued to be somewhat constrained as our clients dealt with higher costs and tighter gross margins. Tariff impact is partially to blame as well as slowing consumer demand. Loan growth was particularly constrained in the small business sector. We saw this in the form of reduced line of credit (LOC) balances throughout the year. Further, the agricultural and recreational vehicle sectors are entering their fourth consecutive year of depressed commodity prices and demand, which caused lower LOC usage and reduced investments by these borrowers. Finally, our commercial and industrial loan outstandings continue to be impacted by the acquisition and subsequent pay-offs by private equity firms and larger competitors.

Previous wording

Renewable energy loans and leases increased $87.56 million or 21.91% in 2024 over 2023. Renewable energy loan and lease outstandings were $487.27 million and $399.71 million at December 31, 2024 and 2023, respectively. The increase during 2024 was due to continued positive momentum from the addition of new clients and repeat business from existing clients. Demand for renewable energy loans and leases remained accelerated during 2024 from the incentives associated with the Inflation Reduction Act.

Current wording

Renewable energy loans and leases increased $165.53 million or 33.97% in 2025 over 2024. Renewable energy loan and lease outstandings were $652.80 million and $487.27 million at December 31, 2025 and 2024, respectively. The increase during 2025 was due to continued positive momentum from the addition of new clients and repeat business from existing clients. Demand for renewable energy loans and leases remained accelerated during 2025 from the incentives associated with the Inflation Reduction Act and the shortened phase out period of these incentives with the passage of the One Big Beautiful Bill.

Previous wording

Auto and light truck loans decreased $18.48 million or 1.91% in 2024 over 2023. At December 31, 2024, auto and light truck loans had outstandings of $948.44 million and $966.91 million at December 31, 2023. This decrease was primarily attributable to vehicle rental and commercial lessor clients’ reaction to elevated interest rates by cycling into lower cost units with increased vehicle availability, and shorter fleet holds which reflect a return to more seasonal trends.

Current wording

Auto and light truck loans decreased $60.56 million or 6.39% in 2025 over 2024. At December 31, 2025, auto and light truck loans had outstandings of $887.88 million and $948.44 million at December 31, 2024. This decrease was primarily attributable to vehicle rental clients’ reaction to cyclical market adjustments resulting in the downsizing of total fleet and transition into lower capital cost units along with our selective credit approach.

Previous wording

Medium and heavy duty truck loans and leases decreased $22.32 million or 7.16% in 2024. Medium and heavy duty truck financing at December 31, 2024 and 2023 had outstandings of $289.62 million and $311.95 million, respectively. The decrease at December 31, 2024 from December 31, 2023 can be mainly attributed to a slow trucking industry recovery coupled with a selective credit approach to maintain risk adjusted yields, with minimal changes in competitive environment, for existing customers.

Current wording

Medium and heavy duty truck loans and leases decreased $19.87 million or 6.86% in 2025. Medium and heavy duty truck financing at December 31, 2025 and 2024 had outstandings of $269.75 million and $289.62 million, respectively. The decrease at December 31, 2025 from December 31, 2024 can be mainly attributed to reduced equipment demand related to an ongoing trucking industry recession, selective credit approach, and maintenance of our adjusted yields.

Previous wording

Aircraft financing at year-end 2024 increased $45.63 million or 4.23% from year-end 2023. Aircraft financing at December 31, 2024 and 2023 had outstandings of $1.12 billion and $1.08 billion, respectively. Domestic outstandings were driven by the addition of new clients and select expansions of existing aviation relationships against a background of normalizing demand post COVID-era. We continue to exercise a consistent disciplined approach to aircraft types and client credit profiles. Our foreign outstandings, all denominated in U.S. dollars, remained stable during 2024 and were $301.18 million and $302.41 million as of December 31, 2024 and 2023, respectively. Loan and lease outstandings to borrowers in Brazil and Mexico were $129.12 million and $145.85 million as of December 31, 2024, respectively, compared to $119.38 million and $147.61 million as of December 31, 2023, respectively. Outstanding balances to other borrowers in other countries were insignificant.

