SRCE 10-K & 10-Q changes, risk factors and insider trading

Adverse changes in economic conditions could impair our financial condition and results of operations — We are impacted by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, unemployment, government shutdowns, debt ceilings or funding for the government, tariffs and other trade policies, infectious disease epidemics or outbreaks and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control. A deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services.

Liquidity/Capital Risks

Strategic/Operational Risks

Our risk management framework could prove ineffective which could have a material adverse effect on our ability to mitigate risks and/or losses — We have established a risk management framework to identify and manage our risk exposure. This framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, credit, market, liquidity,liquidity/capital, strategic/operational, legal/compliance, and reputational risks. Our framework also includes financial, analytical and forecasting modeling methodologies which involve significant management assumptions and judgment that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Additionally, our Board of Directors has adopted a risk appetite statement in consultation with management which sets forth certain thresholds and limits to govern our overall risk profile. There can be no assurance that our risk management framework will be effective under all circumstances or that it will adequately identify, manage or limit any risk of loss to us. Any such failure in our risk management framework could have a material adverse effect on our business, financial condition, and results of operations.

Technology security breaches — Information security risks have increased due to the sophistication and activities of organized crime, hackers, terrorists and other external parties and the use of online, telephone, and mobile banking channels by clients. Any compromise of our security could impair our reputation and deter our clients from using our banking services. Information security breaches can also disrupt the operation of information systems on which we depend, adversely affecting our business operations. Such events can result in costly remediation measures and litigation or governmental investigation and responding to security breaches can place unanticipated demands on the time and attention of management. We rely on security systems to provide the protection and authentication necessary to secure transmission of data against damage by theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, ransomware, denial of service attacks, viruses, worms, use of artificial intelligence (AI) and other disruptive problems caused by hackers. Computer break-ins, phishing and other disruptions of customer or vendor systems could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure. We maintain a cyber insurance policy that is designed to cover a majority of loss resulting from cyber security breaches, but there is no assurance such coverage or other protective measures we employ will be adequate to address all potential material adverse impacts.

We continually encounter technological change — The financial services industry is constantly undergoing rapid technological change with frequent introductions of new technology-driven products and services, including innovative ways that customers can make payments or manage their accounts, such as through the use of mobile payments, digital wallets or digital currencies. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and holding companies, including financial technology companies, or ‘fintechs,’ which may offer bank-like products or services that compete directly with the Company’s products and services. Our future success depends, in part, upon our ability to address the needs of our clients competitively by using technology to provide products and services that will satisfy client demands, as well as create additional efficiencies within our operations. Many of our large competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services quickly or be successful in marketing these products and services to our clients. In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

As we continue to grow in size and complexity, regulatory expectations and scrutiny will likely increase and could have a potential impact on our operations and business — We have organically grown steadily over the past four years. As financial institutions grow, so do the expectations of regulatory agencies regarding the financial institution’s ability to control for increasingly complex and sophisticated business operations. Certain regulations and laws have embedded asset thresholds that change regulatory expectations, have different financial statement impacts, require different committee and management compositions, or enhanced reporting requirements. For example, the Durbin Amendment to the Dodd-Frank Act limits the amount of interchange fees that banks with assets of $10.0 billion or more may charge to process electronic debit transactions. Banks must comply with the Durbin Amendment no later than July 1 of the next calendar year after the bank crosses the $10.0 billion asset threshold. While we do not currently have $10.0 billion or more in total consolidated assets, we have begun analyzing these requirements to ensure we are prepared to comply with the rules when and if they become applicable. There is potential that changes in the regulatory expectations from asset growth could impact the business operationally, strategically, or financially.

Managing reputational risk is important to attracting and maintaining customers, investors, and employees — Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, data security failures, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place that seek to protect our reputation and promote ethical conduct. Nonetheless, negative publicity may arise regarding our business, employees, or customers, with or without merit, and could result in the loss of customers, investors, or employees, costly litigation, a decline in revenues, and increased government regulation.regulation, and could adversely affect the trading price of our shares.

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 judgementjudgment 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.

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 fundamentallyinherently difficultchallenging tofor establishmany andreasons including, the current environmentmacroeconomic presentsenvironment, challengesa withsoftening widespreadlabor market, heightened geopolitical uncertainty, continuedinflation elevatedwhich inflation,remains above long-term policy targets, and high interest rates.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.

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. 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.

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.

During 2024,2025, average earning assets increased $327.89$279.10 million or 4.12%3.37% while average interest-bearing liabilities increased $315.75$128.46 million or 5.72%2.20% over the comparable period in 2023.2024. The yield on average earning assets increased 6016 basis points to 6.01% for 2025 from 5.85% for 2024 from 5.25% for 2023 primarily due to higher ratesloan and lease average balances on loans and leases, higher rates on taxable investment securities andoffset higherby averagelower balancesrates 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 increaseddecreased 6435 basis points to 3.14%2.79% during 20242025 from 2.50%3.14% in 20232024 mainly as a result of therepricing 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 interest rate environment and its impactrates on depositmandatorily competition.redeemable securities. The result to the fully taxable-equivalent net interest margin was an increase of 1343 basis points.

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 2024,2025, 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 available-for-sale increased 1581 basis points to 1.72%2.53% while the average balance decreased $106.29$73.56 million or 6.34%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 $0.87$0.66 million or 36.53%20.45% during 20242025 while the yield increaseddecreased seven33 basis points. Average other investments increased $38.83$15.71 million or 52.67%13.96% during 20242025 while the yield increaseddecreased 2972 basis points. The average balance increase in other investments was primarily a result of higher balances held at the Federal Reserve Bank.

Average interest-bearing deposits increased $305.86$270.38 million or 5.88%4.91% during 20242025 while the effective rate paid on those deposits increaseddecreased 6633 basis points. The increased average balance was primarily due to increases in non-brokered time deposits,deposits and money market accounts, and brokered deposits.accounts. The increasedecrease in the average cost of interest-bearing deposits was primarily the result of higherFed ratesrate cuts during the second half of 2024 and asecond 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 certificateshalf of deposit and money market accounts due to the elevated interest rate environment.2025. Average noninterest-bearing demand deposits decreased $144.15$7.05 million or 8.22%0.44% during 20242025 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.

Average short-term borrowings increaseddecreased $15.24$142.22 million or 7.13%62.15% during 20242025 while the effective rate paid increaseddecreased 63209 basis points primarily due to higherthe maturity and pay off of $100 million in borrowings from the Federal ReserveReserve’s Bank Term Funding Program borrowings offset with decreased FHLB borrowings and lower securities sold under agreements to repurchase balances.Program. Average long-term debt and mandatorily redeemable securities balances decreasedincreased $5.35$0.31 million or 11.55%0.75% during 20242025 while the effective rate decreasedincreased 68364 basis points primarily due to a lowerhigher imputed interest on mandatorily redeemable securities from aan reducedincreased improvement in book value per share during 20242025 compared to 2023.2024. 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.

