source-20260630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-6233

1st Source Corporation

(Exact name of registrant as specified in its charter)


Indiana						35-1068133
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


100 North Michigan Street
South Bend,	IN	46601
(Address of principal executive offices)		(Zip Code)

(574) 235-2000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock - without par value

SRCE

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Number of shares of common stock outstanding as of July 17, 2026 — 24,081,826 shares

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TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition — June 30, 2026 and December 31, 2025	3
	Consolidated Statements of Income — three and six months ended June 30, 2026 and 2025	4
	Consolidated Statements of Comprehensive Income (Loss) — three and six months ended June 30, 2026 and 2025	5
	Consolidated Statements of Shareholders’ Equity — three and six months ended June 30, 2026 and 2025	6
	Consolidated Statements of Cash Flows — six months ended June 30, 2026 and 2025	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45

SIGNATURES		46

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1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited - Dollars in thousands)


	June 30, 2026		December 31, 2025
ASSETS
Cash and due from banks	$	67,497	$	69,249
Federal funds sold and interest bearing deposits with other banks	59,806		50,608
Investment securities available-for-sale, at fair value (amortized cost of $1,588,489 and $1,568,429 at June 30, 2026 and December 31, 2025, respectively)	1,527,689		1,522,486
Other investments	22,140		22,140

Mortgages held for sale	4,990		4,866
Loans and leases, net of unearned discount:
Commercial and agricultural	857,330		797,592
Renewable energy	741,164		652,799
Auto and light truck	828,721		887,876
Medium and heavy duty truck	266,719		269,749
Aircraft	1,067,328		1,086,821
Construction equipment	1,275,465		1,221,135
Commercial real estate	1,313,213		1,269,765
Residential real estate and home equity	760,656		740,777
Consumer	109,348		120,155
Total loans and leases	7,219,944		7,046,669
Allowance for loan and lease losses	(166,354)		(161,846)
Net loans and leases	7,053,590		6,884,823
Equipment owned under operating leases, net	5,618		6,964
Premises and equipment, net	57,880		58,318
Goodwill and intangible assets	83,895		83,895
Accrued income and other assets	380,068		351,921
Total assets	$	9,263,173	$	9,055,270
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,606,287	$	1,600,495
Interest-bearing deposits:
Interest-bearing demand	2,669,991		2,592,202
Savings	1,495,425		1,446,278
Time	1,660,542		1,586,600
Total interest-bearing deposits	5,825,958		5,625,080
Total deposits	7,432,245		7,225,575
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	63,494		112,470
Other short-term borrowings	135,996		126,151
Total short-term borrowings	199,490		238,621
Long-term debt and mandatorily redeemable securities	36,026		43,330
Subordinated notes	58,764		58,764
Accrued expenses and other liabilities	183,468		170,890
Total liabilities	7,909,993		7,737,180
SHAREHOLDERS’ EQUITY
Preferred stock; no par value
Authorized 10,000,000 shares; none issued or outstanding	—		—
Common stock; no par value
Authorized 40,000,000 shares; issued 28,205,674 at June 30, 2026 and December 31, 2025	436,538		436,538
Retained earnings	1,084,880		1,015,160
Cost of common stock in treasury (4,123,848 shares at June 30, 2026 and 3,836,656 shares at December 31, 2025)	(164,514)		(141,950)
Accumulated other comprehensive loss	(46,516)		(34,777)
Total shareholders’ equity	1,310,388		1,274,971
Noncontrolling interests	42,792		43,119
Total equity	1,353,180		1,318,090
Total liabilities and equity	$	9,263,173	$	9,055,270

The accompanying notes are a part of the unaudited consolidated financial statements.

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1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Interest income:
Loans and leases	$	116,814	$	117,230	$	230,237	$	230,790
Investment securities, taxable	12,402		8,602		24,106		16,755
Investment securities, tax-exempt	304		297		611		574
Other	1,561		1,087		2,260		2,401
Total interest income	131,081		127,216		257,214		250,520
Interest expense:
Deposits	34,465		39,106		67,043		78,952
Short-term borrowings	1,507		809		3,227		1,041
Subordinated notes	971		1,007		1,966		2,021
Long-term debt and mandatorily redeemable securities	996		1,102		1,698		2,376
Total interest expense	37,939		42,024		73,934		84,390
Net interest income	93,142		85,192		183,280		166,130
Provision for credit losses:
Provision for credit losses — loans and leases	1,978		7,884		8,988		9,996
(Recovery of) provision for credit losses — unfunded loan commitments	(439)		(194)		(177)		959
Total provision for credit losses	1,539		7,690		8,811		10,955
Net interest income after provision for credit losses	91,603		77,502		174,469		155,175
Noninterest income:
Trust and wealth advisory	8,692		7,266		15,710		13,932
Service charges on deposit accounts	3,432		3,189		6,786		6,260
Debit card	4,734		4,567		9,114		8,716
Mortgage banking	858		1,116		1,869		1,969
Insurance commissions	1,791		1,685		4,302		4,125
Equipment rental	540		779		1,129		1,678
Gains (losses) on investment securities available-for-sale	13		(997)		13		(997)
Other	4,959		5,452		9,097		10,477
Total noninterest income	25,019		23,057		48,020		46,160
Noninterest expense:
Salaries and employee benefits	33,152		31,800		65,973		63,915
Net occupancy	3,387		3,035		6,935		6,259
Furniture and equipment	1,665		1,684		3,127		3,031
Data processing	7,492		7,410		15,065		14,701
Depreciation – leased equipment	423		619		877		1,337
Professional fees	2,152		1,499		3,727		3,167
FDIC and other insurance	1,454		1,438		2,903		2,878
Business development and marketing	2,064		1,884		3,967		3,809

Other	3,236		3,061		6,968		6,409
Total noninterest expense	55,025		52,430		109,542		105,506
Income before income taxes	61,597		48,129		112,947		95,829
Income tax expense	14,055		10,803		25,444		20,980
Net income	47,542		37,326		87,503		74,849
Net loss (income) attributable to noncontrolling interests	2		(7)		(3)		(10)
Net income available to common shareholders	$	47,544	$	37,319	$	87,500	$	74,839
Per common share:
Basic net income per common share	$	1.95	$	1.51	$	3.58	$	3.02
Diluted net income per common share	$	1.95	$	1.51	$	3.58	$	3.02

Basic weighted average common shares outstanding	24,073,382		24,541,385		24,174,463		24,544,120
Diluted weighted average common shares outstanding	24,073,382		24,541,385		24,174,463		24,544,120

The accompanying notes are a part of the unaudited consolidated financial statements.

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1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - Dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Net income	$	47,542	$	37,326	$	87,503	$	74,849
Other comprehensive income (loss):
Unrealized (depreciation) appreciation of available-for-sale securities	(7,109)		13,509		(14,845)		38,699
Reclassification adjustment for realized (gains) losses included in net income	(13)		997		(13)		997
Income tax effect	1,506		(3,383)		3,119		(9,225)
Other comprehensive income (loss), net of tax	(5,616)		11,123		(11,739)		30,471
Comprehensive income (loss)	41,926		48,449		75,764		105,320
Comprehensive (income) loss attributable to noncontrolling interests	2		(7)		(3)		(10)
Comprehensive income (loss) available to common shareholders	$	41,928	$	48,442	$	75,761	$	105,310

The accompanying notes are a part of the unaudited consolidated financial statements.

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1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - Dollars in thousands, except per share amounts)



	Three Months Ended
	Preferred Stock		Common Stock		Retained Earnings		Cost of Common Stock in Treasury		Accumulated Other Comprehensive Income (Loss), Net		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
Balance at April 1, 2025	$	—	$	436,538	$	921,717	$	(128,912)	$	(67,884)	$	1,161,459	$	59,083	$	1,220,542
Net income	—		—		37,319		—		—		37,319		7		37,326
Other comprehensive income	—		—		—		—		11,123		11,123		—		11,123
Issuance of 15,613 common shares under stock based compensation awards	—		—		678		201		—		879		—		879
Cost of 47,428 shares of common stock acquired for treasury	—		—		—		(2,840)		—		(2,840)		—		(2,840)
Common stock dividend ($0.38 per share)	—		—		(9,351)		—		—		(9,351)		—		(9,351)
Distributions to noncontrolling interests	—		—		—		—		—		—		(255)		(255)

Balance at June 30, 2025	$	—	$	436,538	$	950,363	$	(131,551)	$	(56,761)	$	1,198,589	$	58,835	$	1,257,424

Balance at April 1, 2026	$	—	$	436,538	$	1,047,027	$	(164,709)	$	(40,900)	$	1,277,956	$	42,882	$	1,320,838
Net income	—		—		47,544		—		—		47,544		(2)		47,542
Other comprehensive loss	—		—		—		—		(5,616)		(5,616)		—		(5,616)
Issuance of 12,945 common shares under stock based compensation awards	—		—		698		195		—		893		—		893

Common stock dividend ($0.43 per share)	—		—		(10,389)		—		—		(10,389)		—		(10,389)

Distributions to noncontrolling interests	—		—		—		—		—		—		(88)		(88)

Balance at June 30, 2026	$	—	$	436,538	$	1,084,880	$	(164,514)	$	(46,516)	$	1,310,388	$	42,792	$	1,353,180


	Six Months Ended
	Preferred Stock		Common Stock		Retained Earnings		Cost of Common Stock in Treasury		Accumulated Other Comprehensive Income (Loss), Net		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
Balance at January 1, 2025	$	—	$	436,538	$	890,937	$	(129,175)	$	(87,232)	$	1,111,068	$	70,438	$	1,181,506


Net income	—		—		74,839		—		—		74,839		10		74,849
Other comprehensive income	—		—		—		—		30,471		30,471		—		30,471
Issuance of 65,616 common shares under stock based compensation awards	—		—		2,803		919		—		3,722		—		3,722
Cost of 54,982 shares of common stock acquired for treasury	—		—		—		(3,295)		—		(3,295)		—		(3,295)
Common stock dividend ($0.74 per share)	—		—		(18,216)		—		—		(18,216)		—		(18,216)
Distributions to noncontrolling interests	—		—		—		—		—		—		(1,768)		(1,768)
Liquidation of noncontrolling interests	—		—		—		—		—		—		(9,845)		(9,845)
Balance at June 30, 2025	$	—	$	436,538	$	950,363	$	(131,551)	$	(56,761)	$	1,198,589	$	58,835	1,257,424

Balance at January 1, 2026	$	—	$	436,538	$	1,015,160	$	(141,950)	$	(34,777)	$	1,274,971	$	43,119	$	1,318,090


Net income	—		—		87,500		—		—		87,500		3		87,503
Other comprehensive loss	—		—		—		—		(11,739)		(11,739)		—		(11,739)
Issuance of 51,164 common shares under stock based compensation awards	—		—		2,399		786		—		3,185		—		3,185
Cost of 338,356 shares of common stock acquired for treasury	—		—		—		(23,350)		—		(23,350)		—		(23,350)
Common stock dividend ($0.83 per share)	—		—		(20,179)		—		—		(20,179)		—		(20,179)

Distributions to noncontrolling interests	—		—		—		—		—		—		(330)		(330)

Balance at June 30, 2026	$	—	$	436,538	$	1,084,880	$	(164,514)	$	(46,516)	$	1,310,388	$	42,792	$	1,353,180

The accompanying notes are a part of the unaudited consolidated financial statements.

