1st Source Q3 2026 net income rises to $49.5M
Quarterly comprehensive income was $19.953 million, versus $53.177 million a year earlier; other comprehensive loss totaled $29.589 million.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
1st Source Corporation (SRCE) reported third-quarter 2026 net income of $49.542 million, compared with $42.279 million a year earlier; diluted earnings per common share were $2.03 versus $1.71. For the nine months ended September 30, 2026, net income was $137.045 million, compared with $117.128 million for the same period in 2025. Third-quarter net interest income was $95.585 million, compared with $88.750 million, and total noninterest income was $24.696 million, compared with $21.906 million.
At September 30, 2026, total assets were $9.342 billion, loans and leases were $7.341 billion, and deposits were $7.469 billion; each was higher than at December 31, 2025. Accumulated other comprehensive loss in shareholders’ equity was $76.105 million, compared with $34.777 million at December 31, 2025; the company attributed the increase to interest rates, market spreads and market conditions affecting its available-for-sale portfolio. It paid a $0.45-per-share third-quarter dividend; during the first nine months, it repurchased $23.35 million of common stock and paid $31.07 million in dividends.
1 point · 0 major0 major · 0 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter net income rose to $49.542 million from $42.279 million.
Negative
- None.
Filing Explained
At
Key Figures
Net income: $49.542 million
Diluted earnings per common share: $2.03
Net income: $137.045 million
+5 more
8 metrics
Net income
$49.542 million
Three months ended September 30, 2026; $42.279 million in 2025
Diluted earnings per common share
$2.03
Three months ended September 30, 2026; $1.71 in 2025
Net income
$137.045 million
Nine months ended September 30, 2026; $117.128 million in 2025
Net interest income
$95.585 million
Three months ended September 30, 2026; $88.750 million in 2025
Total assets
$9.342 billion
September 30, 2026
Total loans and leases
$7.341 billion
September 30, 2026
Total deposits
$7.469 billion
September 30, 2026
Accumulated other comprehensive loss
$76.105 million
September 30, 2026; $34.777 million at December 31, 2025
Key Terms
available-for-sale securities, accumulated other comprehensive loss, unrealized loss position, credit quality grades
4 terms
available-for-sale securities financial
"available-for-sale securities portfolio"
Available-for-sale securities are investments in stocks, bonds or similar instruments that a company does not intend to trade frequently but may sell before they mature. They matter to investors because changes in the market value of these holdings show up as paper gains or losses on the company's balance sheet rather than immediately in profit, so they can affect reported net worth and the timing of income without changing day-to-day earnings. Think of them like items on a household shelf you might sell later: their value moves with the market even if you haven’t cashed out.
accumulated other comprehensive loss financial
"accumulated other comprehensive loss component of shareholders’ equity"
Accumulated other comprehensive loss is the running negative total of certain gains and losses that companies record outside their regular profit-and-loss statement, such as changes in the value of some investments, pension adjustments, or currency translation effects. It matters to investors because it reduces shareholders’ equity and reveals economic swings that haven’t affected reported net income yet — like a side ledger showing pending ups and downs that could influence future cash flow or balance-sheet strength.
unrealized loss position financial
"were in an unrealized loss position"
A position in a security or other asset whose current market value is below the investor's purchase price, producing a paper (unrealized) loss that exists only on paper until the asset is sold or otherwise disposed of. The loss does not become realised until a transaction locks it in; depending on accounting and reporting rules, an unrealized loss may be reflected in fair-value financial statements, held in accumulated other comprehensive income, or trigger an impairment assessment.
credit quality grades financial
"loan or lease credit quality grades"
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much did SRCE earn in the third quarter of 2026?
1st Source reported net income of $49.542 million for the three months ended September 30, 2026, compared with $42.279 million for the same period in 2025. Diluted earnings per common share were $2.03, compared with $1.71.
Why did SRCE's available-for-sale securities have unrealized losses?
At September 30, 2026, 589 of 593 available-for-sale securities were in an unrealized loss position, with gross unrealized losses of $98.422 million. 1st Source attributed the losses to changes in interest rates, market spreads and market conditions after purchase. The company said it did not consider the securities to be experiencing credit losses and recognized no resulting allowance for credit losses.
AI-generated analysis. How Rhea-AI works. Not financial advice.
See more from StockTitan in Google Search and AI answers.
Adds StockTitan as a preferred source · opens Google
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2026
OR
For the transition period from to
Commission file number 0-6233
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (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 | ||||||||||||
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.
| x | 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 October 16, 2026 — 24,084,919 shares
Table of Contents
TABLE OF CONTENTS
| Page | ||||||||
PART I. FINANCIAL INFORMATION | ||||||||
Item 1. | Financial Statements (Unaudited) | |||||||
Consolidated Statements of Financial Condition — September 30, 2026 and December 31, 2025 | 3 | |||||||
Consolidated Statements of Income — three and nine months ended September 30, 2026 and 2025 | 4 | |||||||
Consolidated Statements of Comprehensive Income (Loss) — three and nine months ended September 30, 2026 and 2025 | 5 | |||||||
Consolidated Statements of Shareholders’ Equity — three and nine months ended September 30, 2026 and 2025 | 6 | |||||||
Consolidated Statements of Cash Flows — nine months ended September 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 | |||||||
2
Table of Contents
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
| September 30, 2026 | December 31, 2025 | ||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Federal funds sold and interest bearing deposits with other banks | |||||||||||
Investment securities available-for-sale, at fair value (amortized cost of $ | |||||||||||
| Other investments | |||||||||||
| Mortgages held for sale | |||||||||||
| Loans and leases, net of unearned discount: | |||||||||||
| 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 loans and leases | |||||||||||
| Allowance for loan and lease losses | ( | ( | |||||||||
| Net loans and leases | |||||||||||
| Equipment owned under operating leases, net | |||||||||||
| Premises and equipment, net | |||||||||||
| Goodwill and intangible assets | |||||||||||
| Accrued income and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Deposits: | |||||||||||
| Noninterest-bearing demand | $ | $ | |||||||||
| Interest-bearing deposits: | |||||||||||
| Interest-bearing demand | |||||||||||
| Savings | |||||||||||
| Time | |||||||||||
| Total interest-bearing deposits | |||||||||||
| Total deposits | |||||||||||
| Short-term borrowings: | |||||||||||
| Federal funds purchased and securities sold under agreements to repurchase | |||||||||||
| Other short-term borrowings | |||||||||||
| Total short-term borrowings | |||||||||||
| Long-term debt and mandatorily redeemable securities | |||||||||||
| Subordinated notes | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Total liabilities | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
Preferred stock; | |||||||||||
Authorized | |||||||||||
Common stock; | |||||||||||
Authorized | |||||||||||
| Retained earnings | |||||||||||
Cost of common stock in treasury ( | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are a part of the unaudited consolidated financial statements.