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased in 20242025 from 20232024, compared to an increase in 20232024 over 2022.2023. 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, 20242025 and 20232024 was $5.97$6.28 billion and $5.46$5.97 billion, respectively. The positive performance of the stock and bond markets primarily during the first nine months of 20242025 resulted in an increase in the market value of trust assets under management compared to 2023.2024. At December 31, 2024,2025, these trust assets were comprised of $4.03$4.37 billion of personal and agency trusts and estate administration assets, $1.18$1.05 billion of employee benefit plan assets, $0.59$0.66 millionbillion of individual retirement accounts, and $0.17$0.20 millionbillion of custody assets.

Service charges on deposit accounts increased in 20242025 from 20232024, compared to an increase in 20232024 from 2022.2023. 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. The growth in service charges on deposit accounts in 2023 was primarily due to increased consumer and business overdraft transactions.

Debit card income declinedremained relatively flat during 20242025 following a slight decrease during 2023.2024. 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. During 2023, regulatory changes to web commerce transactions implemented by the Federal Reserve had a negative impact.

Mortgage banking income increaseddecreased in 2025 over 2024, compared to an increase in 2024 over 2023, compared to a decrease in 2023 from 2022.2023. During 2025, 2024, 2023, and 2022,2023, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 20242025, 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. During 2023, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market.

Insurance commissions increased in 2025 compared to 2024, and decreased in 2024 compared to 20232023. The increase in 2025 was primarily due to higher contingent commissions received and an increased inbook 2023of compared to 2022.business. 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.

Equipment rental income generated from operating leases decreased during 20242025 from 20232024, compared to a similar reduction during 20232024 from 2022.2023. The average equipment rental portfolio decreased in 2024 over 20232025 and decreased in 2023 over 20222024 as a result of reduced leasing volume primarily in the medium and heavy duty truck,truck and construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business. In 20242025 and 2023,2024, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.

Losses on investment securities available-for-sale during 20242025 were exclusively the result of repositioning the portfolio during the second, third, and fourth quarter.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%. 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.

Other income decreasedincreased in 2025 from 2024, compared to a decrease in 2024 from 20232023. comparedThe toincrease 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 2023brokerage fromcommissions 2022.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. 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.

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 20232023. comparedThe increase in 2025 was mainly a result of higher base salaries due to annormal increasemerit ofincreases $7.17and milliona or 8.31%rise in 2023incentive from 2022.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. 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.

Employee benefits decreasedincreased $2.45 million or 11.67% in 2025 from 2024, compared to a $1.15 million or 5.20% decrease in 2024 from 2023,2023. comparedDuring 2025, group insurance costs were higher due to aoverall $3.33higher millionhealth orinsurance 17.73%claims experienced and an increase in 2023employer fromprofit 2022.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. 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.

Occupancy expense rose in 20242025 from 2023,2024, compared to an increase in 20232024 from 2022.2023. 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. The elevated expense in 2023 was primarily the result of higher premises repairs.

Furniture and equipment expense, including depreciation, increased in 2025 from 2024, and was relatively flat in 2024 from 20232023. comparedThe increase in 2025 was primarily due to an increase in 2023equipment fromrepairs 2022.and Themaintenance and higher expenseequipment in 2023 was primarily due to increased computer-related hardware replacement costs.depreciation.

Data processing expense rose in 20242025 from 2023,2024, following an increase in 20232024 from 2022.2023. The increases in 2024both 2025 and 20232024 were both due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.

Professional fees increasedremained flat in 2025 from 2024, compared to an increase in 2024 from 2023, compared to a decrease in 2023 from 2022.2023. 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. 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.

FDIC and other insurance expense grewdecreased in 2025 from 2024, and increased in 2024 from 20232023. andThe increaseddecrease in 20232025 fromwas 2022.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 general insurance premiums during 20242024. FDIC insurance premiums remained relatively stable during 2025 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 2023.2024.

Business development and marketing expenses decreasedincreased in 2025 from 2024, following a decrease in 2024 from 20232023. followingThe anincreased increaseexpense in 20232025 fromwas 2022.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. The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million and higher marketing promotions.

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 reflectsreflected the nature of this expense item and will enhanceenhances 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.

Other expenses increased in 2025 as compared to 2024, and decreased in 2024 as compared to 20232023. 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 2023fraud as compared to 2022.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. 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.

Commercial and agricultural lending, excluding those loans secured by real estate, increased $6.75$24.62 million or 0.88%3.18% in 20242025 over 2023.2024. Commercial and agricultural lending outstandings were $772.97$797.59 million and $766.22$772.97 million at December 31, 20242025 and December 31, 2023,2024, respectively. Consistent with what we saw in 2023,Commercial loan growth continued to be difficultsomewhat constrained as our clients dealt with higher interestcosts ratesand causedtighter borrowersgross margins. Tariff impact is partially to manageblame theiras cashwell closely.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 although we did experience an increase from a small number of specialty finance borrowers at year end.year. Further, the agricultureagricultural sectorand isrecreational invehicle itssectors secondare entering their fourth consecutive year of depressed commodity prices and demand, which caused lower LOC usage as well asand reduced investmentinvestments in equipment fromby these borrowers. Finally, our commercial and industrial loan outstandings werecontinue to be impacted by the acquisition and subsequent pay-offpay-offs ofby threeprivate ofequity ourfirms and larger credit exposures.competitors.

Renewable energy loans and leases increased $87.56$165.53 million or 21.91%33.97% in 20242025 over 2023.2024. Renewable energy loan and lease outstandings were $487.27$652.80 million and $399.71$487.27 million at December 31, 20242025 and 2023,2024, respectively. The increase during 20242025 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 20242025 from the incentives associated with the Inflation Reduction Act.Act and the shortened phase out period of these incentives with the passage of the One Big Beautiful Bill.

Auto and light truck loans decreased $18.48$60.56 million or 1.91%6.39% in 20242025 over 2023.2024. At December 31, 2024,2025, auto and light truck loans had outstandings of $948.44$887.88 million and $966.91$948.44 million at December 31, 2023.2024. This decrease was primarily attributable to vehicle rental and commercial lessor clients’ reaction to elevatedcyclical interestmarket ratesadjustments byresulting cyclingin the downsizing of total fleet and transition into lower capital cost units along with increasedour vehicleselective availability,credit and shorter fleet holds which reflect a return to more seasonal trends.approach.