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1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Dollars in thousands)


	Six Months Ended June 30,
	2026		2025
Operating activities:
Net income	$	87,503	$	74,849
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	8,811		10,955
Depreciation of premises and equipment	2,781		2,438
Depreciation of equipment owned and leased to others	877		1,337
Stock-based compensation	3,280		2,755
Net (accretion) amortization of investment securities available-for-sale	(1,682)		(1,551)
Amortization of mortgage servicing rights	397		350

Amortization of right of use assets	1,579		1,489
Deferred income taxes	4,153		(9,496)
(Gains) losses on investment securities available-for-sale	(13)		997
Originations of loans held for sale, net of principal collected	(38,452)		(27,577)
Proceeds from the sales of loans held for sale	38,989		25,895
Net gain on sale of loans held for sale	(661)		(83)
Net gain on sale of other real estate and repossessions	(377)		(57)


Change in interest receivable	886		422
Change in interest payable	308		(10,381)
Change in other assets	2,902		9,284
Change in other liabilities	(1,797)		36,025
Other	409		(1,006)
Net change in operating activities	109,893		116,645

Investing activities:
Proceeds from sales of investment securities available-for-sale	777		25,709
Proceeds from maturities and paydowns of investment securities available-for-sale	82,966		173,793
Purchases of investment securities available-for-sale	(102,109)		(79,110)
Net change in partnership investments	(14,008)		(6,961)
Net change in other investments	—		1,715
Loans sold or participated to others	41,789		25,985
Proceeds from principal payments on direct finance leases	52,488		39,686

Net change in loans and leases	(275,728)		(319,700)
Net change in equipment owned under operating leases	469		1,493
Purchases of premises and equipment	(2,482)		(4,333)
Proceeds from disposal of premises and equipment	131		15

Proceeds from sales of other real estate and repossessions	1,945		1,439
Net change in investing activities	(213,762)		(140,269)

Financing activities:
Net change in demand deposits and savings accounts	132,728		104,505
Net change in time deposits	73,942		108,129
Net change in short-term borrowings	(39,131)		(139,140)

Payments on long-term debt	(11,863)		(1,915)
Stock issued under stock purchase plans	132		133
Acquisition of treasury stock	(23,350)		(3,295)
Net (distributions to) contributions from noncontrolling interests	(330)		(1,768)
Cash dividends paid on common stock	(20,813)		(18,743)
Net change in financing activities	111,315		47,906


Net change in cash and cash equivalents	7,446		24,282
Cash and cash equivalents, beginning of year	119,857		124,826
Cash and cash equivalents, end of period	$	127,303	$	149,108
Supplemental Information:
Non-cash transactions:
Loans transferred to other real estate and repossessions	$	3,697	$	4,315
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan	859		1,227
Right of use assets obtained in exchange for lease obligations	4,179		692
Liquidation of noncontrolling interests	—		9,845

Cash paid (received) for:
Interest	73,627		94,770
Income taxes	14,924		(11,663)

The accompanying notes are a part of the unaudited consolidated financial statements.

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1ST SOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Accounting Policies

1st Source Corporation is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source” or “the Company”), a broad array of financial products and services.

Basis of Presentation – The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, income, comprehensive income (loss), shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K (2025 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Statement of Financial Condition at December 31, 2025 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Use of Estimates in the Preparation of Financial Statements – Financial statements prepared in accordance with GAAP require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

Note 2 — Recent Accounting Pronouncements

Codification Improvements: In December 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2025-12 “Codification Improvements.” These amendments update the FASB Accounting Standards Codification (ASC) for a broad range of Topics arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. The amendments in the ASU, which addresses 33 issues, affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this ASU are effective for all entities for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this ASU in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. An entity may elect to early adopt the amendments on an issue-by-issue basis. The Company is assessing ASU 2025-12 and its impact on its accounting and disclosures.

Interim Reporting: In December 2025, the FASB issued ASU No. 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements.” This ASU does not change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. The amendments in this ASU (1) clarify that the guidance in Topic 270 applies to all entities that provide interim financial statements and notes in accordance with generally accepted accounting principles (GAAP); (2) create a comprehensive list in FASB ASC Topic 270 of interim disclosures that are required in interim financial statements and notes in accordance with GAAP; (3) incorporate a disclosure principle, which is modeled after previous Securities and Exchange Commission (SEC) guidance, that requires entities to disclose events and changes that occur after the end of the most recent fiscal year that have a material impact on the entity; and (4) improve guidance about information included in and the format of interim financial statements. The amendments in this ASU are effective for pubic business entities for interim periods within annual periods beginning after December 15, 2027, and for entities other than public business entities the amendments are effective for interim periods within annual periods beginning after December 15, 2028. Early adoption is permitted for all entities. The amendments can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is assessing ASU 2025-11 and its impact on its accounting and disclosures.

Income Statement: In November 2024, the FASB issued ASU No. 2024-03 “Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” These amendments require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:

• Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.

• Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.

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• Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.

• Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

In January 2025, the FASB issued ASU No. 2025-01 clarifying the effective date for public business entities for fiscal years beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is assessing ASU 2024-03 and its impact on its accounting and disclosures.

Note 3 — Investment Securities Available-For-Sale

The following table shows investment securities available-for-sale.


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2026
U.S. Treasury and Federal agencies securities	$	736,718	$	312	$	(8,428)	$	728,602
U.S. States and political subdivisions securities	108,121		514		(1,637)		106,998
Mortgage-backed securities — Federal agencies	743,150		920		(52,477)		691,593
Corporate debt securities	500		—		(4)		496

Total debt securities available-for-sale	$	1,588,489	$	1,746	$	(62,546)	$	1,527,689

December 31, 2025
U.S. Treasury and Federal agencies securities	$	697,652	$	3,171	$	(4,046)	$	696,777
U.S. States and political subdivisions securities	113,126		1,333		(1,396)		113,063
Mortgage-backed securities — Federal agencies	757,151		3,372		(48,380)		712,143
Corporate debt securities	500		3		—		503

Total debt securities available-for-sale	$	1,568,429	$	7,879	$	(53,822)	$	1,522,486

Amortized cost excludes accrued interest receivable which is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At June 30, 2026, and December 31, 2025, accrued interest receivable on investment securities available-for-sale was $8.47 million and $8.04 million, respectively.

At June 30, 2026, and December 31, 2025, the residential mortgage-backed securities held by the Company consisted primarily of GNMA, FNMA and FHLMC pass-through certificates which are guaranteed by those respective agencies of the United States government (Government Sponsored Enterprise, GSEs).

The Company did not hold any marketable equity securities at June 30, 2026, and December 31, 2025.

The following table shows the contractual maturities of investments in debt securities available-for-sale at June 30, 2026. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	178,761	$	176,163
Due after one year through five years	557,683		551,463
Due after five years through ten years	76,886		76,412
Due after ten years	32,009		32,058
Mortgage-backed securities	743,150		691,593
Total debt securities available-for-sale	$	1,588,489	$	1,527,689

Table of Contents

The following table summarizes gross unrealized losses and fair value by investment category and age. At June 30, 2026, the Company’s available-for-sale securities portfolio consisted of 642 securities, 525 of which were in an unrealized loss position.


	Less than 12 Months				12 months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2026
U.S. Treasury and Federal agencies securities	$	517,487	$	(5,961)	$	150,930	$	(2,467)	$	668,417	$	(8,428)
U.S. States and political subdivisions securities	32,815		(379)		24,557		(1,258)		57,372		(1,637)
Mortgage-backed securities - Federal agencies	195,788		(2,734)		370,066		(49,743)		565,854		(52,477)
Corporate debt securities	496		(4)		—		—		496		(4)

Total debt securities available-for-sale	$	746,586	$	(9,078)	$	545,553	$	(53,468)	$	1,292,139	$	(62,546)

December 31, 2025
U.S. Treasury and Federal agencies securities	$	146,252	$	(300)	$	173,152	$	(3,746)	$	319,404	$	(4,046)
U.S. States and political subdivisions securities	13,587		(81)		29,532		(1,315)		43,119		(1,396)
Mortgage-backed securities - Federal agencies	75,414		(355)		415,247		(48,025)		490,661		(48,380)


Total debt securities available-for-sale	$	235,253	$	(736)	$	617,931	$	(53,086)	$	853,184	$	(53,822)

The Company does not consider available-for-sale securities with unrealized losses at June 30, 2026, to be experiencing credit losses and recognized no resulting allowance for credit losses. The Company does not intend to sell these investments, and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. The unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

The following table shows the proceeds from sales of available-for-sale debt securities and the gross realized gains and gross realized losses that have been included in earnings as a result of these sales. Realized gains and losses of all securities are computed using the specific identification cost basis.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2026		2025		2026		2025
Proceeds from sales	$	777	$	25,709	$	777	$	25,709
Gross realized gains	13		—		13		—
Gross realized losses	—		(997)		—		(997)

At June 30, 2026, and December 31, 2025, investment securities available-for-sale with carrying values of $295.36 million and $237.34 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.

Note 4 — Loan and Lease Financings

The Company evaluates loans and leases for credit quality at least annually, but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits, as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.

Table of Contents

All loans and leases, except residential real estate loans‚ home equity loans, and consumer loans, are assigned credit quality grades on a scale from 1 to 12, with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, undergo enhanced monitoring on a quarterly basis. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the Company’s exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.

Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment.

Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three to seven years. These loans are typically further supported by personal guarantees. Commercial exposure is to a wide range of industries and services. Risks in this sector are also varied and are most impacted by general economic conditions. Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including Small Business Administration and Farm Service Agency.

Renewable energy – loans are for the purpose of financing primarily solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. The Company’s core focus is solar financing, but its lending activities may also include a limited amount of battery storage projects or other alternative energy resources. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the regions east of the Rocky Mountains.

Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio consists mainly of auto rental and auto leasing. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan terms are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three to seven years and match the underlying leases. Risks include economic risks and collateral risks, principally used vehicle values.

Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks and trailers, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three to four years of debt amortization to reach an equity position in the collateral.

Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans, all denominated in U.S. dollars, are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten to fifteen years, and are generally guaranteed by individuals. The most significant risk in the Aircraft portfolio is collateral risk - volatility in underlying values and maintenance concerns. The portfolio is subject to national and global economic risks.

Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on the U.S. economy and the global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects.

Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate has been primarily to the less risky owner-occupied segment, although growth has occurred in the non-owner-occupied segment of this portfolio over the last several years. The non-owner-occupied segment includes hotels, apartment complexes and warehousing facilities. There is generally limited exposure to construction loans although at present, construction exposures are comparably higher than previous periods. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio include interest rate risk, geographical concentration in northern Indiana and southwest Michigan and general economic conditions.

Table of Contents

Residential real estate and home equity – loans predominantly include one-to-four family mortgages to borrowers in the Company’s local market communities and are appropriately underwritten and secured by residential real estate.

Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten.

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination, as of June 30, 2026, and gross charge-offs for the six months ended June 30, 2026.


	Term Loans and Leases by Origination Year
(Dollars in thousands)	2026		2025		2024		2023		2022		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	77,424	$	139,651	$	81,099	$	58,096	$	40,379	$	28,165	$	389,730	$	—	$	814,544
Grades 7-12	2,228		2,087		862		4,273		1,024		3,114		29,198		—		42,786
Total commercial and agricultural	79,652		141,738		81,961		62,369		41,403		31,279		418,928		—		857,330
Current period gross charge-offs	—		330		73		46		—		—		303		—		752
Renewable energy
Grades 1-6	173,645		282,774		60,179		81,571		22,894		120,101		—		—		741,164
Grades 7-12	—		—		—		—		—		—		—		—		—
Total renewable energy	173,645		282,774		60,179		81,571		22,894		120,101		—		—		741,164
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	273,392		269,327		128,458		55,689		25,283		8,190		—		—		760,339
Grades 7-12	1,658		14,107		14,416		37,987		194		20		—		—		68,382
Total auto and light truck	275,050		283,434		142,874		93,676		25,477		8,210		—		—		828,721
Current period gross charge-offs	—		161		1,307		2,253		33		13		—		—		3,767
Medium and heavy duty truck
Grades 1-6	48,706		78,185		49,859		39,606		34,225		6,649		—		323		257,553
Grades 7-12	—		1,351		1,256		1,262		4,000		1,297		—		—		9,166
Total medium and heavy duty truck	48,706		79,536		51,115		40,868		38,225		7,946		—		323		266,719
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	144,732		312,257		191,026		119,401		161,995		88,582		14,744		—		1,032,737
Grades 7-12	1,537		14,351		4,534		4,706		7,656		1,807		—		—		34,591
Total aircraft	146,269		326,608		195,560		124,107		169,651		90,389		14,744		—		1,067,328
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Construction equipment
Grades 1-6	316,107		396,566		275,613		140,775		62,657		23,273		41,450		211		1,256,652
Grades 7-12	—		2,315		4,287		2,300		1,225		8,686		—		—		18,813
Total construction equipment	316,107		398,881		279,900		143,075		63,882		31,959		41,450		211		1,275,465
Current period gross charge-offs	—		994		11		36		83		—		—		—		1,124
Commercial real estate
Grades 1-6	122,770		256,483		243,719		239,939		179,710		231,598		59		—		1,274,278
Grades 7-12	1,627		1,537		14,068		13,624		3,473		4,606		—		—		38,935
Total commercial real estate	124,397		258,020		257,787		253,563		183,183		236,204		59		—		1,313,213
Current period gross charge-offs	—		—		354		—		—		—		—		—		354
Residential real estate and home equity
Performing	52,835		95,165		60,206		48,127		74,605		197,896		218,227		7,979		755,040
Nonperforming	—		378		145		559		1,552		967		1,942		73		5,616
Total residential real estate and home equity	52,835		95,543		60,351		48,686		76,157		198,863		220,169		8,052		760,656
Current period gross charge-offs	—		—		—		—		—		72		54		—		126
Consumer
Performing	19,532		28,965		19,516		12,953		9,045		2,716		16,059		—		108,786
Nonperforming	—		73		31		196		175		87		—		—		562
Total consumer	19,532		29,038		19,547		13,149		9,220		2,803		16,059		—		109,348
Current period gross charge-offs	224		108		136		91		35		32		15		—		641

Table of Contents

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination, as of December 31, 2025 and gross charge-offs for the year ended December 31, 2025.