3
Table of Contents
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Loans and leases | $ | $ | $ | $ | |||||||||||||||||||
| Investment securities, taxable | |||||||||||||||||||||||
| Investment securities, tax-exempt | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Short-term borrowings | |||||||||||||||||||||||
| Subordinated notes | |||||||||||||||||||||||
| Long-term debt and mandatorily redeemable securities | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| Provision for credit losses: | |||||||||||||||||||||||
| Provision for (recovery of) credit losses — loans and leases | ( | ||||||||||||||||||||||
| (Recovery of) provision for credit losses — unfunded loan commitments | ( | ( | |||||||||||||||||||||
| Total provision for credit losses | |||||||||||||||||||||||
| Net interest income after provision for credit losses | |||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||
| Trust and wealth advisory | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Debit card | |||||||||||||||||||||||
| Mortgage banking | |||||||||||||||||||||||
| Insurance commissions | |||||||||||||||||||||||
| Equipment rental | |||||||||||||||||||||||
| Losses on investment securities available-for-sale | ( | ( | ( | ( | |||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Furniture and equipment | |||||||||||||||||||||||
| Data processing | |||||||||||||||||||||||
| Depreciation – leased equipment | |||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||
| FDIC and other insurance | |||||||||||||||||||||||
| Business development and marketing | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Per common share: | |||||||||||||||||||||||
| Basic net income per common share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted net income per common share | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
The accompanying notes are a part of the unaudited consolidated financial statements.
4
Table of Contents
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited - Dollars in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized (depreciation) appreciation of available-for-sale securities | ( | ( | |||||||||||||||||||||
| Reclassification adjustment for realized net losses included in net income | |||||||||||||||||||||||
| Income tax effect | ( | ( | |||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | |||||||||||||||||||||||
| Comprehensive loss (income) attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Comprehensive income (loss) available to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are a part of the unaudited consolidated financial statements.
5
Table of Contents
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 July 1, 2025 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Cost of | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividend ($ | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Liquidation of noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2026 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Common stock dividend ($ | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Liquidation of noncontrolling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2026 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Nine 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 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Cost of | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividend ($ | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Liquidation of noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2026 | $ | — | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Cost of | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Common stock dividend ($ | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Liquidation of noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2026 | $ | — | $ | $ | $ | ( | $ | (76,105) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are a part of the unaudited consolidated financial statements.
6
Table of Contents
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Dollars in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Provision for credit losses | |||||||||||
| Depreciation of premises and equipment | |||||||||||
| Depreciation of equipment owned and leased to others | |||||||||||
| Stock-based compensation | |||||||||||
| Net (accretion) amortization of investment securities available-for-sale | ( | ( | |||||||||
| Amortization of mortgage servicing rights | |||||||||||
| Amortization of right of use assets | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Net losses on investment securities available-for-sale | |||||||||||
| Originations of loans held for sale, net of principal collected | ( | ( | |||||||||
| Proceeds from the sales of loans held for sale | |||||||||||
| Net gain on sale of loans held for sale | ( | ( | |||||||||
| Net gain on sale of other real estate and repossessions | ( | ( | |||||||||
| Change in interest receivable | ( | ||||||||||
| Change in interest payable | ( | ( | |||||||||
| Change in other assets | ( | ||||||||||
| Change in other liabilities | |||||||||||
| Other | ( | ( | |||||||||
| Net change in operating activities | |||||||||||
| Investing activities: | |||||||||||
| Proceeds from sales of investment securities available-for-sale | |||||||||||
| Proceeds from maturities and paydowns of investment securities available-for-sale | |||||||||||
| Purchases of investment securities available-for-sale | ( | ( | |||||||||
| Net change in partnership investments | ( | ( | |||||||||
| Net change in other investments | |||||||||||
| Loans sold or participated to others | |||||||||||
| Proceeds from principal payments on direct finance leases | |||||||||||
| Net change in loans and leases | ( | ( | |||||||||
| Net change in equipment owned under operating leases | |||||||||||
| Purchases of premises and equipment | ( | ( | |||||||||
| Proceeds from disposal of premises and equipment | |||||||||||
| Proceeds from sales of other real estate and repossessions | |||||||||||
| Net change in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Net change in demand deposits and savings accounts | |||||||||||
| Net change in time deposits | |||||||||||
| Net change in short-term borrowings | ( | ( | |||||||||
| Payments on long-term debt | ( | ( | |||||||||
| Stock issued under stock purchase plans | |||||||||||
| Acquisition of treasury stock | ( | ( | |||||||||
| Net (distributions to) contributions from noncontrolling interests | ( | ( | |||||||||
| Cash dividends paid on common stock | ( | ( | |||||||||
| Net change in financing activities | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of year | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental Information: | |||||||||||
| Non-cash transactions: | |||||||||||
| Loans transferred to other real estate and repossessions | $ | $ | |||||||||
| Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan | |||||||||||
| Right of use assets obtained in exchange for lease obligations | |||||||||||
| Liquidation of noncontrolling interests | |||||||||||
| Purchases of mandatorily redeemable securities with common stock held in treasury | |||||||||||
| Cash paid (received) for: | |||||||||||
| Interest | |||||||||||
| Income taxes | ( | ||||||||||
The accompanying notes are a part of the unaudited consolidated financial statements.
7
Table of Contents
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 public 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.
8
Table of Contents
• 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.
• 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.
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 | ||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| U.S. States and political subdivisions securities | ( | |||||||||||||||||||||||||
| Mortgage-backed securities — Federal agencies | ( | |||||||||||||||||||||||||
| Corporate debt securities | ( | |||||||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | $ | ( | $ | |||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| U.S. States and political subdivisions securities | ( | |||||||||||||||||||||||||
| Mortgage-backed securities — Federal agencies | ( | |||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | $ | ( | $ | |||||||||||||||||||||
Amortized cost excludes accrued interest receivable which is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At September 30, 2026, and December 31, 2025, accrued interest receivable on investment securities available-for-sale was $8.56 million and $8.04 million, respectively.
At September 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 September 30, 2026, and December 31, 2025.
The following table shows the contractual maturities of investments in debt securities available-for-sale at September 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 | $ | $ | ||||||||||||
| Due after one year through five years | ||||||||||||||
| Due after five years through ten years | ||||||||||||||
| Due after ten years | ||||||||||||||
| Mortgage-backed securities | ||||||||||||||
| Total debt securities available-for-sale | $ | $ | ||||||||||||
9
Table of Contents
The following table summarizes gross unrealized losses and fair value by investment category and age. At September 30, 2026, the Company’s available-for-sale securities portfolio consisted of 593 securities, 589 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 | ||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| U.S. States and political subdivisions securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities - Federal agencies | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
| U.S. States and political subdivisions securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities - Federal agencies | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
The Company does not consider available-for-sale securities with unrealized losses at September 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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Proceeds from sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross realized gains | ||||||||||||||||||||||||||
| Gross realized losses | ( | ( | ( | ( | ||||||||||||||||||||||
At September 30, 2026, and December 31, 2025, investment securities available-for-sale with carrying values of $320.21 million and $237.34 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.
Note 4 —
The following 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.
10
Table of Contents
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.
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 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.
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.
11
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 September 30, 2026, and gross charge-offs for the nine months ended September 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 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total commercial and agricultural | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Renewable energy | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total renewable energy | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Auto and light truck | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total auto and light truck | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total medium and heavy duty truck | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Aircraft | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total aircraft | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Construction equipment | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total construction equipment | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total commercial real estate | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Residential real estate and home equity | |||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total residential real estate and home equity | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
12
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 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total commercial and agricultural | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Renewable energy | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total renewable energy | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Auto and light truck | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total auto and light truck | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total medium and heavy duty truck | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Aircraft | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total aircraft | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Construction equipment | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total construction equipment | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||
| Grades 1-6 | |||||||||||||||||||||||||||||
| Grades 7-12 | |||||||||||||||||||||||||||||
| Total commercial real estate | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Residential real estate and home equity | |||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total residential real estate and home equity | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer | |||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||
13
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 | ||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Accrued interest receivable on loans and leases at September 30, 2026, and December 31, 2025, was $27.15 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.