Medium and heavy duty truck loans and leases decreased $22.32$19.87 million or 7.16%6.86% in 2024.2025. Medium and heavy duty truck financing at December 31, 20242025 and 20232024 had outstandings of $289.62$269.75 million and $311.95$289.62 million, respectively. The decrease at December 31, 20242025 from December 31, 20232024 can be mainly attributed to areduced slowequipment demand related to an ongoing trucking industry recovery coupled with arecession, selective credit approachapproach, toand maintainmaintenance riskof our adjusted yields, with minimal changes in competitive environment, for existing customers.yields.

Aircraft financing at year-end 20242025 increaseddecreased $45.63$36.98 million or 4.23%3.29% from year-end 2023.2024. Aircraft financing at December 31, 20242025 and 20232024 had outstandings of $1.12$1.09 billion and $1.08$1.12 billion, respectively. Domestic aircraft average outstandings wereincreased modestly, while end-of-period balances declined year-over-year. The decline was driven by theelevated additionclient ofpayoffs newas clientsaircraft andowners selectcapitalized expansionson ofstrong existingmarket aviationpricing relationshipsby againstdivesting aassets backgroundor ofaviation-related normalizingbusinesses demandduring post COVID-era.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, remainedincreased stable6.23% during 20242025 and were $301.18$319.93 million and $302.41$301.18 million as of December 31, 20242025 and 2023,2024, 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, 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.

Construction equipment financing increased $119.16$17.22 million or 10.98%1.43% in 20242025 compared to 2023.2024. Construction equipment financing at December 31, 20242025 had outstandings of $1.20$1.22 billion, compared to outstandings of $1.08$1.20 billion at December 31, 2023.2024. The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst craneroad rental, aggregate producers and haulers,builders and site development clients.

Residential real estate and home equity loans were $740.78 million at December 31, 2025 and $680.07 million at December 31, 2024 and $637.97 million at December 31, 2023.2024. Residential real estate and home equity loans increased $42.10$60.71 million or 6.60%8.93% in 20242025 from 2023.2024. Residential mortgage and home equity outstandings grew in 20242025 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, increasedthe costoverall ofincrease in home values, as well as home repairs and improvementsimprovements, has resulted in largermore loanloans amounts.in our portfolio.

Consumer loans decreased $9.49$13.31 million or 6.64%9.97% in 20242025 over 2023.2024. Consumer loans outstanding at December 31, 2024,2025, were $133.47$120.16 million and $142.96$133.47 million at December 31, 2023.2024. During 2024,2025, higher vehicle prices, increased interest rates, reduced inventory levelslevels, and consumer’s lack of liquidity contributed to the decrease in consumer loans.

Our liability for repurchases, included in Accrued Expenses and Other Liabilities on the Statements of Financial Condition, was $0.18$0.12 million and $0.15$0.18 million as of December 31, 20242025 and 2023,2024, respectively. Our expense for repurchase losses, included in Loan and Lease Collection and Repossession expense on the Statements of Income, was $0.07 million of recoveries in 2025 compared to $0.02 million of expense in 2024 compared toand recoveries of $0.07 million in 2023 and $0.05 million in 2022.2023. The mortgage repurchase liability represents our best estimate of the loss that we may incur. The estimate is based on specific loan repurchase requests and a historical loss ratio with respect to origination dollar volume. Because the level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the level of liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment.

Allowance for Credit Losses — The allowance for credit losses considers the historical loss experience, current conditions, and reasonable and supportable forecasts. To estimate expected loan and lease losses under the Current Expected Credit Losses (CECL) methodology, we use a broad range of data over a lengthy time horizon, generally back to the fourth quarter of 2007, thus capturing most of the economic business cycle which includes the Great Recession and the subsequent long and slow recovery which supports full lifetime losses. CECL requires our loan portfolio to be segregated into pools based on similar risk characteristics.

We perform a thorough analysis of charge-offs, non-performing asset levels, special attention outstandings and delinquency to review portfolio trends, including specific industry risks and economic conditions, which may have an impact on the allowance and allowance ratios applied to various portfolios. We adjust the calculated historical-based ratio based on analysis of environmental factors, principally specific industry risk, collateral risk, and concentration risk, along with global economic and political issues. Our forecast adjustment includes key economic factors affecting our portfolios such as growth in gross domestic product, unemployment rates, housing market trends, commodity prices, and inflation. Forecasts are difficult to establish and the current environment presents challengesongoing withchallenges. highThe domestic economic outlook remains uncertain amid shifting trade/tariff policies, still-elevated inflation and interest ratesrates, andsoftening continued elevated inflation, generally tighter lendinglabor conditions, growing signs of consumer stress,stress and weakening sentiment, and heightened uncertaintygeopolitical fromrisks. ongoing conflicts around the world. There is considerable uncertainty surrounding economicGDP growth prospectshas aslargely weexceeded enterforecasts thein newrecent year,quarters, within variedlarge callspart ranging from soft landingdue to recessionfront loading of inventory purchases in preparation for the domesticimplementation economy.of GDPtariffs. growth exceeded previous forecasts in 2024 butHowever, substantial headwinds remain in the forward outlook. Uncertainty is highelevated asgiven broadening global conflicts broadened, and significant changespolitical shifts domestically and internationally. U.S. tariff policy remains fluid, which has created volatility in both the domesticoperating backdrop for our borrowers and global political environments add uncertainty.markets. Collateral values are significant to underwriting our specialty finance portfolios and volatilitythere is heightened potential for future policy changes to impact asset valuations. Management cannot predict the timing or decliningmagnitude valuesof posefuture apolicy threat.changes Webut actively reviewmonitors developments and adjustadjusts ourunderwriting, including amortization and down payment requirementsrequirements, as necessaryconditions in response to our outlook for future equipment values.evolve. Concentration risk is impacted primarily by geographic concentration in northern Indiana and southwestern Michigan in our business banking and commercial real estate portfolios and by collateral concentration in our specialty finance portfolios.