	Term Loans and Leases by Origination Year
(Dollars in thousands)	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	166,469	$	91,665	$	71,108	$	47,491	$	21,408	$	15,469	$	342,362	$	—	$	755,972
Grades 7-12	2,409		555		4,287		1,583		1,503		2,035		29,248		—		41,620
Total commercial and agricultural	168,878		92,220		75,395		49,074		22,911		17,504		371,610		—		797,592
Current period gross charge-offs	220		32		171		198		9		—		1,790		—		2,420
Renewable energy
Grades 1-6	326,861		94,730		82,739		23,454		57,332		67,683		—		—		652,799
Grades 7-12	—		—		—		—		—		—		—		—		—
Total renewable energy	326,861		94,730		82,739		23,454		57,332		67,683		—		—		652,799
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	438,559		206,382		96,058		38,777		9,475		5,038		—		—		794,289
Grades 7-12	7,296		35,446		49,032		1,611		5		197		—		—		93,587
Total auto and light truck	445,855		241,828		145,090		40,388		9,480		5,235		—		—		887,876
Current period gross charge-offs	—		2,010		129		226		1		—		—		—		2,366
Medium and heavy duty truck
Grades 1-6	90,318		60,465		47,654		44,315		10,101		3,478		—		481		256,812
Grades 7-12	284		—		4,729		5,495		2,360		69		—		—		12,937
Total medium and heavy duty truck	90,602		60,465		52,383		49,810		12,461		3,547		—		481		269,749
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	356,020		211,086		141,743		201,381		112,448		31,204		6,550		—		1,060,432
Grades 7-12	5,063		4,722		4,946		8,141		—		3,517		—		—		26,389
Total aircraft	361,083		215,808		146,689		209,522		112,448		34,721		6,550		—		1,086,821
Current period gross charge-offs	—		—		485		—		—		—		—		—		485
Construction equipment
Grades 1-6	468,572		340,807		203,162		103,306		24,023		14,702		34,925		1,437		1,190,934
Grades 7-12	2,771		5,094		3,734		8,397		912		9,293		—		—		30,201
Total construction equipment	471,343		345,901		206,896		111,703		24,935		23,995		34,925		1,437		1,221,135
Current period gross charge-offs	—		201		1,206		—		—		—		—		—		1,407
Commercial real estate
Grades 1-6	242,722		253,670		275,286		197,066		109,679		157,033		56		—		1,235,512
Grades 7-12	812		13,256		9,897		4,643		3,748		1,897		—		—		34,253
Total commercial real estate	243,534		266,926		285,183		201,709		113,427		158,930		56		—		1,269,765
Current period gross charge-offs	—		5		17		—		—		5		—		—		27
Residential real estate and home equity
Performing	96,957		71,597		54,957		82,427		72,962		141,902		207,536		8,334		736,672
Nonperforming	209		146		549		839		340		72		1,870		80		4,105
Total residential real estate and home equity	97,166		71,743		55,506		83,266		73,302		141,974		209,406		8,414		740,777
Current period gross charge-offs	—		—		—		13		—		5		50		6		74
Consumer
Performing	38,401		26,781		18,328		13,858		3,837		1,142		17,068		—		119,415
Nonperforming	70		34		294		195		106		41		—		—		740
Total consumer	38,471		26,815		18,622		14,053		3,943		1,183		17,068		—		120,155
Current period gross charge-offs	621		287		282		239		52		10		30		—		1,521

Table of Contents

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing		Total Nonaccrual		Nonaccrual with No Allowance for Credit Loss		Total Financing Receivables
June 30, 2026
Commercial and agricultural	$	850,838	$	483	$	—	$	—	$	851,321	$	6,009	$	1,608	$	857,330
Renewable energy	741,164		—		—		—		741,164		—		—		741,164
Auto and light truck	785,703		—		—		—		785,703		43,018		31,336		828,721
Medium and heavy duty truck	265,454		—		—		—		265,454		1,265		1,262		266,719
Aircraft	1,057,811		—		—		—		1,057,811		9,517		9,517		1,067,328
Construction equipment	1,271,128		1,123		—		—		1,272,251		3,214		557		1,275,465
Commercial real estate	1,311,013		152		—		—		1,311,165		2,048		467		1,313,213
Residential real estate and home equity	752,909		1,884		818		996		756,607		4,049		—		760,656
Consumer	107,951		686		149		—		108,786		562		—		109,348
Total	$	7,143,971	$	4,328	$	967	$	996	$	7,150,262	$	69,682	$	44,747	$	7,219,944

December 31, 2025
Commercial and agricultural	$	794,559	$	516	$	24	$	—	$	795,099	$	2,493	$	773	$	797,592
Renewable energy	652,799		—		—		—		652,799		—		—		652,799
Auto and light truck	833,507		21		—		—		833,528		54,348		28,411		887,876
Medium and heavy duty truck	268,173		—		—		—		268,173		1,576		—		269,749
Aircraft	1,084,554		2,267		—		—		1,086,821		—		—		1,086,821
Construction equipment	1,205,931		3,863		—		—		1,209,794		11,341		10,797		1,221,135
Commercial real estate	1,267,157		149		—		—		1,267,306		2,459		1,798		1,269,765
Residential real estate and home equity	733,037		2,677		958		460		737,132		3,645		—		740,777
Consumer	118,277		919		219		—		119,415		740		—		120,155
Total	$	6,957,994	$	10,412	$	1,201	$	460	$	6,970,067	$	76,602	$	41,779	$	7,046,669

Accrued interest receivable on loans and leases at June 30, 2026, and December 31, 2025, was $26.15 million and $27.43 million, respectively.

A loan or lease is considered collateral-dependent when the borrower is experiencing financial difficulty and the loan or lease is expected to be repaid substantially through the operation or sale of the collateral. Expected credit losses for collateral-dependent loans and leases are based on the fair value of the collateral, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

Table of Contents

The following table shows the amortized cost basis of collateral-dependent loans, segregated by portfolio segment, which are individually evaluated to determine credit losses.


(Dollars in thousands)	Real Estate		Equipment		General Business Assets		Total		Allowance on Collateral Dependent Loans and Leases
June 30, 2026
Commercial and agricultural	$	—	$	—	$	4,817	$	4,817	$	695

Auto and light truck	—		42,900		—		42,900		521
Medium and heavy duty truck	—		1,262		—		1,262		—
Aircraft	—		9,517		—		9,517		—
Construction equipment	—		1,810		—		1,810		285
Commercial real estate	1,557		—		—		1,557		96


Total	$	1,557	$	55,489	$	4,817	$	61,863	$	1,597

December 31, 2025
Commercial and agricultural	$	—	$	—	$	1,136	$	1,136	$	19

Auto and light truck	—		53,981		—		53,981		1,080
Medium and heavy duty truck	—		1,507		—		1,507		166

Construction equipment	—		10,797		—		10,797		—
Commercial real estate	1,798		—		—		1,798		—


Total	$	1,798	$	66,285	$	1,136	$	69,219	$	1,265

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table shows the amortized cost of loans and leases over $250,000 at June 30, 2026, and June 30, 2025, respectively, that were both experiencing financial difficulty and modified during the three months ended June 30, 2026, and June 30, 2025, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.


(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		% of Total Segment Financing Receivables
Three Months Ended June 30, 2026
Commercial and agricultural	$	2,228	$	—	$	—	$	—	0.26	%








Total	$	2,228	$	—	$	—	$	—	0.03	%

Three Months Ended June 30, 2025
Commercial and agricultural	$	—	$	4,026	$	—	$	—	0.48	%








Total	$	—	$	4,026	$	—	$	—	0.06	%

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The following table shows the amortized cost of loans and leases over $250,000 at June 30, 2026, and June 30, 2025, respectively, that were both experiencing financial difficulty and modified during the six months ended June 30, 2026, and June 30, 2025, respectively, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.



(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		% of Total Segment Financing Receivables
Six months ended June 30, 2026
Commercial and agricultural	$	2,228	$	—	$	—	$	—	0.26	%








Total	$	2,228	$	—	$	—	$	—	0.03	%

Six months ended June 30, 2025
Commercial and agricultural	$	—	$	4,026	$	—	$	—	0.48	%




Construction equipment	—		498		—		—		0.04



Total	$	—	$	4,524	$	—	$	—	0.06	%

There were $0.00 million and $2.80 million in commitments to lend additional amounts to the borrowers included in the previous table at June 30, 2026, and June 30, 2025, respectively.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the twelve months ended June 30, 2026, and June 30, 2025, respectively.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
Twelve months ended June 30, 2026
Commercial and agricultural	$	3,789	$	—	$	—	$	—	$	—

Auto and light truck	21,262		—		—		15,957		15,957
Medium and heavy duty truck	1,262		—		—		—		—





Total	$	26,313	$	—	$	—	$	15,957	$	15,957

Twelve months ended June 30, 2025
Commercial and agricultural	$	5,028	$	—	$	—	$	—	$	—

Auto and light truck	—		—		—		7,863		7,863
Medium and heavy duty truck	2,586		—		—		—		—

Construction equipment	498		—		—		—		—
Commercial real estate	981		—		—		—		—


Total	$	9,093	$	—	$	—	$	7,863	$	7,863

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The following table shows the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended June 30, 2026, and June 30, 2025, respectively.


	Weighted- Average Interest Rate Reduction		Weighted- Average Term Extension (in months)	Weighted- Average Payment Delay (in months)	Combination Weighted-Average Payment Delay and Term Extension (in months)
Twelve months ended June 30, 2026
Commercial and agricultural	—	%	0	4	7

Auto and light truck	—		16	3	0
Medium and heavy duty truck	—		0	0	3





Total	—	%	16	3	5

Twelve months ended June 30, 2025
Commercial and agricultural	—	%	12	6	0

Auto and light truck	—		0	0	3
Medium and heavy duty truck	—		0	0	4

Construction equipment	—		5	0	0
Commercial real estate	—		0	6	0


Total	—	%	11	6	3

There were two modified loans to borrowers experiencing financial difficulty which had a payment default within twelve months of modification during the six month period ended June 30, 2026, and one modified loan to a borrower experiencing financial difficulty which had a payment default within twelve months of modification during the six months ended June 30, 2025.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

Note 5 — Allowance for Credit Losses

Allowance for Loan and Lease Losses

The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolios utilizing guidance in ASC Topic 326. The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources, relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.

The Company categorizes its loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either: 1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended June 30, 2026, and 2025.

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(Dollars in thousands)	Commercial and agricultural		Renewable energy		Auto and light truck		Medium and heavy duty truck		Aircraft		Construction equipment		Commercial real estate		Residential real estate and home equity		Consumer		Total
June 30, 2026
Balance, beginning of period	$	23,027	$	12,942	$	18,938	$	6,101	$	36,797	$	28,736	$	26,734	$	9,419	$	2,204	$	164,898
Charge-offs	597		—		13		—		—		225		354		116		287		1,592
Recoveries	441		—		501		—		—		4		29		7		88		1,070
Net charge-offs (recoveries)	156		—		(488)		—		—		221		325		109		199		522
Provision (recovery of provision)	1,014		509		(118)		(48)		(1,679)		1,433		285		454		128		1,978
Balance, end of period	$	23,885	$	13,451	$	19,308	$	6,053	$	35,118	$	29,948	$	26,694	$	9,764	$	2,133	$	166,354

June 30, 2025
Balance, beginning of period	$	21,912	$	8,865	$	18,657	$	6,884	$	36,832	$	28,721	$	24,973	$	8,438	$	2,188	$	157,470
Charge-offs	439		—		1,500		—		485		335		1		29		276		3,065
Recoveries	519		—		364		—		206		16		18		2		70		1,195
Net charge-offs (recoveries)	(80)		—		1,136		—		279		319		(17)		27		206		1,870
Provision (recovery of provision)	2,347		1,179		3,344		(362)		153		673		12		355		183		7,884
Balance, end of period	$	24,339	$	10,044	$	20,865	$	6,522	$	36,706	$	29,075	$	25,002	$	8,766	$	2,165	$	163,484

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the six months ended June 30, 2026, and 2025.