Current wording

Aircraft financing at year-end 2025 decreased $36.98 million or 3.29% from year-end 2024. Aircraft financing at December 31, 2025 and 2024 had outstandings of $1.09 billion and $1.12 billion, respectively. Domestic aircraft average outstandings increased modestly, while end-of-period balances declined year-over-year. The decline was driven by elevated client payoffs as aircraft owners capitalized on strong market pricing by divesting assets or aviation-related businesses during 2025. We continue to exercise a consistent disciplined approach to aircraft types and client credit profiles. Our foreign outstandings, all denominated in U.S. dollars, increased 6.23% during 2025 and were $319.93 million and $301.18 million as of December 31, 2025 and 2024, respectively. Loan and lease outstandings to borrowers in Brazil and Mexico were $136.98 million and $163.70 million as of December 31, 2025, respectively, compared to $129.12 million and $145.85 million as of December 31, 2024, respectively. Outstanding balances to other borrowers in other countries were insignificant.

Previous wording

Construction equipment financing increased $119.16 million or 10.98% in 2024 compared to 2023. Construction equipment financing at December 31, 2024 had outstandings of $1.20 billion, compared to outstandings of $1.08 billion at December 31, 2023. The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst crane rental, aggregate producers and haulers, and site development clients.

Current wording

Construction equipment financing increased $17.22 million or 1.43% in 2025 compared to 2024. Construction equipment financing at December 31, 2025 had outstandings of $1.22 billion, compared to outstandings of $1.20 billion at December 31, 2024. The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst road builders and site development clients.

Previous wording

Commercial loans secured by real estate increased $85.40 million or 7.56% in 2024 over 2023. Commercial loans secured by real estate outstanding at December 31, 2024 were $1.22 billion and $1.13 billion at December 31, 2023. Approximately 62% of loans were owner occupied at December 31, 2024. The majority of our non-owner occupied commercial real estate projects are located within our primary market area. Funding increases in 2024 was the result of selective growth within our markets as liquidity concerns which impacted many of our competitors and their willingness to lend into commercial real estate gave us an opportunity as underwriting and yields improved. As a result, there was a number of construction projects that were approved in 2023 and 2024 that will provide steady growth into 2025. Through 2024, our non-owner occupied portfolio has performed well with minimal credit issues noted. We have financed a minimal amount of commercial real estate secured by non-owner occupied office property where third-party tenants are the primary source of repayment and all are performing as agreed.

Current wording

Commercial loans secured by real estate increased $54.50 million or 4.48% in 2025 over 2024. Commercial loans secured by real estate outstanding at December 31, 2025 were $1.27 billion and $1.22 billion at December 31, 2024. Approximately 61% of loans were owner occupied at December 31, 2025. We continue to have solid loan demand within our markets as liquidity concerns, which have impacted many of our competitors’ willingness to lend as aggressively as they had been into commercial real estate, gave us more opportunities while underwriting standards and yields also improved. The majority of our non-owner occupied commercial real estate (CRE) projects are located within our primary market area. We had good CRE loan growth in 2025, fueled by continued funding of in-process projects nearing completion throughout the year. This new project funding was partially offset by an increasing number of CRE payoffs, via the sale of projects or refinancing in secondary markets. We continue to have very minimal exposure to non-owner occupied office property.

Previous wording

Residential real estate and home equity loans were $680.07 million at December 31, 2024 and $637.97 million at December 31, 2023. Residential real estate and home equity loans increased $42.10 million or 6.60% in 2024 from 2023. Residential mortgage and home equity outstandings grew in 2024 as clients began to turn back to home equity loans as variable rates began to decrease. In addition, increased cost of home repairs and improvements resulted in larger loan amounts.

Current wording

Residential real estate and home equity loans were $740.78 million at December 31, 2025 and $680.07 million at December 31, 2024. Residential real estate and home equity loans increased $60.71 million or 8.93% in 2025 from 2024. Residential mortgage and home equity outstandings grew in 2025 as clients began to turn back to home equity loans as variable rates began to decrease. Also, our fixed rate term second mortgages grew as clients looked to pull equity from increased home values instead of doing cash out refinances, which would impact their low mortgage rates that were locked in during COVID. In addition, the overall increase in home values, as well as home repairs and improvements, has resulted in more loans in our portfolio.

Previous wording

Consumer loans decreased $9.49 million or 6.64% in 2024 over 2023. Consumer loans outstanding at December 31, 2024, were $133.47 million and $142.96 million at December 31, 2023. During 2024, higher vehicle prices, increased interest rates, reduced inventory levels and consumer’s lack of liquidity contributed to the decrease in consumer loans.

Current wording

Consumer loans decreased $13.31 million or 9.97% in 2025 over 2024. Consumer loans outstanding at December 31, 2025, were $120.16 million and $133.47 million at December 31, 2024. During 2025, higher vehicle prices, reduced inventory levels, and consumer’s lack of liquidity contributed to the decrease in consumer loans.