We include a factor for global risk in our analysis. While difficult to predict with precision, global risks may adversely impact our borrowersborrowers, impairingweakening their ability to repay their financial obligations. The global outlook calls for slowslowing growthgrowth, aspressured by high sovereign debt levels and continuedfiscal highvulnerabilities, rising protectionism and trade tensions, and still-elevated interest rates inand developing countries pressure growth prospects.inflation. Global geopolitical uncertainty impacts the outlook and various ongoing foreign conflicts bringintroduce downside risk. Trade tensions are rising which increases the potential for supply chain disruptions. Terrorism remains a persistent concern and risks of a catastrophic event are elevated. In Brazil and MexicoMexico, where we have a presence with our aircraft lending, wethere remainare concernedconcerns with deteriorating economic growth prospects, persistent inflation,inflation and high interest ratesrates, and theirlong-standing resultantstructural economicissues impact.including income inequality, poverty, and crime. Inflation isremains concerninga headline concern in Brazil where central bank rates are currently at a weakeningnearly currencytwo-decade high, and a heavy public debt burden pressures fiscal expansion are fueling an inflationary rebound.policy. Mexico alsois facesfacing anprospects uncertainof inflationaryweakened outlookeconomic growth, elevated inflation, and modestongoing growthU.S. prospects.trade tensions.

Commercial and agricultural – The allowance increased year-over-year due to modest loan growth, partially offset by a slight decline in special attention balances which carry higher reserves, and lower historical loss rates within the portfolio prior to the impact of the forecast adjustment. Multiple industries are represented in the commercial and agricultural portfolio and the outlook for the portfolio remains guarded. Small businesses areremain challenged to absorb higherstill-elevated interest rates, higher cost of capital, compete for labor, and control expenses. In our underlying industries, wholesalers have generally performed wellwell, andwhile have been able to pass along rising costs. Manufacturersmanufacturers remain under pressure as demand for durable goods remains soft.pressure. The recreational vehicle industry, which is centered in our footprint, continues to struggle with lowerlow demand and production overcapacity as it navigates a sharp declinepullback from record high shipment levels reached in 2022. The outlook for 20252026 remainsreflects ongoing weak; minimallydemand improvedand fromonly 2024.modest improvement as compared to 2025. Pressures in the agricultural marketssector are becomingremain evident, asalthough grain did find some footing in 2025 after experiencing sharp declines in commodity prices coupled with continued high input costs hurt 2024 results and dampened prospects for the upcomingprevious year. WeCharge-off experienced higher charge-offsrates in the commercial and agricultural portfolio forwere amodest secondin consecutive2025 year after a previously sustained period of lowand credit losses. Credit quality remains acceptable, but we havecontinue seento increasedsee elevated special attention activity within the portfolio.portfolio, particularly in small dollar accounts.

Renewable energy – Our allowance increased primarily due to loan growth, along with a slight increase in qualitative adjustments to address changes in the regulatory environment applicable to the portfolio. Our renewable energy (predominately solar) portfolio continues to perform well. Growth opportunities abound and overall credit quality remains solid. Risks include construction and developer related risks and delays, site issues, climate and weather risks, regulatory problems and permitting issues, as well as utility interconnection delays. Maturity risk and refinancing costs are elevated given the higherelevated interest rate environment. To date, we have not incurred any losses in this portfolio and credit performance continues to be favorable.

Medium and heavy duty truck – The industryportfolio’s continuesallowance decreased due to strugglelower withloan overcapacitybalances. andThe weakindustry remains challenged by overcapacity, but freight rates.rates appear to be stabilizing. This portfolio has historically been a barometer for overall economic weakness and the industry has experienced several high-profile carrier bankruptcies and generally difficult conditions.conditions over the last several years. In previous downturns, small companies and independent owner-operators were hit the hardest and asset valuations were pressured. Asset valuations have weakened. The portfolio reported a slight declineweakened in loan balances for the yearsegment. and has exhibited some credit weakness, although it has likely outperformed the industry as a whole and the CompanyWe did not incur any credit losses in the portfolio during the period. The possibility of labor unrest within the shipping industry raises the potential for volatility in the segment and we continue to monitor for signs of credit deterioration in our portfolio given the industry’s increased risk profile.

Aircraft – The Companyportfolio’s allowance decreased as we experienced a modest decline in loan growthbalances year-over-year in theour domestic aircraft segment during the periodsegment, while growth in our foreign portfolioaircraft segment was essentially flat. Credit quality metrics remain stable. Aircraft collateral values, particularly those in our niche, strengthened considerably early in this economic cycle but arehave nowleveled showing signs of softeningoff with increasingmore available inventory. The portfolio has maintained stable credit quality in recent years, but was among the sectors affected most by the sluggish economy following the Great Recession. OurWe experienced minimal loss in the portfolio this year, but our portfolio loss history has beenexperienced volatile,past volatility, characterized by lengthy periods of minimal losses or modest recoveries followed by short intervals of high losses. In this portfolio, we have $301$320 million of foreign exposure, primarily domiciled in Mexico and Brazil. Brazil’s economy generallyremains outperformedburdened expectationsby duringhigh 2024,sovereign butdebt faces increasing inflationarylevels and fiscal concerns, higherhigh interest rates,rates. andMexico’s a sharply weakening currency. The Mexican economy experienced modesteconomic growth inis 2024,expected andto remainsbe highlysomewhat dependentweak onas theit manages through ongoing U.S. economy.trade tensions. Heavy indebtedness and financial problems with state-owned oil firm Pemex are an ongoing concern for Mexico’s broader growth prospects.

Construction equipment – Our construction equipment portfolio reported anothermore yearmuted ofloan solidgrowth growth,in but at a slower rate as2025, compared to relatively high growth rates in previous periods.years since the end of the pandemic. The allowance decrease was primarily driven by a reduction in qualitative factors for elevated problem loan activity in the segment due to improving credit quality trends. Infrastructure spending hascontinues hadto have a positive impact foron many contractors within the segment. The portfolio experienced stable creditCredit quality ingenerally theimproved timeas perioddelinquency betweenrates thewere Great Recession and the pandemic, but there have been credit quality concerns with unanticipated downgrades tomuted, special attention inbalances, recentwhich years.are Thereserved portfolioat reportedhigher increasedrates, monthly delinquency activity duringended the periodyear lower and currentlynon-performing accountsbalances foralso the Company’s highest share of nonperforming assets.declined. The portfolio has alsoexperienced recognizedsome severalelevated sizeableloss lossesactivity in recent years which havehas been successfully mitigated, achieving fairly high recovery rates with time. There remainsis elevatedongoing concern for construction contractors as the portfolio is inherently vulnerable to energy price volatility, high interest rates, and changes in the regulatory environment. Construction projects can have unknown costs or delays and large project risk is ever-present. Volatile energy, labor, and material prices create difficulties for cost structures in an industry that often operates under longer-term contracts lacking adequate cost escalators. OurShifting portfoliotrade haspolicies seenadd multipleuncertainty, instancespotentially ofincreasing contractorsraw having difficulty managingmaterial and collectingequipment receivables which resulted in severe payment difficulties.costs. Historically, we have experienced less volatility in this portfolio than the broader industry as losses have been mitigated by appropriate underwriting and a global market for used construction equipment. We reviewed our qualitative adjustments at year-end, and maintained factors for concentration risk of overall bank capital given the portfolio’s loan growth, elevated problem loan activity in the segment given steady special attention volumes, and added a factor for increasing delinquency and nonperforming asset trends.