(Dollars in thousands)	Commercial and agricultural		Renewable energy		Auto and light truck		Medium and heavy duty truck		Aircraft		Construction equipment		Commercial real estate		Residential real estate and home equity		Consumer		Total
June 30, 2026
Balance, beginning of period	$	21,983	$	11,833	$	21,653	$	6,295	$	35,843	$	27,529	$	25,396	$	9,076	$	2,238	$	161,846
Charge-offs	752		—		3,767		—		—		1,124		354		126		641		6,764
Recoveries	997		—		973		—		—		4		77		71		162		2,284
Net charge-offs (recoveries)	(245)		—		2,794		—		—		1,120		277		55		479		4,480
Provision (recovery of provision)	1,657		1,618		449		(242)		(725)		3,539		1,575		743		374		8,988
Balance, end of period	$	23,885	$	13,451	$	19,308	$	6,053	$	35,118	$	29,948	$	26,694	$	9,764	$	2,133	$	166,354

June 30, 2025
Balance, beginning of period	$	21,316	$	8,562	$	18,437	$	7,292	$	36,663	$	28,258	$	24,821	$	7,976	$	2,215	$	155,540
Charge-offs	854		—		1,840		—		485		1,017		6		35		752		4,989
Recoveries	801		—		1,254		—		415		297		21		18		131		2,937
Net charge-offs (recoveries)	53		—		586		—		70		720		(15)		17		621		2,052
Provision (recovery of provision)	3,076		1,482		3,014		(770)		113		1,537		166		807		571		9,996
Balance, end of period	$	24,339	$	10,044	$	20,865	$	6,522	$	36,706	$	29,075	$	25,002	$	8,766	$	2,165	$	163,484

The increase in the allowance for credit losses as compared to the prior quarter primarily reflects higher loan balances during the period. The forecast was maintained as the prior quarter’s assumptions continue to be applicable to the forward outlook. Consensus forecasts for GDP growth remain generally resilient, although overall economic uncertainty is elevated. The Company’s forecast assumes current geopolitical unrest may persist longer than current market expectations, contributing to commodity price volatility, firming inflationary expectations and a higher-for-longer interest rate environment. Ongoing risks include domestic trade instability, softness in labor markets, increasing consumer financial stress, and generally subdued consumer confidence.

Loan balances increased during the quarter while special attention loans, which are reserved at higher rates, declined. Historical loss rates decreased slightly, as charge-off activity during the period was modest. Lower charge-off activity, coupled with a change in loan mix during the period towards lower reserved pools, led to a decline in the overall allowance as a percentage of total loans and leases. Additionally, the Company modestly reduced certain qualitative adjustments as the corresponding quantitative loss rates sufficiently reflect current risk characteristics.

Economic Outlook

As of June 30, 2026, the most significant economic factor impacting the Company’s loan portfolios is heightened geopolitical uncertainty. Risks associated with geopolitical tensions raise the potential for energy price volatility, supply disruptions, and broader economic impacts. The breadth of hiring across industry segments improved slightly during the quarter but overall labor conditions remain soft. The Company continues to monitor the impact of tariff policies, uncertainty surrounding policy implementation, and heightened instability across the Company’s markets. Consumer stress indicators remain elevated and consumer confidence remains subdued. The Company is attentive to the potential impact of these conditions on small business borrowers, whose ability to manage operating expenses may be challenged by elevated interest rates and energy costs, increased input costs, and a higher overall cost of capital. Restrictive trade policies, volatile energy prices, and supply disruptions increase the potential for volatility in asset prices which collateralize the Company’s loans.

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The Bank remains cognizant of geopolitical and energy market risks despite the recent retreat in crude oil prices. The potential for renewed supply disruptions, infrastructure damage, shipping interruptions, or further escalation in regional conflict remains elevated and no durable framework for lasting regional stability in the Middle East has emerged. Prolonged instability may contribute to renewed volatility in energy markets, upward pressure on inflation, tighter financial conditions, and slower economic growth. Consistent with this outlook, we view the overall operating environment as fragile and economic growth remains uneven.

The Company’s reasonable and supportable forecast incorporates the anticipated global and domestic economic impacts of these factors, along with other key macroeconomic variables, including projected changes in GDP and unemployment rates that may affect the financial condition of the Company’s clients. The forecast reflects a continued weighting toward downside risks over the two-year forecast horizon, with inflation expected to remain elevated for an extended period and a return to the Federal Reserve’s long-term 2% target will be protracted. Although the Company’s current loss estimates consider geopolitical and economic risk, due to the level of uncertainty associated with these and other risk factors, the complexity of the current environment, and the potential for future changes in the forecast, the Company’s future loss estimates may vary considerably from the June 30, 2026, assumptions.

Liability for Credit Losses on Unfunded Loan Commitments

The liability for credit losses inherent in unfunded loan commitments is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition. The following table shows the changes in the liability for credit losses on unfunded loan commitments.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2026		2025		2026		2025
Balance, beginning of period	$	9,297	$	8,138	$	9,035	$	6,985


(Recovery of provision) provision	(439)		(194)		(177)		959
Balance, end of period	$	8,858	$	7,944	$	8,858	$	7,944

Note 6 — Lease Investments

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Renewable Energy, Auto and Light Truck, Medium and Heavy Duty Truck, Aircraft, and Construction Equipment on the Consolidated Statements of Financial Condition. The Company also finances various types of construction equipment, medium and heavy duty trucks, automobiles and other equipment under leases classified as operating leases, which are included in Equipment Owned Under Operating Leases, Net, on the Consolidated Statements of Financial Condition.

The following table shows interest income recognized from direct finance lease payments and operating lease equipment rental income and related depreciation expense.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2026		2025		2026		2025
Direct finance leases:
Interest income on lease receivable	$	3,250	$	5,115	$	6,266	$	8,445

Operating leases:
Income related to lease payments	$	540	$	779	$	1,129	$	1,678
Depreciation expense	423		619		877		1,337

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three months ended June 30, 2026, and 2025, was $0.01 million and $0.00 million, respectively, and for the six months ended June 30, 2026, and 2025 was $0.13 million and $0.11 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three months ended June 30, 2026, and 2025, was $0.01 million and $0.00 million, respectively for the six months ended June 30, 2026, and 2025 was $0.13 million and $0.11 million, respectively.,.

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Note 7 — Mortgage Servicing Rights

The Company recognizes the rights to service residential mortgage loans for others as separate assets, whether the servicing rights are acquired through a separate purchase or through the sale of originated loans with servicing rights retained. The Company allocates a portion of the total proceeds of a mortgage loan to servicing rights based on the relative fair value. The unpaid principal balance of residential mortgage loans serviced for third parties was $745.13 million and $756.53 million at June 30, 2026, and December 31, 2025, respectively.

Mortgage servicing rights (MSRs) are evaluated for impairment at each reporting date. For purposes of impairment measurement, MSRs are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type. If temporary impairment exists within a tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced through a recovery of income.

The following table shows changes in the carrying value of MSRs and the associated valuation allowance.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2026		2025		2026		2025
Mortgage servicing rights:
Balance at beginning of period	$	3,318	$	3,344	$	3,300	$	3,436
Additions	159		143		366		227
Amortization	(208)		(174)		(397)		(350)

Carrying value before valuation allowance at end of period	3,269		3,313		3,269		3,313
Valuation allowance:
Balance at beginning of period	—		—		—		—
Impairment recoveries	—		—		—		—
Balance at end of period	$	—	$	—	$	—	$	—
Net carrying value of mortgage servicing rights at end of period	$	3,269	$	3,313	$	3,269	$	3,313
Fair value of mortgage servicing rights at end of period	$	7,597	$	7,732	$	7,597	$	7,732

The balance of MSRs is located in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At June 30, 2026, and 2025, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $4.33 million and $4.42 million, respectively. This difference represents increases in the fair value of certain MSRs that could not be recorded above cost basis.

Mortgage loan contractual servicing fees, including late fees and ancillary income, were $0.58 million and $0.59 million for the three months ended June 30, 2026, and 2025, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $1.16 million and $1.18 million for the six months ended June 30, 2026, and 2025, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking on the Consolidated Statements of Income.

Note 8 — Commitments and Financial Instruments with Off-Balance-Sheet Risk

Financial Instruments with Off-Balance-Sheet Risk — 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

The following table shows financial instruments whose contract amounts represent credit risk.


(Dollars in thousands)	June 30, 2026		December 31, 2025
Amounts of commitments:
Loan commitments to extend credit	$	1,401,971	$	1,438,112
Standby letters of credit	$	30,173	$	20,870
Commercial and similar letters of credit	$	1,203	$	1,435

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The exposure to credit loss in the event of nonperformance by the other party to the financial instruments for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans.

Standby letters of credit are conditional commitments issued to guarantee the performance of a client to a third party. The credit risk involved in and collateral obtained when issuing standby letters of credit are essentially the same as those involved in extending loan commitments to clients. Standby letters of credit generally have terms ranging from two months to one year.

Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. Commercial letters of credit generally have terms ranging from two months to six months.

Note 9 — Derivative Financial Instruments

Commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments. See Note 8 for further information.

The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Statements of Financial Condition and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations.

The following table shows the amounts of non-hedging derivative financial instruments.


			Asset derivatives			Liability derivatives
(Dollars in thousands)	Notional or contractual amount		Statement of Financial Condition classification	Fair value		Statement of Financial Condition classification	Fair value
June 30, 2026
Interest rate swap contracts	$	1,338,448	Other assets	$	11,414	Other liabilities	$	11,624
Loan commitments	3,839		Mortgages held for sale	110		N/A	—
Forward contracts - mortgage loan	4,250		N/A	—		Mortgages held for sale	3
Total	$	1,346,537		$	11,524		$	11,627

December 31, 2025
Interest rate swap contracts	$	1,242,696	Other assets	$	16,486	Other liabilities	$	16,798
Loan commitments	8,208		Mortgages held for sale	153		N/A	—
Forward contracts - mortgage loan	10,000		N/A	—		Mortgages held for sale	21
Total	$	1,260,904		$	16,639		$	16,819

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The following table shows the amounts included in the Consolidated Statements of Income for non-hedging derivative financial instruments.


		Gain (loss)
		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	Statement of Income classification	2026		2025		2026		2025
Interest rate swap contracts	Other expense	$	49	$	(23)	$	101	$	(44)
Interest rate swap contracts	Other income	491		426		707		877
Loan commitments	Mortgage banking	(45)		20		(43)		102
Forward contracts - mortgage loan	Mortgage banking	(40)		(43)		18		(68)
Total		$	455	$	380	$	783	$	867

The following table shows the offsetting of financial assets and derivative assets.


							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
June 30, 2026
Interest rate swaps	$	11,414	$	—	$	11,414	$	—	$	1,135	$	10,279

December 31, 2025
Interest rate swaps	$	16,486	$	—	$	16,486	$	—	$	105	$	16,381

The following table shows the offsetting of financial liabilities and derivative liabilities.


							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
June 30, 2026
Interest rate swaps	$	11,624	$	—	$	11,624	$	—	$	—	$	11,624
Repurchase agreements	63,494		—		63,494		—		—		63,494
Total	$	75,118	$	—	$	75,118	$	—	$	—	$	75,118

December 31, 2025
Interest rate swaps	$	16,798	$	—	$	16,798	$	—	$	6,230	$	10,568
Repurchase agreements	62,470		—		62,470		62,470		—		—
Total	$	79,268	$	—	$	79,268	$	62,470	$	6,230	$	10,568

If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against obligations owing in respect of any other transactions. At June 30, 2026, and December 31, 2025, repurchase agreements had a remaining contractual maturity of $63.49 million and $62.42 million in overnight and $0.00 million and $0.05 million in up to 30 days, respectively, and were collateralized by U.S. Treasury and Federal agencies securities.

Note 10 — Variable Interest Entities

A variable interest entity (VIE) is a partnership, limited liability company, trust or other legal entity that meets any one of the following criteria:

•The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party.

•The entity’s investors lack the power to direct the activities that most significantly affect the entity’s economic performance.

•The entity’s at-risk holders do not have the obligation to absorb the losses or the right to receive residual returns.

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•The voting rights of some investors are not proportional to their economic interests in the entity, and substantially all of the entity’s activities involve, or are conducted on behalf of, investors with disproportionately few voting rights.

The Company is involved in various entities that are considered to be VIEs. The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits are recognized as a reduction of tax expense or, for investments qualifying as investment tax credits, as a reduction to the related investment asset. The Company recognized federal and state income tax credits related to its affordable housing and community development tax-advantaged investments in tax expense of $1.12 million and $0.96 million for the three months ended June 30, 2026, and 2025, respectively, and $2.25 million and $1.91 million for the six months ended June 30, 2026, and 2025, respectively. The Company also recognized $2.61 million and $14.32 million million of investment tax credits for the three months ended June 30, 2026, and 2025 respectively, and $2.80 million and $14.34 million of investment tax credits for the six months ended June 30, 2026, and 2025, respectively.

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. As a limited partner in these operating partnerships, the Company is allocated credits and deductions associated with the underlying properties. The Company has determined that it is not the primary beneficiary of these investments because the general partners have the power to direct activities that most significantly influence the economic performance of their respective partnerships.