14
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 | ||||||||||||
| September 30, 2026 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | $ | ||||||||||||
| Auto and light truck | |||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||
| Construction equipment | |||||||||||||||||
| Commercial real estate | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
| December 31, 2025 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | $ | ||||||||||||
| Auto and light truck | |||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||
| Construction equipment | |||||||||||||||||
| Commercial real estate | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
Loan Modifications to Borrowers Experiencing Financial Difficulty
The following table shows the amortized cost of loans and leases over $250,000
| (Dollars in thousands) | Payment Delay | Term Extension | Interest Rate Reduction | Combination Payment Delay and Term Extension | % of Total Segment Financing Receivables | ||||||||||||
| Three Months Ended September 30, 2026 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | % | ||||||||||||
| Construction equipment | |||||||||||||||||
| Commercial real estate | |||||||||||||||||
| Total | $ | $ | $ | $ | % | ||||||||||||
| Three Months Ended September 30, 2025 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | % | ||||||||||||
| Total | $ | $ | $ | $ | % | ||||||||||||
15
Table of Contents
The following table shows the amortized cost of loans and leases over $250,000 at September 30, 2026, and September 30, 2025, respectively, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2026, and September 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 | ||||||||||||
| Nine months ended September 30, 2026 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | % | ||||||||||||
| Construction equipment | |||||||||||||||||
| Commercial real estate | |||||||||||||||||
| Total | $ | $ | $ | $ | % | ||||||||||||
| Nine months ended September 30, 2025 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | % | ||||||||||||
| Construction equipment | |||||||||||||||||
| Total | $ | $ | $ | $ | % | ||||||||||||
There were $0.07 million and $4.45 million in commitments to lend additional amounts to the borrowers included in the previous table at September 30, 2026, and September 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 September 30, 2026, and September 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 September 30, 2026 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | $ | ||||||||||||
| Auto and light truck | |||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||
| Construction equipment | |||||||||||||||||
| Commercial real estate | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
| Twelve months ended September 30, 2025 | |||||||||||||||||
| Commercial and agricultural | $ | $ | $ | $ | $ | ||||||||||||
| Auto and light truck | |||||||||||||||||
| Medium and heavy duty truck | |||||||||||||||||
| Construction equipment | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
16
Table of Contents
The following table shows the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended September 30, 2026, and September 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 September 30, 2026 | ||||||||||||||
| Commercial and agricultural | % | |||||||||||||
| Auto and light truck | ||||||||||||||
| Medium and heavy duty truck | ||||||||||||||
| Construction equipment | ||||||||||||||
| Commercial real estate | ||||||||||||||
| Total | % | |||||||||||||
| Twelve months ended September 30, 2025 | ||||||||||||||
| Commercial and agricultural | % | |||||||||||||
| Auto and light truck | ||||||||||||||
| Medium and heavy duty truck | ||||||||||||||
| Construction equipment | ||||||||||||||
| Commercial real estate | ||||||||||||||
| Total | % | |||||||||||||
There were two modified loans to borrowers experiencing financial difficulty which had a payment default within twelve months of modification during the nine month period ended September 30, 2026, and one modified loan to a borrower experiencing financial difficulty which had a payment default within twelve months of modification during the nine months ended September 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 September 30, 2026, and 2025.
17
Table of Contents
| (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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Recovery of provision) provision | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Recovery of provision) provision | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the nine months ended September 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision (recovery of provision) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision (recovery of provision) | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The increase in the allowance for credit losses as compared to the prior quarter primarily reflects higher loan balances during the period along with grade migration of an existing special attention account in the commercial real estate portfolio to a higher reserved pool. These factors were largely offset by an overall decline in higher reserved special attention balances and modest reductions in qualitative adjustment factors in the Company’s auto and light truck, construction equipment, and medium and heavy duty truck portfolios reflecting improving credit quality trends. A recovery of provision was recognized in the auto and light truck portfolio during the quarter, reflecting the factors mentioned above along with a decline in individually evaluated reserves resulting from additional collateral support.
During the quarter, the Company’s economic forecast was updated to reflect improved near-term expectations for the GDP growth outlook and stabilizing labor market conditions, while shifting a portion of forecasted risk later in the forecast horizon in anticipation of lagging effects from inflationary pressures, elevated interest rates, more restrictive monetary policy, commodity price volatility, and persistent consumer financial stress. The forecast does not represent a reduction in the Company’s assessment of overall macroeconomic risk but rather a change in the forward timing of expected risk. Consensus forecasts for GDP growth remain generally resilient; however, overall economic uncertainty continues to be 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, increasing consumer financial stress, and subdued consumer sentiment.
Loan balances increased during the quarter while special attention loans, which carry higher reserve requirements, declined. Historical loss rates declined across most portfolios as charge-off activity was modest. As a result of lower charge-offs, improving credit quality trends, and modest reductions in qualitative adjustment factors, the allowance as a percentage of total loans and leases declined during the period.
18
Table of Contents
Economic Outlook
As of September 30, 2026, heightened geopolitical uncertainty remains a significant economic factor impacting the Company’s loan portfolios. Risks associated with geopolitical tensions raise the potential for energy price volatility, supply disruptions, and broader economic impacts. 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 sentiment measures have softened. 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 may contribute to volatility in certain asset values which collateralize the Company’s loans.
The Company remains cognizant of geopolitical and energy market risks. The potential for renewed supply disruptions, infrastructure damage, shipping interruptions, or further escalation in regional conflict remains elevated. The timing and durability of a framework for lasting regional stability in the Middle East remains uncertain. 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, the overall operating environment remains vulnerable to adverse economic and geopolitical developments.
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 may 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 September 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| (Recovery of provision) provision | ( | ( | |||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | |||||||||||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Direct finance leases: | |||||||||||||||||||||||
| Interest income on lease receivable | $ | $ | $ | $ | |||||||||||||||||||
| Operating leases: | |||||||||||||||||||||||
| Income related to lease payments | $ | $ | $ | $ | |||||||||||||||||||
| Depreciation expense | |||||||||||||||||||||||
19
Table of Contents
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 $731.68 million and $756.53 million at September 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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Mortgage servicing rights: | ||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||
| Amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Carrying value before valuation allowance at end of period | ||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||
| Fair value of mortgage servicing rights at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
The balance of MSRs is located in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At September 30, 2026, and 2025, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $4.14 million and $4.22 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 $0.59 million and $0.60 million for the three months ended September 30, 2026, and 2025, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $1.75 million and $1.78 million for the nine months ended September 30, 2026, and 2025, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking on the Consolidated Statements of Income.
20
Table of Contents
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) | September 30, 2026 | December 31, 2025 | ||||||||||||
| Amounts of commitments: | ||||||||||||||
| Loan commitments to extend credit | $ | $ | ||||||||||||
| Standby letters of credit | $ | $ | ||||||||||||
| Commercial and similar letters of credit | $ | $ | ||||||||||||
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.