Commercial real estate – Similar to the commercial portfolio, our commercial real estate loans are concentrated in our local market with local customers although we do fund select projects outside our market with multi-state developers that are headquartered in our footprint. The allowance increase was due to loan growth in both owner and non-owner-occupied segments. We continue to monitor construction risk and maturity repricing risk in the elevated interest rate environment. Approximately 62%61% of the Bank’s exposure in this portfolio is from owner-occupied facilities where we are the primary relationship bank for our clients. Special attention activity in both the owner-occupied and non-owner-occupied segments remains modest with generally stable credit quality. We have seen limited evidence of slow lease-up and rental rate pressures in select markets in the multi-family segment. We reviewed our qualitative adjustments as of year-end and made slight adjustments to factorsa factor addressing interest rate maturity risk alongand witha slight increase to our construction risk in select segmentsfactor as the loan volume of projects under construction remains much higher than prior periods. We have seen an uptick in special attention activity in our owner-occupied segment, while our non-owner-occupied segment has maintained generally stable credit quality. We continue to be concerned about higher interest and capitalization rates within the non-owner-occupied segment and the potential negative impact on both real estate valuations and projected cash flows.

Residential real estate and home equity – Our residential real estate and home equity portfolio consists of loans to individuals in the communities we serve. The allowance increased due to loan growth. Generally, residential mortgage loans are originated using standards that result in salable mortgages. Home equity loans are also advanced in compliance with regulatory guidelines and the Bank’s credit policy. Losses in these portfolios have been immaterial since 2013. Qualitative factors in the portfolio are primarily for reasonable and supportable forecasts, although we maintainedmaintain a previousan adjustment to account for an elevated amount of non-salable adjustable-rate mortgages in the loan mix with repricing risk at maturity.

Consumer – Our consumer loan portfolio consists of loans to individuals in the communities we serve. This portfolio consists primarily of loans secured by autos with advances in compliance with the Bank’s underwriting standards. LossesThe allowance was minimally changed year-over-year as lower loan balances were offset by higher historical loss rates in the portfolio. Delinquency rates remain manageable but are stabletrending during good economic times and tend to increase when there is deterioration in local economic factors and employment rates.upward. Loss rates had beenwere modest from 2013 through the end of the pandemic, but we have experienced higher write-downs within the portfolio in each of the last twothree years. We reviewedreview our qualitative adjustments ateach the end of the 2024quarter, which primarily consist of reasonable and supportable forecasts and madealso include an upward adjustment to account for increasing delinquency and nonperforming activity within the portfolio.

Charge-offs for loan and lease losses were $8.30 million for 2025, compared to $13.73 million for 2024,2024 compared toand $6.65 million for 2023 and $3.41 million for 2022.2023. Primarily reflective of our strong loan and lease growth and qualitativeaccretive forecast adjustments, we added $13.66$10.51 million to the provision for credit losses on loans and leases for 2024,2025, compared to a provision of $13.66 million for 2024 and a provision of $5.87 million for 2023 and a provision of $13.25 million for 2022.2023.

Nonperforming Assets — Nonperforming assets include loans past due over 90 days, nonaccrual loans and leases, other real estate, repossessions and other nonperforming assets we own. Our policy is to discontinue the accrual of interest on loans and leases where principal or interest is past due and remains unpaid for 90 days or more, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential real estate and home equity loans, which are placed on nonaccrual at the time the loan is placed in foreclosure and consumer loans that are both well secured and in the process of collection.

Nonperforming assets at December 31, 20242025 increased from December 31, 2023,2024, mainly due to increases in nonaccrual loans and leases in the constructionauto equipmentrental portfoliosegment of our auto and tolight atruck lesserportfolio, extent, the residential real estate and home equity portfoliopartially offset by a decrease inlower nonaccrual loans and leases in theour commercial and agriculturalconstruction portfolio. Repossessions consisted mainly of units in the construction equipment portfolio.and consumer portfolios. There is currently one property held inno other real estate relatedowned toas ourof constructionyear equipment portfolio.end.

Potential Problem Loans — Potential problem loans consist of loans that are performing but for which management has concerns about the ability of a borrower to continue to comply with repayment terms because of potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis. As of December 31, 20242025 and 2023,2024, we had $20.60$11.10 million and $34.04$20.60 million, respectively, in loans of this type which are not included in either of the non-accrual or 90 days past due loan categories. At December 31, 2024,2025, potential problem loans consisted of five relationships; onetwo relationshiprelationships in the commercial and agricultural portfolio, onetwo relationshiprelationships in the aircraftauto and light truck portfolio, and one relationship in the mediumcommercial andreal heavy duty truck portfolio, and two relationships in the constructionestate portfolio. Weakness in the borrowers’ operating performance have caused us to give heighten attention to these credits.

During DecemberJanuary 2023,2024, we borrowed $100 million from the Federal Reserve’s Bank Term Funding Program based on the economics of the borrowing relative to our other funding sources. During January 2024,2025, we refinancedrepaid the borrowing atin a lower rate for another one year period.full.

Purchased Funds — We use purchased funds to supplement core deposits, which include certain certificates of deposit over $250,000, brokered certificates of deposit, listing services certificates of deposit, over-night borrowings, securities sold under agreements to repurchase, commercial paper, and other short-term borrowings which includes Federal Home Loan Bank and Federal Reserve Bank borrowings. Purchased funds are raised from customers seeking short-term investments and are used to manage the Bank’s interest rate sensitivity. During 2024,2025, our reliance on purchased funds increaseddecreased to 12.69%10.54% of average total assets from 11.45%12.69% in 2023.2024.

(iii)Dependency Ratio (net potentially volatile liabilities minus short termshort-term investments divided by total earning assets minus short termshort-term investments) less than 15%; and (iv)Loans to Deposits Ratio less than 100% At December 31, 2024,2025, we were in compliance with the foregoing internal policies and regulatory guidelines.

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 MarchJune 31,30, 2026, as compared to December 31, 2025, and the results of operations for the three and six months ended MarchJune 31,30, 2026, and 2025. 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 2025 Annual Report.