The Company’s investments in these unconsolidated VIEs are carried in Other Assets on the Consolidated Statements of Financial Condition. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in Other Liabilities on the Consolidated Statements of Financial Condition. The Company’s maximum exposure to loss from these unconsolidated VIEs includes the investment recorded on the Consolidated Statements of Financial Condition, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business projects, housing projects, and renewable energy projects completely fail and do not meet certain taxing authority compliance requirements, resulting in recapture of the related tax credits.

The following table provides a summary of investments in affordable housing, community development, and renewable energy VIEs that the Company has not consolidated.


(Dollars in thousands)	June 30, 2026		December 31, 2025
Investment carrying amount	$	105,285	$	72,390
Unfunded capital and other commitments	85,125		57,989
Maximum exposure to loss	81,127		84,442

The Company is required to consolidate VIEs in which it has concluded it has significant involvement and the ability to direct the activities that impact the entity’s economic performance. The Company is the managing general partner of entities in which it shares interest in tax-advantaged investments with a third party. At June 30, 2026, and December 31, 2025, approximately $47.50 million and $47.87 million, respectively, of the Company’s assets and $0.00 million and $0.00 million, respectively, of its liabilities included on the Consolidated Statements of Financial Condition were related to tax-advantaged investment VIEs which the Company has consolidated. The assets of the consolidated VIEs are reported in Other Assets, the liabilities are reported in Other Liabilities, and the non-controlling interest is reported in Equity on the Consolidated Statements of Financial Condition. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIE do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIE is generally limited to the carrying value of its variable interest plus any related tax credits previously recognized.

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Additionally, the Company sponsors one trust, 1st Source Master Trust (Capital Trust), of which 100% of the common equity is owned by the Company. The Capital Trust was formed in 2007 for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the capital securities) to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debenture securities of the Company (the subordinated notes). The subordinated notes held by the Capital Trust are the sole assets of the Capital Trust. The Capital Trust qualifies as a variable interest entity for which the Company is not the primary beneficiary and is therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes on the Consolidated Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense on the Consolidated Statements of Income. The common shares issued by the Capital Trust are included in Other Assets on the Consolidated Statements of Financial Condition.

Distributions on the capital securities issued by the Capital Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Capital Trust on the subordinated notes held by the Capital Trust. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated notes. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the Capital Trust qualify as Tier 1 capital under Federal Reserve Board guidelines.

The following table shows subordinated notes at June 30, 2026.


(Dollars in thousands)	Amount of Subordinated Notes		Interest Rate		Maturity Date
June 2007 issuance (1)	$	41,238	7.22	%	6/15/2037
August 2007 issuance (2)	17,526		5.41	%	9/15/2037
Total	$	58,764

(1) Fixed rate through life of debt.

(2) 3-Month Term SOFR + the 3-Month tenor spread adjustment + 1.48% through remaining life of debt.

Note 11 — Earnings Per Share

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards. Non-vested restricted stock awards are considered participating securities to the extent the holders of these securities receive non-forfeitable dividends at the same rate as holders of common stock. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Stock options, where the exercise price was greater than the average market price of the common shares, were excluded from the computation of diluted earnings per common share because the result would have been antidilutive. There were no stock options outstanding as of June 30, 2026, and 2025.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share.

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	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands - except per share amounts)	2026		2025		2026		2025
Distributed earnings allocated to common stock	$	10,342	$	9,329	$	20,095	$	18,166
Undistributed earnings allocated to common stock	36,684		27,676		66,499		56,042
Net earnings allocated to common stock	47,026		37,005		86,594		74,208
Net earnings allocated to participating securities	518		314		906		631
Net income allocated to common stock and participating securities	$	47,544	$	37,319	$	87,500	$	74,839

Weighted average shares outstanding for basic earnings per common share	24,073,382		24,541,385		24,174,463		24,544,120
Dilutive effect of stock compensation	—		—		—		—
Weighted average shares outstanding for diluted earnings per common share	24,073,382		24,541,385		24,174,463		24,544,120

Basic earnings per common share	$	1.95	$	1.51	$	3.58	$	3.02
Diluted earnings per common share	$	1.95	$	1.51	$	3.58	$	3.02

Note 12 — Stock Based Compensation

As of June 30, 2026, the Company had four active stock-based employee compensation plans, which are more fully described in Note 16 of the Consolidated Financial Statements in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2025 and the Definitive Proxy Statement for the Company’s 2026 Annual Meeting of Shareholders filed with the SEC on March 13, 2026. These plans include three executive stock award plans, the Executive Incentive Plan (EIP), the Restricted Stock Award Plan (RSAP), the Strategic Deployment Incentive Plan (SDP); and the Employee Stock Purchase Plan (ESPP). The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011, but the Company had not made any grants through June 30, 2026.

Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value. For all awards except stock option awards, the grant date fair value is either the fair market value per share or book value per share (corresponding to the type of stock awarded) as of the grant date. For stock option awards, the grant date fair value is estimated using the Black-Scholes option pricing model. For all awards, the Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, for which the Company uses the related vesting term.

Total fair value of options vested and expensed was zero for the six months ended June 30, 2026, and 2025. As of June 30, 2026, and 2025, there were no outstanding stock options. There were no stock options exercised during the six months ended June 30, 2026, and 2025. All shares issued in connection with stock option exercises are issued from available treasury stock.

As of June 30, 2026, there was $16.64 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 3.33 years.

Note 13 — Accumulated Other Comprehensive Loss

The following table presents reclassifications out of accumulated other comprehensive income (loss) related to unrealized gains and losses on available-for-sale securities.


	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item in the Consolidated Statements of Income
(Dollars in thousands)	2026		2025		2026		2025
Realized gains (losses) included in net income	$	13	$	(997)	$	13	$	(997)	Gains (losses) on investment securities available-for-sale
	13		(997)		13		(997)		Income before income taxes
Tax effect	(3)		240		(3)		240		Income tax expense
Net of tax	$	10	$	(757)	$	10	$	(757)	Net income

Note 14 — Income Taxes

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was zero at June 30, 2026, and December 31, 2025. Interest and penalties are recognized through the income tax provision. For the six months ended June 30, 2026, and 2025, the Company recognized no interest expense or penalties. For the six months ended June 30, 2025, the Company recognized the receipt of a one-time $0.74 million after-tax interest payment on federal tax refunds from tax credit carrybacks. There were no accrued interest and penalties at June 30, 2026, and December 31, 2025.

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Tax years that remain open and subject to audit include the federal 2022-2025 years and the Indiana 2022-2025 years. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.

Note 15 — Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are also utilized to determine the initial value of certain assets and liabilities, to perform impairment assessments, and for disclosure purposes. The Company uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market prices, various valuation techniques are utilized to measure fair value. When possible, observable market data for identical or similar financial instruments is used in the valuation. When market data is not available, fair value is determined using valuation models that incorporate management’s estimates of the assumptions a market participant would use in pricing the asset or liability.

Fair value measurements are classified within one of three levels based on the observability of the inputs used to determine fair value, as follows:

•Level 1 — The valuation is based on quoted prices in active markets for identical instruments.

•Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•Level 3 — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company elected fair value accounting for mortgages held for sale and for its best-efforts forward sales commitments. The Company economically hedges its mortgages held for sale at the time the interest rate locks are issued to the customers. The Company believes the election for mortgages held for sale will reduce certain timing differences and better match changes in the value of these assets with changes in the value of derivatives or best-efforts forward sales commitments. At June 30, 2026, and December 31, 2025, all mortgages held for sale were carried at fair value.

The following table shows the differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount the Company is contractually entitled to receive at maturity.


(Dollars in thousands)	Fair value carrying amount		Aggregate unpaid principal		Excess of fair value carrying amount over (under) unpaid principal
June 30, 2026
Mortgages held for sale reported at fair value	$	4,990	$	4,805	$	185	(1)

December 31, 2025
Mortgages held for sale reported at fair value	$	4,866	$	4,647	$	219	(1)

(1)The excess of fair value carrying amount over (under) unpaid principal is included in Mortgage Banking Income on the Consolidated Statements of Income and includes changes in fair value at and subsequent to funding and gains and losses on the related loan commitment prior to funding.

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Financial Instruments on Recurring Basis:

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis:

Investment securities available-for-sale are valued primarily by a third-party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies and assumptions, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market levels. In general, the Company’s investment securities do not possess a complex structure that could introduce greater valuation risk. The portfolio mainly consists of traditional investments including U.S. Treasury and Federal agencies securities, Federal agency mortgage pass-through securities, and general obligation and revenue municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to prices obtained from other third-party sources for a material portion of the portfolio.

The valuation policy and procedures for Level 3 fair value measurements of available-for-sale debt securities are decided through collaboration between management of the Corporate Accounting and Funds Management departments. The changes in fair value measurement for Level 3 securities are analyzed on a periodic basis under a collaborative framework with the aforementioned departments. The methodology and variables used for input are derived from the combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

Both the market and income valuation approaches are implemented using the following types of inputs:

•U.S. treasuries are priced using the market approach and utilizing live data feeds from active market exchanges for identical securities.

•Government-sponsored agency debt securities and corporate bonds are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.

•Other government-sponsored agency securities, mortgage-backed securities and some of the actively traded REMICs and CMOs, are primarily priced using available market information including benchmark yields, prepayment speeds, spreads and volatility of similar securities.

•State and political subdivisions are largely grouped by characteristics, i.e., geographical data and source of revenue in trade dissemination systems. Since some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. Local direct placement municipal securities, with very little market activity, are priced using an appropriate market yield curve, which includes a credit spread assumption.

Mortgages held for sale and the related loan commitments and forward contracts (hedges) are valued by a third-party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market values. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to the prices obtained from other third-party sources.

Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters. This valuation process considers various factors including interest rate yield curves, time value and volatility factors. Validation of third-party agent valuations is accomplished by comparing those values to the Company’s swap counterparty valuations. Management believes an adjustment is required to “mid-market” valuations for derivatives tied to its performing loan portfolio to recognize the imprecision and related exposure inherent in the process of estimating expected credit losses as well as velocity of deterioration evident with systemic risks embedded in these portfolios. Any change in the mid-market derivative valuation adjustment will be recognized immediately through the Consolidated Statements of Income.

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The following table shows the balance of assets and liabilities measured at fair value on a recurring basis.


(Dollars in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2026
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	540,692	$	187,910	$	—	$	728,602
U.S. States and political subdivisions securities	—		106,108		890		106,998
Mortgage-backed securities — Federal agencies	—		691,593		—		691,593
Corporate debt securities	—		496		—		496

Total debt securities available-for-sale	540,692		986,107		890		1,527,689

Mortgages held for sale	—		4,990		—		4,990
Accrued income and other assets (interest rate swap agreements)	—		11,414		—		11,414
Total	$	540,692	$	1,002,511	$	890	$	1,544,093

Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	11,624	$	—	$	11,624
Total	$	—	$	11,624	$	—	$	11,624

December 31, 2025
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	516,892	$	179,885	$	—	$	696,777
U.S. States and political subdivisions securities	—		112,080		983		113,063
Mortgage-backed securities — Federal agencies	—		712,143		—		712,143
Corporate debt securities	—		503		—		503

Total debt securities available-for-sale	516,892		1,004,611		983		1,522,486

Mortgages held for sale	—		4,866		—		4,866
Accrued income and other assets (interest rate swap agreements)	—		16,486		—		16,486
Total	$	516,892	$	1,025,963	$	983	$	1,543,838

Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	16,798	$	—	$	16,798
Total	$	—	$	16,798	$	—	$	16,798

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The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, 2026, and 2025.


	U.S. States and political subdivisions securities				U.S. States and political subdivisions securities
	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands)	2026		2025		2026		2025
Beginning balance	$	888	$	958	$	983	$	1,032
Total gains or losses (realized/unrealized):
Included in earnings	—		—		—		—
Included in other comprehensive income (loss)	2		13		(3)		29
Purchases	—		—		—		—
Issuances	—		—		—		—
Sales	—		—		—		—
Settlements	—		—		—		—
Maturities	—		—		(90)		(90)
Transfers into Level 3	—		—		—		—
Transfers out of Level 3	—		—		—		—
Ending balance June 30, 2026	$	890	$	971	$	890	$	971

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2026, or 2025.

The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring basis.

(Dollars in thousands)

Fair Value

Valuation Methodology

Unobservable Inputs

Range of Inputs

Weighted Average

June 30, 2026

Debt securities available-for sale

Direct placement municipal securities

890

Discounted cash flows

Credit spread assumption

3.44% - 4.19%

3.85

December 31, 2025

Debt securities available-for sale

Direct placement municipal securities

983

Discounted cash flows

Credit spread assumption

0.88% - 3.99%

3.45

Financial Instruments on Non-recurring Basis:

The Company may be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets.