21
Table of Contents
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 | |||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||
| Interest rate swap contracts | $ | Other assets | $ | Other liabilities | $ | |||||||||||||||||||||||||||
| Loan commitments | Mortgages held for sale | N/A | ||||||||||||||||||||||||||||||
| Forward contracts - mortgage loan | Mortgages held for sale | N/A | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Interest rate swap contracts | $ | Other assets | $ | Other liabilities | $ | |||||||||||||||||||||||||||
| Loan commitments | Mortgages held for sale | N/A | ||||||||||||||||||||||||||||||
| Forward contracts - mortgage loan | N/A | Mortgages held for sale | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||
The following table shows the amounts included in the Consolidated Statements of Income for non-hedging derivative financial instruments.
| Gain (loss) | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | Statement of Income classification | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||
| Interest rate swap contracts | Other expense | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||||||||||
| Interest rate swap contracts | Other income | |||||||||||||||||||||||||||||||
| Loan commitments | Mortgage banking | ( | ( | ( | ||||||||||||||||||||||||||||
| Forward contracts - mortgage loan | Mortgage banking | |||||||||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
22
Table of Contents
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 | ||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Repurchase agreements | — | — | — | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Repurchase agreements | — | — | — | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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 September 30, 2026, and December 31, 2025, repurchase agreements had a remaining contractual maturity of $62.02 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.
•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 $1.13 million and $0.95 million for the three months ended September 30, 2026, and 2025, respectively, and $3.38 million and $2.86 million for the nine months ended September 30, 2026, and 2025, respectively. The Company also recognized $11.89 million and $4.68 million of investment tax credits for the three months ended September 30, 2026, and 2025 respectively, and $14.69 million and $19.02 million of investment tax credits for the nine months ended September 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.
23
Table of Contents
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) | September 30, 2026 | December 31, 2025 | |||||||||
| Investment carrying amount | $ | $ | |||||||||
| Unfunded capital and other commitments | |||||||||||
| Maximum exposure to loss | |||||||||||
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 September 30, 2026, and December 31, 2025, approximately $34.29 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.
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 September 30, 2026.
| (Dollars in thousands) | Amount of Subordinated Notes | Interest Rate | Maturity Date | |||||||||||||||||
| June 2007 issuance (1) | $ | % | ||||||||||||||||||
| August 2007 issuance (2) | % | |||||||||||||||||||
| Total | $ | |||||||||||||||||||
(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.
24
Table of Contents
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
The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Dollars in thousands - except per share amounts) | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Distributed earnings allocated to common stock | $ | $ | $ | $ | ||||||||||||||||||||||
| Undistributed earnings allocated to common stock | ||||||||||||||||||||||||||
| Net earnings allocated to common stock | ||||||||||||||||||||||||||
| Net earnings allocated to participating securities | ||||||||||||||||||||||||||
| Net income allocated to common stock and participating securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average shares outstanding for basic earnings per common share | ||||||||||||||||||||||||||
| Dilutive effect of stock compensation | ||||||||||||||||||||||||||
| Weighted average shares outstanding for diluted earnings per common share | ||||||||||||||||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | ||||||||||||||||||||||
Note 12 — Stock Based Compensation
As of September 30, 2026, the Company maintained four active stock-based compensation plans for employees. These plans are described in greater detail in Note 16 to the Consolidated Financial Statements included in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2025, the Definitive Proxy Statement filed on March 13, 2026, for the Company’s 2026 Annual Meeting of Shareholders, and the Current Report on Form 8-K filed on April 24, 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 September 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 no no
25
Table of Contents
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 September 30, | Nine Months Ended September 30, | Affected Line Item in the Consolidated Statements of Income | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| Realized net losses included in net income | $ | ( | $ | ( | $ | ( | $ | ( | Losses on investment securities available-for-sale | |||||||||||||||||||||||
| ( | ( | ( | ( | Income before income taxes | ||||||||||||||||||||||||||||
| Tax effect | Income tax expense | |||||||||||||||||||||||||||||||
| Net of tax | $ | ( | $ | ( | $ | ( | $ | ( | Net income | |||||||||||||||||||||||
Note 14 — Income Taxes
The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was zero no 0.74 million after-tax interest payment on federal tax refunds from tax credit carrybacks. There were no
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 September 30, 2026, and December 31, 2025, all mortgages held for sale were carried at fair value.
26
Table of Contents
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 | |||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||
| Mortgages held for sale reported at fair value | $ | $ | $ | (1) | ||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||
| Mortgages held for sale reported at fair value | $ | $ | $ | (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.
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.
27
Table of Contents
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.
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 | ||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | $ | $ | ||||||||||||||||||||||
| U.S. States and political subdivisions securities | ||||||||||||||||||||||||||
| Mortgage-backed securities — Federal agencies | ||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Total debt securities available-for-sale | ||||||||||||||||||||||||||
| Mortgages held for sale | ||||||||||||||||||||||||||
| Accrued income and other assets (interest rate swap agreements) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities (interest rate swap agreements) | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||||||||||||
| U.S. Treasury and Federal agencies securities | $ | $ | $ | $ | ||||||||||||||||||||||
| U.S. States and political subdivisions securities | ||||||||||||||||||||||||||
| Mortgage-backed securities — Federal agencies | ||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Total debt securities available-for-sale | ||||||||||||||||||||||||||
| Mortgages held for sale | ||||||||||||||||||||||||||
| Accrued income and other assets (interest rate swap agreements) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities (interest rate swap agreements) | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
28
Table of Contents
The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2026, and 2025.
| U.S. States and political subdivisions securities | U.S. States and political subdivisions securities | ||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||
| Total gains or losses (realized/unrealized): | |||||||||||||||||
| Included in earnings | |||||||||||||||||
| Included in other comprehensive income (loss) | ( | ( | |||||||||||||||
| Purchases | |||||||||||||||||
| Issuances | |||||||||||||||||
| Sales | |||||||||||||||||
| Settlements | |||||||||||||||||
| Maturities | ( | ( | |||||||||||||||
| Transfers into Level 3 | |||||||||||||||||
| Transfers out of Level 3 | |||||||||||||||||
| Ending balance September 30, | $ | $ | $ | $ | |||||||||||||
There were no
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 | |||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||
| Debt securities available-for sale | ||||||||||||||||||||||||||||||||
Direct placement municipal securities | $ | Discounted cash flows | Credit spread assumption | % | ||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
Debt securities available-for sale | ||||||||||||||||||||||||||||||||
Direct placement municipal securities | $ | Discounted cash flows | Credit spread assumption | % | ||||||||||||||||||||||||||||
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.
29
Table of Contents
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 September 30, 2026: collateral dependent loans and leases - $0.71 million; MSRs - $0.00 million; repossessions - $0.00 million; and other real estate - $0.00 million.
30
Table of Contents
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 | ||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||
| Collateral dependent loans and leases | $ | — | $ | — | $ | $ | ||||||||||||||||||||
| Accrued income and other assets (mortgage servicing rights) | — | — | ||||||||||||||||||||||||
| Accrued income and other assets (repossessions) | — | — | ||||||||||||||||||||||||
| Accrued income and other assets (other real estate) | — | — | ||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | $ | ||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||
| Collateral dependent loans and leases | $ | — | $ | — | $ | $ | ||||||||||||||||||||
| Accrued income and other assets (mortgage servicing rights) | — | — | ||||||||||||||||||||||||
| Accrued income and other assets (repossessions) | — | — | ||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | $ | ||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| Collateral dependent loans and leases | $ | $ | Collateral based measurements including appraisals, trade publications, and auction values | Discount for lack of marketability and current conditions | % | |||||||||||||||||||||||||||||||||
| Mortgage servicing rights | Discounted cash flows | Constant prepayment rate (CPR) | % | |||||||||||||||||||||||||||||||||||
| Discount rate | % | |||||||||||||||||||||||||||||||||||||
| Repossessions | Appraisals, trade publications and auction values | Discount for lack of marketability | % | |||||||||||||||||||||||||||||||||||
| Other real estate | Appraisals | Discount for lack of marketability | % | |||||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Collateral dependent loans and leases | $ | $ | Collateral based measurements including appraisals, trade publications, and auction values | Discount for lack of marketability and current conditions | % | |||||||||||||||||||||||||||||||||
| Mortgage servicing rights | Discounted cash flows | Constant prepayment rate (CPR) | % | |||||||||||||||||||||||||||||||||||
| Discount rate | % | |||||||||||||||||||||||||||||||||||||
| Repossessions | Appraisals, trade publications and auction values | Discount for lack of marketability | % | |||||||||||||||||||||||||||||||||||
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.