Our total assets at MarchJune 31,30, 2026, were $9.11$9.26 billion, an increase of $58.16$207.90 million or 0.64%2.30% from December 31, 2025. Total investment securities available-for-sale were $1.53 billion, an increase of $7.11$5.20 million or 0.47%0.34% from December 31, 2025. The largest contributor to the increase in investment securities available-for-sale was driven by additional investments made during the period. Federal funds sold and interest bearing deposits with other banks were $51.14$59.81 million, an increase of $0.53$9.20 million or 1.04%18.17% from December 31, 2025. The increase in federal funds sold and interest bearing deposits with other banks was due to higher interest bearing deposits at other banks.

Total loans and leases were $7.08$7.22 billion, an increase of $36.86$173.28 million or 0.52%2.46% from December 31, 2025. The largest contributors to the increase in loans and leases was growth in the renewable energy, commercial realand estate,agricultural, construction equipment, and commercial andreal agricultural loanestate portfolios, offset by decreases in the auto and light truck, aircraft, and construction equipmentconsumer portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars, were $321.91$305.31 million and $319.93 million as of MarchJune 31,30, 2026, and December 31, 2025, respectively. Foreign loans and leases are in aircraft financing. Loan and lease balances to borrowers in Brazil and Mexico were $137.27$139.15 million and $167.83$151.99 million as of MarchJune 31,30, 2026, respectively, compared to $136.98 million and $163.70 million as of December 31, 2025, respectively. As of MarchJune 31,30, 2026, and December 31, 2025, there was not a significant concentration in any other country.

Total deposits were $7.23$7.43 billion at MarchJune 31,30, 2026, relativelyan flat compared to the endincrease of $206.67 million or 2.86% from December 31, 2025. Changes to the mix in total deposits included higher noninterest-bearinginterest-bearing demand deposits, brokered deposits, time deposits, and savings deposits, offset by a decrease in interest-bearing demand deposits. Rate competition for deposits persisted during the firstsecond quarter across our footprint from various sources, including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.

Short-term borrowings were $289.18$199.49 million, ana increasedecrease of $50.56$39.13 million or 21.19%16.40% from December 31, 2025, due primarily to ana increasedecrease in federal funds purchased and short-term FHLB borrowings.purchased. Long-term debt and mandatorily redeemable securities were $35.51$36.03 million, a decrease of $7.82$7.30 million or 18.05%16.86% from December 31, 2025, due primarily to the maturity of a $10.00 million long-term borrowing. Accrued expenses and other liabilities were $181.54$183.47 million, an increase of $10.65$12.58 million or 6.23%7.36% from December 31, 2025, mainly due to increased unfunded partnership commitments offset by decreasesdecreased duereserves tofor annualemployee incentive-relatedbenefit paymentsplan to employees.contributions.

As of MarchJune 31,30, 2026, total shareholders’ equity was $1.28$1.31 billion, up $2.99$35.42 million, or 0.23%2.78% from the $1.27 billion at December 31, 2025. In addition to net income of $39.96$87.50 million, other significant changes in shareholders’ equity during the first threesix months of 2026 included $23.35 million in common stock repurchased and $9.79$20.18 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity increased to $40.90$46.52 million at MarchJune 31,30, 2026, compared to $34.78 million at December 31, 2025, due to changes in interest rates, market spreads, and market conditions on our available-for-sale investment portfolio.portfolio subsequent to purchase. Our shareholders’ equity-to-assets ratio was 14.02%14.15% as of MarchJune 31,30, 2026, compared to 14.08% at December 31, 2025. Book value per common share increased to $53.10$54.41 at MarchJune 31,30, 2026, from $52.32 at December 31, 2025, primarily due to increased retained earnings.

We declared and paid cash dividends per common share of $0.40$0.43 during the firstsecond quarter of 2026. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 23.93%.23.13%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

The actual capital amounts and ratios of 1st Source Corporation and 1st Source Bank as of MarchJune 31,30, 2026, remained at their historically strong and conservative levels and are presented in the table below.

We maintain prudent strategies to support a strong liquidity position. The following table represents our sources of liquidity as of MarchJune 31,30, 2026.

External sources as listed in the table above are managed to approved guidelines by our Board of Directors. Total net available liquidity was $3.52$3.72 billion at MarchJune 31,30, 2026, which accounted for approximately 50%52% of total deposits net of brokered and listing services certificates of deposit.

Our loan to asset ratio was 77.73%77.94% at MarchJune 31,30, 2026, compared to 77.82% at December 31, 2025 and 76.57%78.11% at MarchJune 31,30, 2025. Cash and cash equivalents totaled $118.81$127.30 million at MarchJune 31,30, 2026, compared to $119.86 million at December 31, 2025 and $222.82$149.11 million at MarchJune 31,30, 2025. The increase in cash and cash equivalents for the six month period ended June 30, 2026 was primarily due to an increase in deposits. The decrease in cash and cash equivalents compared to June 30, 2025, was primarily due to funding loan growth and purchases of investment securities available-for-sale. At March 31, 2026, the Consolidated Statements of Financial Condition was rate sensitive by $245.08 million more liabilities than assets scheduled to reprice within one year, or approximately 0.94%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs. At June 30, 2026, the Consolidated Statements of Financial Condition was rate sensitive by $175.37 million more liabilities than assets scheduled to reprice within one year, or approximately 0.96%. Management evaluates interest rate risk using multiple measures and analytical techniques, as each provides a different perspective on the Bank's exposure to changes in interest rates.

Net income available to common shareholders for the three and six month periodperiods ended MarchJune 31,30, 2026, was $39.96$47.54 million and $87.50 million compared to $37.52$37.32 million and $74.84 million for the same periodperiods in 2025. Diluted net income per common share was $1.63$1.95 and $3.58 for the three and six month periodperiods ended MarchJune 31,30, 2026, compared to $1.52$1.51 and $3.02 earned for the same periodperiods in 2025. Return on average common shareholders’ equity was 12.53%13.61% for the threesix months ended MarchJune 31,30, 2026, compared to 13.33%12.96% in 2025. The return on total average assets was 1.80%1.93% for the threesix months ended MarchJune 31,30, 2026, compared to 1.72%1.69% in 2025.

Net income increased for the threesix months ended MarchJune 31,30, 2026, compared to the first threesix months of 2025. Net interest income and noninterest income increased and the provision for credit losses decreased 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.

Quarter Ended MarchJune 31,30, 2026, compared to the Quarter Ended MarchJune 31,30, 2025

The taxable-equivalent net interest income for the three months ended MarchJune 31,30, 2026, was $90.29$93.30 million, an increase of 11.36%9.32% over the same period in 2025. The net interest margin on a fully taxable-equivalent basis was 4.25%4.24% for the three months ended MarchJune 31,30, 2026, compared to 3.90%4.01% for the three months ended MarchJune 31,30, 2025.