The Credit Policy Committee (CPC), a management committee, is responsible for overseeing the processes and controls for supporting Level 3 valuation inputs used for collateral dependent loans and leases, other real estate, and repossessions. The CPC reviews these assets on a quarterly basis to determine the appropriateness and accuracy of observable inputs which can include third-party appraisals, auction values, trade publications and borrower-provided information, and unobservable inputs which may include discounts for current market conditions, collateral condition, estimated time to liquidation, and collection considerations. Standard discount frameworks by asset type and valuation source are utilized and deviations from the standard are documented. The discounts are reviewed at least annually to determine whether they remain appropriate. Consideration is given to current trends in market values for the asset categories and realized gains and losses on sales of similar assets. The Loan and Funds Management Committee of the Board of Directors provides oversight for the CPC.

Discounts vary depending on the nature of the assets and the source of value. Aircraft valuations may incorporate quarterly trade publication data adjusted for engine time, condition, and maintenance programs, typically discounted by 10%. Likewise, autos are valued using current auction data, typically discounted by 10%; medium and heavy duty trucks are valued using trade publications and auction data, commonly discounted by 15%. Construction equipment values may reference trade publications and auction data, typically discounted by 20%. Real estate is valued based on appraisals or evaluations, generally discounted by 20% with higher discounts for property in poor condition or property with characteristics which may make it more difficult to market. For commercial loans subject to borrowing base certificates, discounts of at least 20% are applied to receivables and 40% - 75% for inventory with higher discounts when monthly borrowing base certificates are not required or received.

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For collateral dependent loans and leases, where repayment is expected substantially from the collateral, expected credit losses are measured based on the fair value of the underlying collateral, less estimated cost to sell. Collateral values are reviewed at least quarterly and estimated using a market-based valuation approach that may include appraisals, dealer and auction quotations, trade publications, and other relevant market data, adjusted for collateral condition, market trends, and liquidation assumptions. In accordance with ASC 820, Fair Value Measurements, the collateral dependent loans and leases themselves are carried at amortized cost and are not classified within the fair value hierarchy. However, collateral dependent loans and leases for which an allowance for loan and lease loss has been established based on the fair value of collateral require classification in the fair value hierarchy.

The Company has established MSRs valuation policies and procedures based on industry standards, designed to ensure that valuation methodologies are applied consistently and resulting fair value measurements are verifiable. MSRs are accounted for at the lower of cost or fair value. For purposes of impairment assessment, MSRs are stratified based on the predominant risk characteristics of the underlying servicing assets, principally by loan type. The fair value of each tranche of the servicing portfolio is estimated by calculating the present value of expected future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other relevant economic factors. Prepayment rates and discount rates are derived through a third-party pricing agent. Changes in the most significant valuation inputs, including prepayment rates and discount rates, are evaluated in relation to changes in the fair value measurements and an appropriate resolution is made. In addition, an independent third-party fair value analysis is obtained and compared to the Company’s internal valuation for reasonableness. MSRs do not trade in an active, open market with readily observable prices, and while MSRs sales do occur, the specific terms and conditions are not typically publicly available. Accordingly, the characteristics of the Company’s servicing portfolio may differ from those of other MSRs servicing portfolios that do trade.

Other real estate is carried at fair value less estimated costs to sell. Fair value is determined primarily using appraisals and reflects a market value approach. Fair values are reviewed quarterly and new appraisals are obtained annually. Repossessions are similarly valued.

For assets measured at fair value on a nonrecurring basis, the following represents impairment charges (recoveries) recognized on these assets during the quarter ended June 30, 2026: collateral dependent loans and leases - $0.33 million; MSRs - $0.00 million; repossessions - $0.00 million; and other real estate - $0.00 million.

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The following table shows the carrying value of assets measured at fair value on a non-recurring basis.


(Dollars in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2026
Collateral dependent loans and leases	$	—	$	—	$	15,519	$	15,519
Accrued income and other assets (mortgage servicing rights)	—		—		3,269		3,269
Accrued income and other assets (repossessions)	—		—		2,291		2,291
Accrued income and other assets (other real estate)	—		—		106		106
Total	$	—	$	—	$	21,185	$	21,185

December 31, 2025
Collateral dependent loans and leases	$	—	$	—	$	26,175	$	26,175
Accrued income and other assets (mortgage servicing rights)	—		—		3,300		3,300
Accrued income and other assets (repossessions)	—		—		267		267

Total	$	—	$	—	$	29,742	$	29,742

The following table below shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a non-recurring basis.


(Dollars in thousands)	Carrying Value		Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
June 30, 2026
Collateral dependent loans and leases	$	15,519	$	15,519	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 100%	42.1	%

Mortgage servicing rights	3,269		7,597		Discounted cash flows	Constant prepayment rate (CPR)	5.9% - 19.7%	6.2	%
						Discount rate	10.4% - 12.4%	10.6	%

Repossessions	2,291		2,294		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 29%	0	%

Other real estate	106		117		Appraisals	Discount for lack of marketability	0% - 17%	9	%

December 31, 2025
Collateral dependent loans and leases	$	26,175	$	26,175	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	15% - 30%	23.9	%

Mortgage servicing rights	3,300		7,325		Discounted cash flows	Constant prepayment rate (CPR)	6.4% - 33.4%	7.4	%
						Discount rate	10.4% - 12.4%	10.6	%

Repossessions	267		297		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 20%	10	%

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

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The following table shows the fair values of the Company’s financial instruments.


(Dollars in thousands)	Carrying or Contract Value		Fair Value		Level 1		Level 2		Level 3
June 30, 2026
Assets:
Cash and due from banks	$	67,497	$	67,497	$	67,497	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	59,806		59,806		59,806		—		—

Other investments	22,140		22,140		22,140		—		—

Loans and leases, net of allowance for loan and lease losses	7,053,590		7,108,407		—		—		7,108,407

Accrued interest receivable	34,653		34,653		—		34,653		—

Liabilities:
Deposits	$	7,432,245	$	7,426,344	$	5,771,703	$	1,654,641	$	—
Short-term borrowings	199,490		199,490		64,490		135,000		—
Long-term debt and mandatorily redeemable securities	36,026		36,026		—		36,026		—
Subordinated notes	58,764		57,949		—		57,949		—
Accrued interest payable	25,046		25,046		—		25,046		—

Off-balance-sheet instruments *	—		188		—		188		—

December 31, 2025
Assets:
Cash and due from banks	$	69,249	$	69,249	$	69,249	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	50,608		50,608		50,608		—		—

Other investments	22,140		22,140		22,140		—		—

Loans and leases, net of allowance for loan and lease losses	6,884,823		6,946,110		—		—		6,946,110

Accrued interest receivable	35,539		35,539		—		35,539		—

Liabilities:
Deposits	$	7,225,575	$	7,223,139	$	5,638,975	$	1,584,164	$	—
Short-term borrowings	238,621		238,621		113,574		125,047		—
Long-term debt and mandatorily redeemable securities	43,330		43,292		—		43,292		—
Subordinated notes	58,764		59,076		—		59,076		—
Accrued interest payable	24,738		24,738		—		24,738		—

Off-balance-sheet instruments *	—		139		—		139		—

* Represents estimated cash outflows required to currently settle the obligations at current market rates.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. These estimates are subjective in nature and require considerable judgment to interpret market data. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange, nor are they intended to represent the fair value of the Company as a whole. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of the respective balance sheet date. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.

Other significant assets, such as premises and equipment, other assets, and liabilities not defined as financial instruments, are not included in the above disclosures. Also, the fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Note 16 — Segment Information

The Company has one reportable operating segment, commercial banking. While our chief operating decision maker monitors revenue streams of various products and services, the identifiable segments’ operations are managed, and financial performance is evaluated on a company-wide basis. The commercial banking segment provides a broad array of financial products and services including commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of its 78 banking center locations in 19 counties in Indiana and Michigan and Sarasota County in Florida.

The accounting policies of the commercial banking segment are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2025. The

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chief operating decision maker assesses performance for the commercial banking segment and decides how to allocate resources based on net income available to common shareholders which is also reported on the Consolidated Statements of Income as net income available to common shareholders. The measure of segment assets is reported on the Consolidated Statements of Financial Condition as total assets.

The chief operating decision maker uses net income available to common shareholders to evaluate income generated from segment assets in deciding whether to reinvest profits into the commercial banking segment or to pay dividends or fund acquisitions. Net income available to common shareholders is also used by the chief operating decision maker to monitor budget versus actual results. Net income available to common shareholders as well as other common company-wide financial performance and credit quality metrics such as earnings per common share and net interest margin, among others, are used for competitive analysis by benchmarking to the Company’s competitors as well as used in assessing the performance of the segment and for establishing management’s compensation. See the Consolidated Statements of Financial Condition, the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Shareholders’ Equity, and the Consolidated Statements of Cash Flows.

The Company’s chief operating decision maker is the Strategic Deployment Committee which includes the President and Chief Executive Officer, the President of 1st Source Bank, the Chief Financial Officer, and several Group/Division Heads that report directly to the Chief Executive Officer or the President of 1st Source Bank.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis is presented to provide information concerning 1st Source Corporation and its subsidiaries’ (collectively referred to as “the Company”, “we”, and “our”) financial condition as of June 30, 2026, as compared to December 31, 2025, and the results of operations for the three and six months ended June 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.

Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “contemplate,” “seek,” “plan,” “possible,” “assume,” “hope,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors include, but are not limited to, changes in law, regulations or GAAP; our competitive position within the markets we serve; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen changes in loan prepayment assumptions; unforeseen downturns in or major events affecting the local, regional or national economies or the industries in which we have credit concentrations; potential impacts of epidemics, pandemics or other infectious disease outbreaks; and other matters discussed in our filings with the SEC, including our Annual Report on Form 10-K for 2025, which filings are available from the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

FINANCIAL CONDITION

Our total assets at June 30, 2026, were $9.26 billion, an increase of $207.90 million or 2.30% from December 31, 2025. Total investment securities available-for-sale were $1.53 billion, an increase of $5.20 million or 0.34% from December 31, 2025. Federal funds sold and interest bearing deposits with other banks were $59.81 million, an increase of $9.20 million or 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.

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Total loans and leases were $7.22 billion, an increase of $173.28 million or 2.46% from December 31, 2025. The largest contributors to the increase in loans and leases was growth in the renewable energy, commercial and agricultural, construction equipment, and commercial real estate portfolios, offset by decreases in the auto and light truck, aircraft, and consumer portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars, were $305.31 million and $319.93 million as of June 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 $139.15 million and $151.99 million as of June 30, 2026, respectively, compared to $136.98 million and $163.70 million as of December 31, 2025, respectively. As of June 30, 2026, and December 31, 2025, there was not a significant concentration in any other country.

Equipment owned under operating leases was $5.62 million, a decrease of $1.35 million, or 19.33% compared to December 31, 2025. The largest contributors to the decrease in equipment owned under operating leases was reduced leasing volume primarily due to a change in customer preferences and continued competitive pricing pressure for new business.

Total deposits were $7.43 billion at June 30, 2026, an increase of $206.67 million or 2.86% from December 31, 2025. Changes to the mix in total deposits included higher interest-bearing demand deposits, brokered deposits, time deposits, and savings deposits. Rate competition for deposits persisted during the second quarter across our footprint from various sources, including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.

Short-term borrowings were $199.49 million, a decrease of $39.13 million or 16.40% from December 31, 2025, due primarily to a decrease in federal funds purchased. Long-term debt and mandatorily redeemable securities were $36.03 million, a decrease of $7.30 million or 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 $183.47 million, an increase of $12.58 million or 7.36% from December 31, 2025, mainly due to increased unfunded partnership commitments offset by decreased reserves for employee benefit plan contributions.

The following table shows accrued income and other assets.


(Dollars in thousands)	June 30, 2026		December 31, 2025
Accrued income and other assets:
Bank owned life insurance cash surrender value	$	88,914	$	88,357
Operating lease right of use assets	22,568		20,130
Accrued interest receivable	34,653		35,539
Mortgage servicing rights	3,269		3,300
Other real estate	106		—
Repossessions	2,291		267
Partnership investments carrying amount	152,787		120,260
Deferred tax assets	43,926		44,959
All other assets	31,554		39,109
Total accrued income and other assets	$	380,068	$	351,921

The largest contributor to the increase in accrued income and other assets from December 31, 2025, was an increase in partnership investments.

CAPITAL

As of June 30, 2026, total shareholders’ equity was $1.31 billion, up $35.42 million, or 2.78% from the $1.27 billion at December 31, 2025. In addition to net income of $87.50 million, other significant changes in shareholders’ equity during the first six months of 2026 included $23.35 million in common stock repurchased and $20.18 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity increased to $46.52 million at June 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 subsequent to purchase. Our shareholders’ equity-to-assets ratio was 14.15% as of June 30, 2026, compared to 14.08% at December 31, 2025. Book value per common share increased to $54.41 at June 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 $0.43 during the second quarter of 2026. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 23.13%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations.