31
Table of Contents
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 | |||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks | ||||||||||||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||||||||
| Loans and leases, net of allowance for loan and lease losses | ||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||||||||||||||
| Long-term debt and mandatorily redeemable securities | ||||||||||||||||||||||||||||||||
| Subordinated notes | ||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||
| Off-balance-sheet instruments * | ||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks | ||||||||||||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||||||||
| Loans and leases, net of allowance for loan and lease losses | ||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||||||||||||||
| Long-term debt and mandatorily redeemable securities | ||||||||||||||||||||||||||||||||
| Subordinated notes | ||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||
| Off-balance-sheet instruments * | ||||||||||||||||||||||||||||||||
* 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 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
32
Table of Contents
CODM 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 CODM 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 CODM 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 through benchmarking against the Company’s competitors, assessing segment performance and establishing management 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.
Previously, the Company’s CODM was identified as the Strategic Deployment Committee (“SDC”) which includes the President and Chief Executive Officer (“CEO”), the President of 1st Source Bank, the Chief Financial Officer, and several Group/Division Heads that report directly to the CEO or the President of 1st Source Bank. During the third quarter of 2026, the SDC adopted a charter which more clearly defined the respective responsibilities of the CEO and the SDC. As a result, management reassessed its identification of the CODM under ASC 280. Based on that reassessment, management concluded that the CEO, rather than the SDC, is the individual going forward who ultimately allocates resources and assesses performance for the Company because the SDC serves in an advisory capacity and does not possess decision-making authority. The reassessment of the Company’s CODM determination did not result in any changes to the Company’s operating segment determination, the measure of segment profit and loss, the measure of segment assets, or the information regularly reviewed for purposes of assessing performance and allocating resources, nor did it affect the Company’s conclusion that it operates as a single reportable segment.
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 September 30, 2026, as compared to December 31, 2025, and the results of operations for the three and nine months ended September 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 September 30, 2026, were $9.34 billion, an increase of $287.09 million or 3.17% from December 31, 2025. Total investment securities available-for-sale were $1.51 billion, a decrease of $14.50 million or 0.95% from December 31, 2025. Federal funds sold and interest bearing deposits with other banks were $37.25 million, a decrease of $13.36 million or 26.40% from December 31, 2025. The decrease in federal funds sold and interest bearing deposits with other banks was due to lower interest bearing deposits at other banks.
33
Table of Contents
Total loans and leases were $7.34 billion, an increase of $294.42 million or 4.18% from December 31, 2025. The largest contributors to the increase in loans and leases was growth in the renewable energy, construction equipment, commercial and agricultural, commercial real estate, medium and heavy duty truck, residential real estate and home equity, and aircraft portfolios, offset by decreases in the auto and light truck and consumer portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars, were $303.85 million and $319.93 million as of September 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 $125.01 million and $163.73 million as of September 30, 2026, respectively, compared to $136.98 million and $163.70 million as of December 31, 2025, respectively. As of September 30, 2026, and December 31, 2025, there was not a significant concentration in any other country.
Equipment owned under operating leases was $4.83 million, a decrease of $2.13 million, or 30.60% compared to December 31, 2025. The decrease in equipment owned under operating leases was from reduced leasing volume primarily due to a change in customer preferences and continued competitive pricing pressure for new business.
Total deposits were $7.47 billion at September 30, 2026, an increase of $243.64 million or 3.37% from December 31, 2025. Changes to the mix in total deposits included higher time deposits, brokered deposits, savings deposits, and noninterest-bearing demand deposits offset by lower interest-bearing demand deposits. Rate competition for deposits persisted during the third quarter across our footprint from various sources, including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.
Short-term borrowings were $233.65 million, a decrease of $4.98 million or 2.09% from December 31, 2025, due primarily to a decrease in FHLB borrowings offset by an increase in federal funds purchased. Long-term debt and mandatorily redeemable securities were $35.63 million, a decrease of $7.70 million or 17.76% from December 31, 2025, due primarily to the maturity of a $10.00 million long-term borrowing. Accrued expenses and other liabilities were $194.57 million, an increase of $23.68 million or 13.86% from December 31, 2025, mainly due to increased unfunded partnership commitments offset by decreased employee benefit plan contributions reserves, accounts payable, and accrued interest payable.
The following table shows accrued income and other assets.
| (Dollars in thousands) | September 30, 2026 | December 31, 2025 | ||||||||||||
| Accrued income and other assets: | ||||||||||||||
| Bank owned life insurance cash surrender value | $ | 89,364 | $ | 88,357 | ||||||||||
| Operating lease right of use assets | 21,887 | 20,130 | ||||||||||||
| Accrued interest receivable | 35,880 | 35,539 | ||||||||||||
| Mortgage servicing rights | 3,228 | 3,300 | ||||||||||||
| Other real estate | 49 | — | ||||||||||||
| Repossessions | 2,309 | 267 | ||||||||||||
| Partnership investments carrying amount | 127,349 | 120,260 | ||||||||||||
| Deferred tax assets | 50,689 | 44,959 | ||||||||||||
| All other assets | 53,457 | 39,109 | ||||||||||||
| Total accrued income and other assets | $ | 384,212 | $ | 351,921 | ||||||||||
The largest contributors to the increase in accrued income and other assets from December 31, 2025, was an increase in accounts receivable, partnership investments, deferred tax assets, and interest rate swaps.
CAPITAL
As of September 30, 2026, total shareholders’ equity was $1.32 billion, up $44.66 million, or 3.50% from the $1.27 billion at December 31, 2025. In addition to net income of $137.04 million, other significant changes in shareholders’ equity during the first nine months of 2026 included $23.35 million in common stock repurchased and $31.07 million of dividends paid. The accumulated other comprehensive loss component of shareholders’ equity increased to $76.11 million at September 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 14.13% as of September 30, 2026, compared to 14.08% at December 31, 2025. Book value per common share increased to $54.79 at September 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 $0.45 during the third quarter of 2026. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 23.08%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.
34
Table of Contents
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.