During the three month period ended MarchJune 31,30, 2026, average earning assets increased $183.82$285.77 million, up 2.18%3.34% over the comparable period in 2025. Average interest-bearing liabilities increased $10.51$151.65 million or 0.18%.2.53%. The yield on average earning assets remaineddecreased stableto 5.96% at 5.94%June at March 31,30, 2026, unchangeddown two basis points from the same period in the prior year. Total cost of average interest-bearing liabilities decreased 4434 basis points to 2.46%2.47% from 2.90%,2.81%, primarily as a result of lower rates on interest-bearing deposits and decreased interest expense on mandatorily redeemable securities offset by increased short-term borrowing costs. 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 3523 basis points.

The largest contributors to the improvedreduced yield on average earning assets for the three months ended MarchJune 31,30, 2026, compared to the three months ended MarchJune 31,30, 2025, was ana increasedecrease in average loan and lease balances and improved yields on investmentsnet loans and leases mainly from portfolioFederal repositioningReserve tradesrate executedcuts during the second half of 2025 offset byand 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.paper offset by improved yields on investments from portfolio repositioning trades executed during 2025. The yield on loans and leases decreased 2319 basis points, mainly from lowerFed ratesrate on loanscuts during the quartersecond comparedhalf toof the prior year first quarter.2025. Average loans and leases increased $223.81$174.23 million or 3.29%,2.50%, primarily in the renewable energy, commercial real estate, residential real estate and home equity, construction equipment, and commercial and agricultural, and construction equipmentagricultural portfolios. Net interest recoveries positively contributed onethree basis pointpoints to the yield on average loans and leases during the quarter and ninehad basisno pointsimpact to the average loans and leases yield during the prior year firstsecond quarter. Average investment securities increased $7.89$52.55 million or 0.52%,3.56%, driven by additional investments made during the period. Average other investments, primarily held at the Federal Reserve Bank, decreasedincreased $50.40$58.25 million or 44.11%.61.02%.

Average interest-bearing deposits decreasedincreased $139.69$73.33 million or 2.43%1.27% for the firstsecond quarter of 2026 over the same period in 2025 primarily from lowerhigher brokeredsavings deposits, interest-bearing demand deposits, and time deposits, offset withby ana increasedecrease in savings deposits and interest-bearing demandbrokered deposits. The effective rate on average interest-bearing deposits decreased 4536 basis points to 2.36% from 2.81%,2.72%, primarily as a result of Fed rate cuts during 2025 and lower brokered deposit balances. Average noninterest-bearing deposits decreasedincreased $2.28$5.19 million or 0.14%0.33% for the firstsecond quarter of 2026 over the same period in 2025.

Average short-term borrowings increased $150.36$84.13 million or 196.08%68.52% for the firstsecond quarter of 2026, compared to the same period in 2025. Interest on short-term borrowings increased 18428 basis points primarily due to the increase in average balances in federal funds purchased and FHLB borrowings. Interest on subordinated notes decreased 1324 basis points during the firstsecond quarter of 2026 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 $0.15$5.81 million or 0.39%.14.05% mainly from the maturity of a $10.00 million long-term borrowing. Interest on long-term debt and mandatorily redeemable securities decreasedincreased 58255 basis points during the firstsecond quarter of 2026 from the same period in 2025, primarily duefrom toan lowerincrease imputed interest onin mandatorily redeemable securities fromaverage a smaller increase in book value per share during the quarter compared to the previous year’s first quarter.balances. 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.

The provision for credit losses for the three and six months ended MarchJune 31,30, 2026, was $7.27$1.54 million and $8.81 million, compared to $3.27$7.69 million and $10.96 million during the three and six months ended MarchJune 31,30, 2025. Net charge-offs of $3.96$0.52 million or 0.23%0.03% of average loans and leases were recorded for the firstsecond quarter of 2026, compared to $0.18$1.87 million or 0.01%0.11% of average loans and leases for the same quarter a year ago. Year-to-date net charge-offs of $4.48 million or 0.13% of average loans and leases have been recorded in 2026, compared to net charge-offs of $2.05 million or 0.06% of average loans and leases through June 30, 2025. Net charge-offs recognized in 2026 are principally concentrated in the auto and light truck, construction equipment, and consumer portfolios offset by modest net recoveries in the commercial and agricultural portfolio. Charge-offs in the auto and light truck portfolio were primarily from two unique accounts who provide special trailer units serving the film industry.

The provision for credit losses for the three months ended MarchJune 31,30, 2026, was driven primarily by changesloan growth in forward-lookingour forecastconstruction assumptions,equipment, alongcommercial withand modestagricultural, loanand growthrenewable energy portfolios during the period. We increasedmaintained our forecast adjustment as the outlook for several primary economic factors modestly deteriorated from the prior quarter’s analysis,assumptions withcontinue adverseto effectsbe expectedapplicable overto the two-year forecast horizon.outlook. Key risks include heightened global geopolitical uncertainty, increased volatility and highervolatile energy prices, firming inflationary expectations, ever-changing trade policies, and overall macroeconomic uncertainty. Reserves for assets individually evaluated total $0.64$1.60 million this quarter, consisting of accounts in our commercial and agriculturalagricultural, auto and light truck, construction equipmentequipment, and commercial real estate portfolios.

We remain attentive to potential risks within the small business segment of the commercial and agricultural portfolioportfolio. asCredit domesticconcerns tradeare proposals increase the potentialelevated for pricingsmall instabilitybusiness and shifting demand dynamics impact our customers.borrowers. The agricultural portion of this portfolio remainsis under stress as grain producers struggle with higher input costs and low commodity prices. Within the auto and light truck portfolio, borrowers continueare to contendcontending with lower rental rates, higher fleet carrying costs, and industry overcapacity. Charge-offs recognized during the quarter increased historical loss rates for this portfolio, resulting in modest offsetting reductions to certain qualitative factors, as quantitative loss experience more fully reflects current portfolio risk characteristics. The medium and heavy duty truck portfolio is managingemerging throughfrom a prolonged industry downturn,downturn whereas sharplyfreight increasingrates fuelhave pricesimproved arewith ancapacity additionalreductions. concern.However, overall freight demand remains soft. Consumer financial stress indicators remain elevated, economic imbalances persist, and overall consumer confidence remains subdued. The impact fromof highervolatile energy prices, should they persist, iscould expectedresult to be widespread. Volatile energy prices representin a meaningful headwind across multiple portfolios.