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


	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets):
1st Source Corporation	$	1,481,236	17.96	%	$	659,894	8.00	%	$	866,110	10.50	%	$	824,867	10.00	%
1st Source Bank	1,370,259		16.62		659,683		8.00		865,834		10.50		824,604		10.00
Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	1,377,237		16.70		494,920		6.00		701,137		8.50		659,894		8.00
1st Source Bank	1,266,293		15.36		494,762		6.00		700,913		8.50		659,683		8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	1,277,445		15.49		371,190		4.50		577,407		7.00		536,163		6.50
1st Source Bank	1,223,501		14.84		371,072		4.50		577,223		7.00		535,993		6.50
Tier 1 Capital (to Average Assets):
1st Source Corporation	1,377,237		14.92		369,252		4.00		N/A		N/A		461,565		5.00
1st Source Bank	1,266,293		13.72		369,130		4.00		N/A		N/A		461,413		5.00

LIQUIDITY AND INTEREST RATE SENSITIVITY

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as our operating cash needs are met. Funds are available from a number of sources, including the securities portfolio, the core deposit base, access to the national brokered certificates of deposit market, national listing service certificates of deposit, Federal Home Loan Bank (FHLB) borrowings, Federal Reserve Bank (FRB) borrowings, and the capability to package loans for sale.

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


(Dollars in thousands)			Available
Internal Sources
Unencumbered securities			$	1,231,327
External Sources
FHLB advances(1)			450,220
FRB borrowings			433,488
Fed funds purchased(2)			510,000
Brokered deposits(3)			628,942
Listing services deposits(3)			461,708
Total liquidity			$	3,715,685
% of Total deposits net brokered and listing services certificates of deposit	52.08	%
(1) Availability is shown net of required stock purchases under the FHLB activity-based stock ownership requirement, which is currently 4.50%, and may vary
(2) Availability contingent on correspondent bank approvals at time of borrowing
(3) Availability contingent on internal borrowing guidelines

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

Our loan to asset ratio was 77.94% at June 30, 2026, compared to 77.82% at December 31, 2025 and 78.11% at June 30, 2025. Cash and cash equivalents totaled $127.30 million at June 30, 2026, compared to $119.86 million at December 31, 2025 and $149.11 million at June 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. 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.

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Under Indiana law governing the collateralization of public fund deposits, the Indiana Board of Depositories determines which financial institutions are required to pledge collateral based on the strength of their financial ratings. We have been informed that no collateral is required for our public fund deposits. However, the Board of Depositories could alter this requirement in the future and adversely impact our liquidity. Our potential liquidity exposure if we must pledge collateral is approximately $1.54 billion.

RESULTS OF OPERATIONS

Net income available to common shareholders for the three and six month periods ended June 30, 2026, was $47.54 million and $87.50 million compared to $37.32 million and $74.84 million for the same periods in 2025. Diluted net income per common share was $1.95 and $3.58 for the three and six month periods ended June 30, 2026, compared to $1.51 and $3.02 earned for the same periods in 2025. Return on average common shareholders’ equity was 13.61% for the six months ended June 30, 2026, compared to 12.96% in 2025. The return on total average assets was 1.93% for the six months ended June 30, 2026, compared to 1.69% in 2025.

Net income increased for the six months ended June 30, 2026, compared to the first six months of 2025. Net interest income and noninterest income increased and the provision for credit losses decreased offset partially by an increase in noninterest expense. Details of the changes in the various components of net income are discussed further below.

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NET INTEREST INCOME

The following tables provide an analysis of net interest income and illustrates the interest income earned and interest expense charged for each major component of interest earning assets and interest bearing liabilities. Yields/rates are computed on a tax-equivalent basis, using a 21% rate. Nonaccrual loans and leases are included in the average loan and lease balance outstanding.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL


							Three Months Ended
	June 30, 2026						March 31, 2026						June 30, 2025
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	1,496,209	$	12,402	3.32	%	$	1,493,065	$	11,704	3.18	%	$	1,444,203	$	8,602	2.39	%
Tax exempt(1)	32,962		384		4.67	%	34,005		387		4.62	%	32,418		375		4.64	%
Mortgages held for sale	4,116		63		6.14	%	4,930		75		6.17	%	3,385		55		6.52	%









Loans and leases, net of unearned discount(1)	7,142,693		116,825		6.56	%	7,022,759		113,423		6.55	%	6,968,463		117,250		6.75	%
Other investments	153,723		1,561		4.07	%	63,852		699		4.44	%	95,469		1,087		4.57	%
Total earning assets(1)	8,829,703		131,235		5.96	%	8,618,611		126,288		5.94	%	8,543,938		127,369		5.98	%
Cash and due from banks	59,208						57,339						67,535
Allowance for loan and lease losses	(166,429)						(163,666)						(159,418)
Other assets	523,625						508,021						510,079
Total assets	$	9,246,107					$	9,020,305					$	8,962,134

LIABILITIES AND SHAREHOLDERS’ EQUITY




Interest-bearing deposits	$	5,848,085	$	34,465	2.36	%	$	5,605,444	$	32,578	2.36	%	$	5,774,752	$	39,106	2.72	%
Short-term borrowings:
Securities sold under agreements to repurchase	64,030		137		0.86	%	53,514		91		0.69	%	60,863		121		0.80	%
Other short-term borrowings	142,875		1,370		3.85	%	173,524		1,629		3.81	%	61,917		688		4.46	%
Subordinated notes	58,764		971		6.63	%	58,764		995		6.87	%	58,764		1,007		6.87	%
Long-term debt and mandatorily redeemable securities	35,520		996		11.25	%	39,521		702		7.20	%	41,328		1,102		10.70	%
Total interest-bearing liabilities	6,149,274		37,939		2.47	%	5,930,767		35,995		2.46	%	5,997,624		42,024		2.81	%
Noninterest-bearing deposits	1,579,517						1,586,125						1,574,332
Other liabilities	173,756						167,427						144,057
Shareholders’ equity	1,300,695						1,292,902						1,187,076
Noncontrolling interests	42,865						43,084						59,045
Total liabilities and equity	$	9,246,107					$	9,020,305					$	8,962,134
Less: Fully tax-equivalent adjustments			(154)						(155)						(153)
Net interest income/margin (GAAP-derived)(1)			$	93,142	4.23	%			$	90,138	4.24	%			$	85,192	4.00	%
Fully tax-equivalent adjustments			154						155						153
Net interest income/margin - FTE(1)			$	93,296	4.24	%			$	90,293	4.25	%			$	85,345	4.01	%

(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio.

Quarter Ended June 30, 2026, compared to the Quarter Ended June 30, 2025

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

During the three month period ended June 30, 2026, average earning assets increased $285.77 million, up 3.34% over the comparable period in 2025. Average interest-bearing liabilities increased $151.65 million or 2.53%. The yield on average earning assets decreased to 5.96% at June 30, 2026, down two basis points from the same period in the prior year. Total cost of average interest-bearing liabilities decreased 34 basis points to 2.47% from 2.81%, primarily as a result of lower rates on interest-bearing deposits 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 23 basis points.

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The largest contributors to the reduced yield on average earning assets for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, was a decrease in yields on net loans and leases mainly from Federal Reserve rate cuts during the second half of 2025 and 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 offset by improved yields on investments from portfolio repositioning trades executed during 2025. The yield on loans and leases decreased 19 basis points, mainly from Fed rate cuts during the second half of 2025. Average loans and leases increased $174.23 million or 2.50%, primarily in the renewable energy, commercial real estate, residential real estate and home equity, construction equipment, and commercial and agricultural portfolios. Net interest recoveries contributed three basis points to the yield on average loans and leases during the quarter and had no impact to the average loans and leases yield during the prior year second quarter. Average investment securities increased $52.55 million or 3.56%, driven by additional investments made during the period. Average other investments, primarily held at the Federal Reserve Bank, increased $58.25 million or 61.02%.

Average interest-bearing deposits increased $73.33 million or 1.27% for the second quarter of 2026 over the same period in 2025 primarily from higher savings deposits, interest-bearing demand deposits, and time deposits, offset by a decrease in brokered deposits. The effective rate on average interest-bearing deposits decreased 36 basis points to 2.36% from 2.72%, primarily as a result of Fed rate cuts during 2025 and lower brokered deposit balances. Average noninterest-bearing deposits increased $5.19 million or 0.33% for the second quarter of 2026 over the same period in 2025.

Average short-term borrowings increased $84.13 million or 68.52% for the second quarter of 2026, compared to the same period in 2025. Interest on short-term borrowings increased 28 basis points primarily due to the increase in average balances in FHLB borrowings. Interest on subordinated notes decreased 24 basis points during the second 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 $5.81 million or 14.05% mainly from the maturity of a $10.00 million long-term borrowing. Interest on long-term debt and mandatorily redeemable securities increased 55 basis points during the second quarter of 2026 from the same period in 2025, primarily from an increase in mandatorily redeemable securities average 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.

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	Six Months Ended
	June 30, 2026						June 30, 2025
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	1,494,645	$	24,106	3.25	%	$	1,465,984	$	16,755	2.30	%
Tax exempt(1)	33,481		771		4.64	%	31,798		724		4.59	%
Mortgages held for sale	4,521		138		6.16	%	2,899		94		6.54	%
Loans and leases, net of unearned discount(1)	7,083,058		230,248		6.56	%	6,884,176		230,846		6.76	%
Other investments	109,036		2,260		4.18	%	104,808		2,401		4.62	%
Total earning assets(1)	8,724,741		257,523		5.95	%	8,489,665		250,820		5.96	%
Cash and due from banks	58,279						65,782
Allowance for loan and lease losses	(165,055)						(158,374)
Other assets	515,865						512,426
Total assets	$	9,133,830					$	8,909,499

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	5,727,434	$	67,043	2.36	%	$	5,760,025	$	78,952	2.76	%
Short-term borrowings:
Securities sold under agreements to repurchase	58,801		228		0.78	%	59,555		225		0.76	%
Other short-term borrowings	158,115		2,999		3.82	%	40,304		816		4.08	%
Subordinated notes	58,764		1,966		6.75	%	58,764		2,021		6.94	%
Long-term debt and mandatorily redeemable securities	37,509		1,698		9.13	%	40,506		2,376		11.83	%
Total interest-bearing liabilities	6,040,623		73,934		2.47	%	5,959,154		84,390		2.86	%
Noninterest-bearing deposits	1,582,803						1,581,331
Other liabilities	170,610						141,731
Shareholders’ equity	1,296,820						1,164,624
Noncontrolling interests	42,974						62,659
Total liabilities and equity	$	9,133,830					$	8,909,499
Less: Fully tax-equivalent adjustments			(309)						(300)
Net interest income/margin (GAAP-derived)(1)			$	183,280	4.24	%			$	166,130	3.95	%
Fully tax-equivalent adjustments			309						300
Net interest income/margin - FTE(1)			$	183,589	4.24	%			$	166,430	3.95	%

(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio.

Six Months Ended June 30, 2026, compared to the Six Months Ended June 30, 2025

The taxable-equivalent net interest income for the six months ended June 30, 2026, was $183.59 million, an increase of 10.31% over the same period in 2025. The net interest margin on a fully taxable-equivalent basis was 4.24% for the six months ended June 30, 2026, compared to 3.95% for the same period in 2025.

During the six month period ended June 30, 2026, average earning assets increased $235.08 million, up 2.77% over the comparable period in 2025. Average interest-bearing liabilities increased $81.47 million or 1.37%. The yield on average earning assets decreased one basis point to 5.95% from 5.96% primarily due to lower rates on loans and leases, and 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 39 basis points to 2.47% from 2.86% as a result of lower rates on interest-bearing deposits offset by increased short-term borrowing costs. The result to the net interest margin, or the ratio of net interest income to average earning assets, was a net 29 basis point improvement.

The largest contributors to the declined yield on average earning assets for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, was a decrease in yields on loans and leases, and other investments offset by improved yields on investments from portfolio repositioning trades executed during 2025. Average loans and leases increased $198.88 million, up 2.89%. Average investment securities increased $30.34 million or 2.03% driven by additional investments made during the period.

Average interest-bearing deposits decreased $32.59 million or 0.57% for the first six months of 2026 compared to the same period in 2025, primarily due to decreased brokered deposit balances. The effective rate paid on average interest-bearing deposits decreased 40 basis points to 2.36% from 2.76% mainly from Fed rate cuts during the second half of 2025 and lower brokered deposit average balances.

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Average short-term borrowings increased $117.06 million or 117.22% for the first six months of 2026, compared to the same period in 2025. Interest paid on short-term borrowings increased 90 basis points primarily due to an increase in average balances in FHLB borrowings and federal funds purchased. Interest paid on subordinated notes decreased 19 basis points during the first six months due to a variable rate decrease on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $3.00 million or 7.40%, primarily from the maturity of a $10.00 million long term borrowing. Interest paid on long-term debt and mandatorily redeemable securities decreased 270 basis points due to lower imputed interest on mandatorily redeemable securities from a smaller increase in book value per share during 2026. 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.