The actual capital amounts and ratios of 1st Source Corporation and 1st Source Bank as of September 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 | $ | 1,508,203 | 18.28 | % | $ | 660,009 | 8.00 | % | $ | 866,261 | 10.50 | % | $ | 825,011 | 10.00 | % | ||||||||||||||||||||||||||||||||||
| 1st Source Bank | 1,384,634 | 16.79 | 659,850 | 8.00 | 866,053 | 10.50 | 824,812 | 10.00 | ||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 1st Source Corporation | 1,404,180 | 17.02 | 495,007 | 6.00 | 701,259 | 8.50 | 660,009 | 8.00 | ||||||||||||||||||||||||||||||||||||||||||
| 1st Source Bank | 1,280,635 | 15.53 | 494,887 | 6.00 | 701,090 | 8.50 | 659,850 | 8.00 | ||||||||||||||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 1st Source Corporation | 1,316,277 | 15.95 | 371,255 | 4.50 | 577,508 | 7.00 | 536,257 | 6.50 | ||||||||||||||||||||||||||||||||||||||||||
| 1st Source Bank | 1,249,732 | 15.15 | 371,166 | 4.50 | 577,369 | 7.00 | 536,128 | 6.50 | ||||||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital (to Average Assets): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 1st Source Corporation | 1,404,180 | 15.12 | 371,433 | 4.00 | N/A | N/A | 464,292 | 5.00 | ||||||||||||||||||||||||||||||||||||||||||
| 1st Source Bank | 1,280,635 | 13.80 | 371,256 | 4.00 | N/A | N/A | 464,070 | 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 September 30, 2026.
| (Dollars in thousands) | Available | ||||||||||
| Internal Sources | |||||||||||
| Unencumbered securities | $ | 1,187,775 | |||||||||
| External Sources | |||||||||||
FHLB advances(1) | 490,793 | ||||||||||
| FRB borrowings | 436,052 | ||||||||||
Fed funds purchased(2) | 384,000 | ||||||||||
Brokered deposits(3) | 590,082 | ||||||||||
Listing services deposits(3) | 465,907 | ||||||||||
| Total liquidity | $ | 3,554,609 | |||||||||
| % of Total deposits net brokered and listing services certificates of deposit | 49.89 | % | |||||||||
| (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 $3.55 billion at September 30, 2026, which accounted for approximately 50% of total deposits net of brokered and listing services certificates of deposit.
35
Table of Contents
Our loan to asset ratio was 78.58% at September 30, 2026, compared to 77.82% at December 31, 2025 and 76.90% at September 30, 2025. Cash and cash equivalents totaled $104.80 million at September 30, 2026, compared to $119.86 million at December 31, 2025 and $214.26 million at September 30, 2025. The decrease in cash and cash equivalents 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 September 30, 2026, the Consolidated Statements of Financial Condition was rate sensitive by $107.72 million more liabilities than assets scheduled to reprice within one year, or approximately 0.98%. 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.
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 $1.40 billion.
RESULTS OF OPERATIONS
Net income available to common shareholders for the three and nine month periods ended September 30, 2026, was $49.54 million and $137.04 million compared to $42.30 million and $117.14 million for the same periods in 2025. Diluted net income per common share was $2.03 and $5.62 for the three and nine month periods ended September 30, 2026, compared to $1.71 and $4.74 earned for the same periods in 2025. Return on average common shareholders’ equity was 14.01% for the nine months ended September 30, 2026, compared to 13.24% in 2025. The return on total average assets was 1.99% for the nine months ended September 30, 2026, compared to 1.75% in 2025.
Net income increased for the nine months ended September 30, 2026, compared to the first nine 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.
36
Table of Contents
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | June 30, 2026 | September 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 | $ | 1,502,165 | $ | 12,892 | 3.40 | % | $ | 1,496,209 | $ | 12,402 | 3.32 | % | $ | 1,439,793 | $ | 8,803 | 2.43 | % | |||||||||||||||||||||||||||||||||||
Tax exempt(1) | 32,515 | 384 | 4.69 | % | 32,962 | 384 | 4.67 | % | 32,727 | 379 | 4.59 | % | |||||||||||||||||||||||||||||||||||||||||
| Mortgages held for sale | 3,728 | 61 | 6.49 | % | 4,116 | 63 | 6.14 | % | 4,516 | 73 | 6.41 | % | |||||||||||||||||||||||||||||||||||||||||
Loans and leases, net of unearned discount(1) | 7,255,465 | 119,287 | 6.52 | % | 7,142,693 | 116,825 | 6.56 | % | 7,015,389 | 120,245 | 6.80 | % | |||||||||||||||||||||||||||||||||||||||||
| Other investments | 72,900 | 841 | 4.58 | % | 153,723 | 1,561 | 4.07 | % | 133,400 | 1,542 | 4.59 | % | |||||||||||||||||||||||||||||||||||||||||
Total earning assets(1) | 8,866,773 | 133,465 | 5.97 | % | 8,829,703 | 131,235 | 5.96 | % | 8,625,825 | 131,042 | 6.03 | % | |||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 58,702 | 59,208 | 59,957 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses | (167,991) | (166,429) | (164,984) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 532,611 | 523,625 | 512,741 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 9,290,095 | $ | 9,246,107 | $ | 9,033,539 | |||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 5,801,349 | $ | 34,788 | 2.38 | % | $ | 5,848,085 | $ | 34,465 | 2.36 | % | $ | 5,817,284 | $ | 39,654 | 2.70 | % | |||||||||||||||||||||||||||||||||||
| Short-term borrowings: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | 59,948 | 141 | 0.93 | % | 64,030 | 137 | 0.86 | % | 59,297 | 148 | 0.99 | % | |||||||||||||||||||||||||||||||||||||||||
| Other short-term borrowings | 145,145 | 1,416 | 3.87 | % | 142,875 | 1,370 | 3.85 | % | 15,556 | 159 | 4.06 | % | |||||||||||||||||||||||||||||||||||||||||
| Subordinated notes | 58,764 | 987 | 6.66 | % | 58,764 | 971 | 6.63 | % | 58,764 | 1,010 | 6.82 | % | |||||||||||||||||||||||||||||||||||||||||
Long-term debt and mandatorily redeemable securities | 35,720 | 391 | 4.34 | % | 35,520 | 996 | 11.25 | % | 41,646 | 1,167 | 11.12 | % | |||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 6,100,926 | 37,723 | 2.45 | % | 6,149,274 | 37,939 | 2.47 | % | 5,992,547 | 42,138 | 2.79 | % | |||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 1,642,700 | 1,579,517 | 1,606,828 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 177,756 | 173,756 | 157,241 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 1,328,117 | 1,300,695 | 1,219,234 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | 40,596 | 42,865 | 57,689 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 9,290,095 | $ | 9,246,107 | $ | 9,033,539 | |||||||||||||||||||||||||||||||||||||||||||||||
| Less: Fully tax-equivalent adjustments | (157) | (154) | (154) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income/margin (GAAP-derived)(1) | $ | 95,585 | 4.28 | % | $ | 93,142 | 4.23 | % | $ | 88,750 | 4.08 | % | |||||||||||||||||||||||||||||||||||||||||
Fully tax-equivalent adjustments | 157 | 154 | 154 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income/margin - FTE(1) | $ | 95,742 | 4.28 | % | $ | 93,296 | 4.24 | % | $ | 88,904 | 4.09 | % | |||||||||||||||||||||||||||||||||||||||||
(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 30, 2026, compared to the Quarter Ended September 30, 2025
The taxable-equivalent net interest income for the three months ended September 30, 2026, was $95.74 million, an increase of 7.69% over the same period in 2025. The net interest margin on a fully taxable-equivalent basis was 4.28% for the three months ended September 30, 2026, compared to 4.09% for the three months ended September 30, 2025.