We modestly adjusted an economic uncertainty qualitative factor to reflect the current environment’s heightened geopolitical uncertainty. We continually evaluate risks that may impact our loan portfolios including an uncertain domestic and global economic outlook influenced by geopolitical instability, evolving trade policiespolicies, elevated interest rates, and ongoing efforts by the Federal Reserve’s effortsReserve to balance inflation, interest rate considerations,inflation and labor market conditionsconditions. in support of overallWhile economic stability.growth Downsidehas economicremained generally resilient, downside risks have increasedpersist and fragile growth prospects raise the potentialoperating forenvironment adverseremains outcomes in both domestic and global markets.fragile. Uncertainty is pervasive. Ongoing macroeconomic instability and higher interest rates may contribute to increased volatility in asset prices and place downward pressure on the values of collateral securing our loans.

Our aircraft portfolio exhibits collateral concentration and contains $321.91$305.31 million of foreign exposure at MarchJune 31,30, 2026, the majority of which is in Mexico and Brazil. We regularly review political and economic conditions in these markets to assess potential impact on borrower performance. Credit quality in the aircraft portfolio remains stable, and we have experienced minimal credit losses in recent years. However,In the past, the portfolio has historically experienced periods of elevated and unanticipated losses, primarily driven by abrupt declines in collateral values coinciding with borrower financial stress. We review and assess aircraft values on an ongoing basis utilizing a tiered approach to establishing advance rates and amortization schedules to limit collateral exposure with continuous monitoring of individual borrower performance and overall portfolio trends.

On MarchJune 31,30, 2026, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.14%,0.09%, compared to 0.09%0.52% on MarchJune 31,30, 2025. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.33%,2.30%, compared to 2.29%2.30% one year ago. A summary of loan and lease loss experience during the three and six months ended MarchJune 31,30, 2026, and 2025 is located in Note 5 of the Consolidated Financial Statements.

Nonperforming assets totaled $73.42$73.12 million at MarchJune 31,30, 2026, a decrease of 5.12%5.51% from the $77.38 million reported at December 31, 2025, and a 70.45%3.21% increasedecrease from the $43.07$75.54 million reported at MarchJune 31,30, 2025. The decrease in nonperforming assets during the first threesix months of 2026 was primarily related to lower nonaccrual loans and leases.leases partially offset by an increase in repossessions. The increasedecrease in nonperforming assets as of MarchJune 31,30, 2026, from MarchJune 31,30, 2025, was related to an increasedecreases in nonaccrual loans and leases.leases and repossessions. There are currently nothree properties held in other real estate related to our residential real estate and home equity portfolio as of MarchJune 31,30, 2026.

The decrease in nonaccrual loans and leases at MarchJune 31,30, 2026, from December 31, 2025, was predominantly related to charge-offdefleeting activity and charge-offs in our auto and light truck portfolio during the quarter and payoffs in the commercialconstruction realequipment estateportfolio portfolio.during the period. A summary of nonaccrual loans and leases and past due aging for the periods ended MarchJune 31,30, 2026, and December 31, 2025, is located in Note 4 of the Consolidated Financial Statements.

Repossessions consisted primarily of threeone loan relationshipsrelationship in the construction equipmentaircraft portfolio, coupled with minimal amounts in our commercial, autocommercial and light truck,agricultural and consumer portfolios at MarchJune 31,30, 2026. 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.

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 MarchJune 31,30, 2026, compared with the same periodperiods 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 MarchJune 31,30, 2026, December 31, 2025, and MarchJune 31,30, 2025, was $6.28$6.60 billion, $6.28 billion, and $5.93$5.94 billion, respectively. The increase in trust and wealth advisory fees included larger than usual estate administration fees primarily from one customer account in the process of settlement during the three months ended June 30, 2026.

Service charges on deposit accounts increased for the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. The increase in service charges on deposit accounts was mainly the result of higher consumer nonsufficient fund and overdraft transactions.

Debit card income increased duringfor both the three monthsand six month periods ended MarchJune 31,30, 2026, compared to the same periodperiods ain yearthe ago.prior Theyear. increaseThis during this periodgrowth was duedriven toprimarily by higher transaction volumesand alongspending withvolumes, changessupported inby consistent client transaction behavior and merchant network routing patterns.

OtherMortgage banking income decreased for the three and six months ended MarchJune 31,30, 2026, compared toover the samecomparable periodperiods in 2025. The decrease was primarilymainly the result offrom lower partnershipgains investmenton gains,loan fewersales customerdue interest rate swap fees, andto reduced brokerageprofit feesmargins andas commissions.well as a reduction in loan servicing fee income.

Salaries and employee benefits increased during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. Higher salaries and employee benefits were mainly a result of normal merit increases.increases, increased incentive compensation, as well as higher group insurance costs as a result of overall higher health insurance claims, and increased employee benefit plan contributions.

Net occupancy expense increased during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. The increase was primarily due to increased snow removal costs from seasonal weather conditions.conditions during the first quarter and higher premises expenses and repairs.

Furniture and equipment expenses,expense, including depreciation, increasedwas relatively flat during the firstsecond three monthsquarter of 2026, compared to the same period in 2025, and increased year to date compared to the same time period a year ago. The increase was mainly due to higher equipment depreciation and anequipment increaserepairs partially offset by a decrease in equipment repairs.maintenance.

Data processing expense grew during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods a year ago due primarily to increased software maintenance expense on technology projects and higher computer processing charges.projects.

Depreciation on leased equipment decreased for the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Professional fees were lowerhigher during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods a year ago due primarily to lowerhigher legal and professional consulting fees.

FDIC and other insurance remained flat during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025.

Business development and marketing expense decreasedincreased during the three and six months ended MarchJune 31,30, 2026, compared with the same periodperiods in 2025. The decreaseincrease was primarily due to an increase in marketing promotions offset by lower business development and travel expenses offset by higher marketing promotions.expenses.

Other expenses were higher during the firstthree threeand six months ofended June 30, 2026, compared to the same periodperiods a year ago. The increase was primarily the result of higher collection and repossession expenses,expenses increased foreclosure servicing expenses,and a rise in debit card losses, and higherfraud employee training and travel related expenseslosses offset by lowerincreased checkgains fraudon losses.the sale of repossessed assets.

The provision for income taxes for the three and six month periodperiods ended MarchJune 31,30, 2026, was $11.39$14.06 million and $25.44 million compared to $10.18$10.80 million and $20.98 million for the same periodperiods in 2025. The effective tax rate was 22.18%22.82% and 21.34%22.45% for the quarters ended MarchJune 31,30, 2026, and 2025, respectively, and 22.53% and 21.89% for the six months ended June 30, 2026, and 2025, respectively. The increase in the year-to-date effective tax rate was due to a one-time $0.74 million after-tax interest payment on federal tax refunds from tax credit carrybacks recorded in the first quarter of 2025.