Reconciliation of Non-GAAP Financial Measures

The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components) and net interest margin (including its individual components). Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources.


		Three Months Ended									Six Months Ended
		June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars in thousands)		2026			2026			2025			2026			2025
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	131,081		$	126,133		$	127,216		$	257,214		$	250,520
	Fully tax-equivalent adjustments:
(B)	- Loans and leases	74			75			75			149			150
(C)	- Tax-exempt investment securities	80			80			78			160			150
(D)	Interest income - FTE (A+B+C)	131,235			126,288			127,369			257,523			250,820
(E)	Interest expense (GAAP)	37,939			35,995			42,024			73,934			84,390
(F)	Net interest income (GAAP) (A–E)	93,142			90,138			85,192			183,280			166,130
(G)	Net interest income - FTE (D–E)	93,296			90,293			85,345			183,589			166,430
(H)	Annualization factor	4.011			4.056			4.011			2.017			2.017
(I)	Total earning assets	$	8,829,703		$	8,618,611		$	8,543,938		$	8,724,741		$	8,489,665
	Net interest margin (GAAP-derived) (F*H)/I	4.23		%	4.24		%	4.00		%	4.24		%	3.95		%
	Net interest margin - FTE (G*H)/I	4.24		%	4.25		%	4.01		%	4.24		%	3.95		%

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

The provision for credit losses for the three and six months ended June 30, 2026, was $1.54 million and $8.81 million, compared to $7.69 million and $10.96 million during the three and six months ended June 30, 2025. Net charge-offs of $0.52 million or 0.03% of average loans and leases were recorded for the second quarter of 2026, compared to $1.87 million or 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.

The provision for credit losses for the three months ended June 30, 2026, was driven primarily by loan growth in our construction equipment, commercial and agricultural, and renewable energy portfolios during the period. We maintained our forecast adjustment as the prior quarter’s assumptions continue to be applicable to the forecast outlook. Key risks include heightened global geopolitical uncertainty, volatile energy prices, firming inflationary expectations, ever-changing trade policies, and overall macroeconomic uncertainty. Reserves for assets individually evaluated total $1.60 million this quarter, consisting of accounts in our commercial and agricultural, auto and light truck, construction equipment, and commercial real estate portfolios.

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We remain attentive to potential risks within the small business segment of the commercial and agricultural portfolio. Credit concerns are elevated for small business borrowers. The agricultural portion of this portfolio is under stress as grain producers struggle with higher input costs and low commodity prices. Within the auto and light truck portfolio, borrowers are contending with lower rental rates, higher fleet carrying costs, and industry overcapacity. The medium and heavy duty truck portfolio is emerging from a prolonged industry downturn as freight rates have improved with capacity reductions. However, overall freight demand remains soft. Consumer financial stress indicators remain elevated, economic imbalances persist, and overall consumer confidence remains subdued. The impact of volatile energy prices, should they persist, could result in a meaningful headwind across multiple portfolios.

We continually evaluate risks that may impact our loan portfolios including an uncertain domestic and global economic outlook influenced by geopolitical instability, evolving trade policies, elevated interest rates, and ongoing efforts by the Federal Reserve to balance inflation and labor market conditions. While economic growth has remained generally resilient, downside risks persist and the operating environment remains 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 $305.31 million of foreign exposure at June 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. In the past, the portfolio has 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 June 30, 2026, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.09%, compared to 0.52% on June 30, 2025. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.30%, compared to 2.30% one year ago. A summary of loan and lease loss experience during the three and six months ended June 30, 2026, and 2025 is located in Note 5 of the Consolidated Financial Statements.

NONPERFORMING ASSETS

The following table shows nonperforming assets.


(Dollars in thousands)	June 30, 2026			December 31, 2025			June 30, 2025
Loans and leases past due 90 days or more and accruing	$	996		$	460		$	198
Nonaccrual loans and leases	69,682			76,602			71,732
Other real estate	106			—			—
Repossessions	2,291			267			3,549
Equipment owned under operating leases	43			49			62
Total nonperforming assets	$	73,118		$	77,378		$	75,541
Nonperforming assets to loans and leases, net of unearned discount	1.01		%	1.10		%	1.06		%

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

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

Repossessions consisted primarily of one loan relationship in the aircraft portfolio, coupled with minimal amounts in our commercial and agricultural and consumer portfolios at June 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.

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The following table shows a summary of repossessions and other real estate.


(Dollars in thousands)	June 30, 2026		December 31, 2025		June 30, 2025
Commercial and agricultural	$	48	$	21	$	—
Renewable energy	—		—		—
Auto and light truck	—		—		134
Medium and heavy duty truck	—		—		—
Aircraft	2,210		—		900
Construction equipment	—		192		2,504
Commercial real estate	—		—		—
Residential real estate and home equity	106		—		—
Consumer	33		54		11
Total	$	2,397	$	267	$	3,549

For financial statement purposes, nonaccrual loans and leases are included in loan and lease outstandings, whereas repossessions and other real estate are included in other assets.

NONINTEREST INCOME

The following table shows the details of noninterest income.


	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2026		2025		$ Change		% Change		2026		2025		$ Change		% Change
Noninterest income:
Trust and wealth advisory	$	8,692	$	7,266	$	1,426	19.63	%	$	15,710	$	13,932	$	1,778	12.76	%
Service charges on deposit accounts	3,432		3,189		243		7.62	%	6,786		6,260		526		8.40	%
Debit card	4,734		4,567		167		3.66	%	9,114		8,716		398		4.57	%
Mortgage banking	858		1,116		(258)		(23.12)	%	1,869		1,969		(100)		(5.08)	%
Insurance commissions	1,791		1,685		106		6.29	%	4,302		4,125		177		4.29	%
Equipment rental	540		779		(239)		(30.68)	%	1,129		1,678		(549)		(32.72)	%
Gains (losses) on investment securities available-for-sale	13		(997)		1,010		101.30	%	13		(997)		1,010		101.30	%
Other	4,959		5,452		(493)		(9.04)	%	9,097		10,477		(1,380)		(13.17)	%
Total noninterest income	$	25,019	$	23,057	$	1,962	8.51	%	$	48,020	$	46,160	$	1,860	4.03	%

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased during the three and six months ended June 30, 2026, compared with the same periods a year ago. Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at June 30, 2026, December 31, 2025, and June 30, 2025, was $6.60 billion, $6.28 billion, and $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 June 30, 2026, compared to the same periods 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 for both the three and six month periods ended June 30, 2026, compared to the same periods in the prior year. This growth was driven primarily by higher transaction and spending volumes, supported by consistent client transaction behavior and merchant network routing patterns.

Mortgage banking income decreased for the three and six months ended June 30, 2026, over the comparable periods in 2025. The decrease was mainly from lower gains on loan sales due to reduced profit margins as well as a reduction in loan servicing fee income.

Insurance commissions increased during the three and six months ended June 30, 2026, compared to the same periods a year ago. The increases were mainly due to higher contingent commissions received.

Equipment rental income decreased for the three and six months ended June 30, 2026, over the comparable periods in 2025. The decline was the result of a reduction in the average equipment rental portfolio by 34.58% over the same six month period a year ago, due to changing customer preferences and competitive pricing pressures for new business.

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Gains on available-for-sale investment securities during 2026 primarily resulted from active portfolio management activities, including the sale of a $0.79 million municipal bond that had been downgraded. While the security remained investment grade and was further supported by insurance enhancement, the sale of the bond was a proactive measure to reduce exposure to potential future credit downgrades. Losses on investment securities available-for-sale during 2025 were exclusively the result of repositioning the portfolio during the second quarter.

Other income decreased for the three and six months ended June 30, 2026, compared to the same periods in 2025. The decrease was primarily the result of lower partnership investment gains partially offset by increased brokerage commissions and fees.

NONINTEREST EXPENSE

The following table shows the details of noninterest expense.


	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2026		2025		$ Change		% Change		2026		2025		$ Change		% Change
Noninterest expense:
Salaries and employee benefits	$	33,152	$	31,800	$	1,352	4.25	%	$	65,973	$	63,915	$	2,058	3.22	%
Net occupancy	3,387		3,035		352		11.60	%	6,935		6,259		676		10.80	%
Furniture and equipment	1,665		1,684		(19)		(1.13)	%	3,127		3,031		96		3.17	%
Data processing	7,492		7,410		82		1.11	%	15,065		14,701		364		2.48	%
Depreciation – leased equipment	423		619		(196)		(31.66)	%	877		1,337		(460)		(34.41)	%
Professional fees	2,152		1,499		653		43.56	%	3,727		3,167		560		17.68	%
FDIC and other insurance	1,454		1,438		16		1.11	%	2,903		2,878		25		0.87	%
Business development and marketing	2,064		1,884		180		9.55	%	3,967		3,809		158		4.15	%

Other	3,236		3,061		175		5.72	%	6,968		6,409		559		8.72	%
Total noninterest expense	$	55,025	$	52,430	$	2,595	4.95	%	$	109,542	$	105,506	$	4,036	3.83	%

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

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

Furniture and equipment expense, including depreciation, was relatively flat during the second quarter 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 equipment repairs partially offset by a decrease in equipment maintenance.

Data processing expense grew during the three and six months ended June 30, 2026, compared to the same periods a year ago due primarily to increased software maintenance expense on technology projects.

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

Professional fees were higher during the three and six months ended June 30, 2026, compared to the same periods a year ago due primarily to higher legal and professional consulting fees.

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

Business development and marketing expense increased during the three and six months ended June 30, 2026, compared with the same periods in 2025. The increase was primarily due to an increase in marketing promotions offset by lower business development and travel expenses.

Other expenses were higher during the three and six months ended June 30, 2026, compared to the same periods a year ago. The increase was primarily the result of higher collection and repossession expenses and a rise in debit card and fraud losses offset by increased gains on the sale of repossessed assets.

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INCOME TAXES

The provision for income taxes for the three and six month periods ended June 30, 2026, was $14.06 million and $25.44 million compared to $10.80 million and $20.98 million for the same periods in 2025. The effective tax rate was 22.82% and 22.45% for the quarters ended June 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risks faced by 1st Source since December 31, 2025. For information regarding our market risk, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at June 30, 2026, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by 1st Source in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

In addition, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the second fiscal quarter of 2026 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

1st Source and its subsidiaries are involved in various legal proceedings that are inherent risks of, or incidental to, the conduct of our businesses. Management does not expect the outcome of any such proceeding will have a material adverse effect on our consolidated financial position or results of operations.

ITEM 1A. Risk Factors.

There have been no material changes in risks faced by 1st Source since December 31, 2025. For information regarding our risk factors, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs*	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs
April 01 - 30, 2026	—	$	—	—	428,611
May 01 - 31, 2026	—	—		—	428,611
June 01 - 30, 2026	—	—		—	428,611

*1st Source maintains a stock repurchase plan that was authorized by the Board of Directors on October 19, 2023. Under the terms of the plan, 1st Source may repurchase up to 1,000,000 shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes. Since the inception of the plan, 1st Source has repurchased 571,389 shares.

ITEM 3. Defaults Upon Senior Securities.

None

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ITEM 4. Mine Safety Disclosures.

None

ITEM 5. Other Information.

During the three months ended June 30, 2026, there were no “Rule 10b5-1 trading plans” or “non-Rule 10b5-1 trading arrangements” adopted, modified or terminated by any director or officer of the Company (as each term is defined in Item 408(a) of Regulation S-K).

ITEM 6. Exhibits.

The following exhibits are filed with this report:



10 (c)						1st Source Corporation 1982 Executive Incentive Plan, amended February 15, 2026 , filed as an exhibit to Form 8 -K, dated April 24, 2026, and inco rporated herein by reference .

10 (d)						1st Source Corporation 1982 Restricted Stock Award Plan, amended February 15, 2026 , filed as an exhibit to Form 8-K, dated April 24, 2026, and incorporated herein by reference .

10 (e)						1st Source Corporation Strategic Deployment Incentive Plan, amended February 15, 2026 , filed as an exhibit to Form 8-K, dated April 24, 2026, and incorporated h erein by reference .


31.1						Certification of Chief Executive Officer required by Rule 13a-14(a).

31.2						Certification of Chief Financial Officer required by Rule 13a-14(a).

32.1						Certification pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer.

32.2						Certification pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer.

101.INS						XBRL Instance Document — The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Labels Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		1st Source Corporation



DATE	July 23, 2026	/s/ ANDREA G. SHORT
		Andrea G. Short President and CEO


DATE	July 23, 2026	/s/ BRETT A. BAUER
		Brett A. Bauer Treasurer and Chief Financial Officer Principal Accounting Officer