During the three month period ended September 30, 2026, average earning assets increased $240.95 million, up 2.79% over the comparable period in 2025. Average interest-bearing liabilities increased $108.38 million or 1.81%. The yield on average earning assets decreased to 5.97% at September 30, 2026, down six basis points from the same period in the prior year. Total cost of average interest-bearing liabilities decreased 34 basis points to 2.45% from 2.79%, 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 19 basis points.
37
Table of Contents
The largest contributors to the reduced yield on average earning assets for the three months ended September 30, 2026, compared to the three months ended September 30, 2025, was a decrease in yields on net loans and leases mainly from Federal Reserve rate cuts during the second half of 2025 offset by improved yields on investments from portfolio repositioning trades executed during 2025. The yield on loans and leases decreased 28 basis points, mainly from Fed rate cuts during the second half of 2025. Average loans and leases increased $240.08 million or 3.42%, primarily in the renewable energy, construction equipment, commercial real estate, commercial and agricultural, and residential real estate and home equity portfolios. Net interest recoveries contributed three basis points to the yield on average loans and leases during the quarter and contributed four basis points to the average loans and leases yield during the prior year third quarter. Average investment securities increased $62.16 million or 4.22%, driven by additional investments made during the period. Average 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 decreased $60.50 million or 45.35% primarily due to lower Federal Reserve Bank excess balances.
Average interest-bearing deposits decreased $15.94 million or 0.27% for the third quarter of 2026 compared to the same period in 2025 primarily from lower brokered and time deposits offset by higher savings deposits, interest-bearing demand and noninterest-bearing demand deposits. The effective rate on average interest-bearing deposits decreased 32 basis points to 2.38% from 2.70%, primarily as a result of Fed rate cuts during 2025 and lower brokered deposit balances. Average noninterest-bearing deposits increased $35.87 million or 2.23% for the third quarter of 2026 over the same period in 2025.
Average short-term borrowings increased $130.24 million or 173.99% for the third quarter of 2026, compared to the same period in 2025. Interest on short-term borrowings increased 138 basis points primarily due to the increase in average balances in FHLB borrowings and Federal funds purchased. Interest on subordinated notes decreased 16 basis points during the third 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 $5.93 million or 14.23% mainly from the maturity of a $10.00 million long-term borrowing. Interest on long-term debt and mandatorily redeemable securities decreased 678 basis points during the third quarter of 2026 from the same period in 2025, primarily due to lower imputed interest on mandatorily redeemable securities from a smaller increase in book value per share during the quarter compared to the previous year’s third quarter. Mandatorily redeemable securities are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense.
38
Table of Contents
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2026 | September 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 | $ | 1,497,180 | $ | 36,998 | 3.30 | % | $ | 1,457,157 | $ | 25,558 | 2.35 | % | |||||||||||||||||||||||
Tax exempt(1) | 33,155 | 1,155 | 4.66 | % | 32,112 | 1,103 | 4.59 | % | |||||||||||||||||||||||||||
| Mortgages held for sale | 4,254 | 199 | 6.25 | % | 3,444 | 167 | 6.48 | % | |||||||||||||||||||||||||||
Loans and leases, net of unearned discount(1) | 7,141,158 | 349,535 | 6.54 | % | 6,928,394 | 351,091 | 6.78 | % | |||||||||||||||||||||||||||
| Other investments | 96,858 | 3,101 | 4.28 | % | 114,444 | 3,943 | 4.61 | % | |||||||||||||||||||||||||||
Total earning assets(1) | 8,772,605 | 390,988 | 5.96 | % | 8,535,551 | 381,862 | 5.98 | % | |||||||||||||||||||||||||||
| Cash and due from banks | 58,421 | 63,819 | |||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses | (166,044) | (160,601) | |||||||||||||||||||||||||||||||||
| Other assets | 521,508 | 512,531 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 9,186,490 | $ | 8,951,300 | |||||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 5,752,344 | $ | 101,831 | 2.37 | % | $ | 5,779,321 | $ | 118,606 | 2.74 | % | |||||||||||||||||||||||
| Short-term borrowings: | |||||||||||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | 59,188 | 369 | 0.83 | % | 59,468 | 373 | 0.84 | % | |||||||||||||||||||||||||||
| Other short-term borrowings | 153,744 | 4,415 | 3.84 | % | 31,964 | 975 | 4.08 | % | |||||||||||||||||||||||||||
| Subordinated notes | 58,764 | 2,953 | 6.72 | % | 58,764 | 3,031 | 6.90 | % | |||||||||||||||||||||||||||
Long-term debt and mandatorily redeemable securities | 36,906 | 2,089 | 7.57 | % | 40,891 | 3,543 | 11.58 | % | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 6,060,946 | 111,657 | 2.46 | % | 5,970,408 | 126,528 | 2.83 | % | |||||||||||||||||||||||||||
Noninterest-bearing deposits | 1,602,988 | 1,589,924 | |||||||||||||||||||||||||||||||||
| Other liabilities | 173,016 | 146,957 | |||||||||||||||||||||||||||||||||
| Shareholders’ equity | 1,307,367 | 1,183,027 | |||||||||||||||||||||||||||||||||
Noncontrolling interests | 42,173 | 60,984 | |||||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 9,186,490 | $ | 8,951,300 | |||||||||||||||||||||||||||||||
| Less: Fully tax-equivalent adjustments | (466) | (454) | |||||||||||||||||||||||||||||||||
Net interest income/margin (GAAP-derived)(1) | $ | 278,865 | 4.25 | % | $ | 254,880 | 3.99 | % | |||||||||||||||||||||||||||
Fully tax-equivalent adjustments | 466 | 454 | |||||||||||||||||||||||||||||||||
Net interest income/margin - FTE(1) | $ | 279,331 | 4.26 | % | $ | 255,334 | 4.00 | % | |||||||||||||||||||||||||||
(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio. | |||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2026, compared to the Nine Months Ended September 30, 2025
The taxable-equivalent net interest income for the nine months ended September 30, 2026, was $279.33 million, an increase of 9.40% over the same period in 2025. The net interest margin on a fully taxable-equivalent basis was 4.26% for the nine months ended September 30, 2026, compared to 4.00% for the same period in 2025.
During the nine month period ended September 30, 2026, average earning assets increased $237.05 million, up 2.78% over the comparable period in 2025. Average interest-bearing liabilities increased $90.54 million or 1.52%. The yield on average earning assets decreased two basis points to 5.96% from 5.98% 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 37 basis points to 2.46% from 2.83% 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 26 basis point improvement.
The largest contributors to the declined yield on average earning assets for the nine months ended September 30, 2026, compared to the nine months ended September 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 $212.76 million, up 3.07%. Average investment securities increased $41.07 million or 2.76% driven by additional investments made during the period.
Average interest-bearing deposits decreased $26.98 million or 0.47% for the first nine months of 2026 compared to the same period in 2025, primarily due to decreased brokered and time deposit balances. The effective rate paid on average interest-bearing deposits decreased 37 basis points to 2.37% from 2.74% mainly from Fed rate cuts during the second half of 2025 and lower brokered deposit average balances.
39
Table of Contents
Average short-term borrowings increased $121.50 million or 132.89% for the first nine months of 2026, compared to the same period in 2025. Interest paid on short-term borrowings increased 103 basis points primarily due to an increase in average balances in FHLB borrowings and federal funds purchased. Interest paid on subordinated notes decreased 18 basis points during the first nine months due to a variable rate decrease on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $3.99 million or 9.75%, primarily from the maturity of a $10.00 million long term borrowing. Interest paid on long-term debt and mandatorily redeemable securities decreased 401 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 | Nine Months Ended | ||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| (Dollars in thousands) | 2026 | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||
| Calculation of Net Interest Margin | |||||||||||||||||||||||
| (A) | Interest income (GAAP) | $ | 133,308 | $ | 131,081 | $ | 130,888 | $ | 390,522 | $ | 381,408 | ||||||||||||
| Fully tax-equivalent adjustments: | |||||||||||||||||||||||
| (B) | - Loans and leases | 77 | 74 | 76 | 226 | 226 | |||||||||||||||||
| (C) | - Tax-exempt investment securities | 80 | 80 | 78 | 240 | 228 | |||||||||||||||||
| (D) | Interest income - FTE (A+B+C) | 133,465 | 131,235 | 131,042 | 390,988 | 381,862 | |||||||||||||||||
| (E) | Interest expense (GAAP) | 37,723 | 37,939 | 42,138 | 111,657 | 126,528 | |||||||||||||||||
| (F) | Net interest income (GAAP) (A–E) | 95,585 | 93,142 | 88,750 | 278,865 | 254,880 | |||||||||||||||||
| (G) | Net interest income - FTE (D–E) | 95,742 | 93,296 | 88,904 | 279,331 | 255,334 | |||||||||||||||||
| (H) | Annualization factor | 3.967 | 4.011 | 3.967 | 1.337 | 1.337 | |||||||||||||||||
| (I) | Total earning assets | $ | 8,866,773 | $ | 8,829,703 | $ | 8,625,825 | $ | 8,772,605 | $ | 8,535,551 | ||||||||||||
| Net interest margin (GAAP-derived) (F*H)/I | 4.28 | % | 4.23 | % | 4.08 | % | 4.25 | % | 3.99 | % | |||||||||||||
| Net interest margin - FTE (G*H)/I | 4.28 | % | 4.24 | % | 4.09 | % | 4.26 | % | 4.00 | % | |||||||||||||
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses for the three and nine months ended September 30, 2026, was $0.90 million and $9.71 million, compared to $0.90 million and $11.85 million during the three and nine months ended September 30, 2025. Net charge-offs of $0.33 million or 0.02% of average loans and leases were recorded for the third quarter of 2026, compared to $1.88 million or 0.11% of average loans and leases for the same quarter a year ago. Year-to-date net charge-offs of $4.81 million or 0.09% of average loans and leases have been recorded in 2026, compared to net charge-offs of $3.93 million or 0.08% of average loans and leases through September 30, 2025. Net charge-offs recognized in 2026 are principally concentrated in the auto and light truck, construction equipment, and consumer portfolios.
The provision for credit losses for the three months ended September 30, 2026, was driven primarily by loan growth in our renewable energy, medium and heavy duty truck, and aircraft portfolios during the period and the migration of an existing special attention relationship to a higher-reserved pool. Forecast risk assumptions were adjusted to shift a greater portion of downside risk to later periods within the forecast horizon. This reflects a change in the forward timing of expected risk but does not represent a reduction in our assessment of overall macroeconomic risk. Key risks include heightened global geopolitical uncertainty, volatile energy prices, firming inflationary expectations, evolving trade policies, and increasing consumer financial stress. Reserves for assets individually evaluated total $0.58 million this quarter, consisting of accounts in our construction equipment, commercial real estate, and commercial and agricultural portfolios.
40
Table of Contents
We remain attentive to potential risks within segments of the commercial and agricultural portfolio and within select niche industries. The agricultural portion of this portfolio continues to face pressure from higher input costs and compressed margins, particularly for grain producers. Internal credit metrics within the auto and light truck portfolio have improved year-to-date, but problem loan balances remain elevated and 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 sentiment measures remain subdued. Prolonged energy price volatility 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 tame inflation and support healthy labor markets. While economic growth has remained generally resilient, downside risks remain elevated and the operating environment remains vulnerable to adverse economic and geopolitical developments. Ongoing macroeconomic instability and higher interest rates may contribute to increased volatility in asset prices and place downward pressure on the collateral values securing our loans.
Our aircraft portfolio exhibits collateral concentration and contains $303.85 million of foreign exposure at September 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 generally 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 September 30, 2026, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.09%, compared to 0.76% on September 30, 2025. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.28%, compared to 2.32% one year ago. A summary of loan and lease loss experience during the three and nine months ended September 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) | September 30, 2026 | December 31, 2025 | September 30, 2025 | |||||||||||||||||
| Loans and leases past due 90 days or more and accruing | $ | 142 | $ | 460 | $ | 317 | ||||||||||||||
| Nonaccrual loans and leases | 56,942 | 76,602 | 62,264 | |||||||||||||||||
| Other real estate | 49 | — | 120 | |||||||||||||||||
| Repossessions | 2,309 | 267 | 435 | |||||||||||||||||
| Equipment owned under operating leases | — | 49 | 56 | |||||||||||||||||
| Total nonperforming assets | $ | 59,442 | $ | 77,378 | $ | 63,192 | ||||||||||||||
| Nonperforming assets to loans and leases, net of unearned discount | 0.81 | % | 1.10 | % | 0.91 | % | ||||||||||||||
Nonperforming assets totaled $59.44 million at September 30, 2026, a decrease of 23.18% from the $77.38 million reported at December 31, 2025, and a 5.93% decrease from the $63.19 million reported at September 30, 2025. The decrease in nonperforming assets during the first nine months of 2026 and also from September 30, 2025, was primarily related to lower nonaccrual loans and leases partially offset by an increase in repossessions. There is one property held in other real estate related to our residential real estate and home equity portfolio as of September 30, 2026.
The decrease in nonaccrual loans and leases at September 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 September 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 auto and light truck, and construction equipment portfolios at September 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.
41
Table of Contents
The following table shows a summary of repossessions and other real estate.
| (Dollars in thousands) | September 30, 2026 | December 31, 2025 | September 30, 2025 | |||||||||||||||||
| Commercial and agricultural | $ | — | $ | 21 | $ | — | ||||||||||||||
| Renewable energy | — | — | — | |||||||||||||||||
| Auto and light truck | 51 | — | 50 | |||||||||||||||||
| Medium and heavy duty truck | — | — | — | |||||||||||||||||
| Aircraft | 2,210 | — | — | |||||||||||||||||
| Construction equipment | 48 | 192 | 307 | |||||||||||||||||
| Commercial real estate | — | — | — | |||||||||||||||||
| Residential real estate and home equity | — | — | 120 | |||||||||||||||||
| Consumer | — | 54 | 78 | |||||||||||||||||
| Total | $ | 2,309 | $ | 267 | $ | 555 | ||||||||||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | $ Change | % Change | 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Trust and wealth advisory | $ | 7,867 | $ | 6,825 | $ | 1,042 | 15.27 | % | $ | 23,577 | $ | 20,757 | $ | 2,820 | 13.59 | % | ||||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | 3,780 | 3,437 | 343 | 9.98 | % | 10,566 | 9,697 | 869 | 8.96 | % | ||||||||||||||||||||||||||||||||||||||||
| Debit card | 4,736 | 4,530 | 206 | 4.55 | % | 13,850 | 13,246 | 604 | 4.56 | % | ||||||||||||||||||||||||||||||||||||||||
| Mortgage banking | 1,014 | 1,031 | (17) | (1.65) | % | 2,883 | 3,000 | (117) | (3.90) | % | ||||||||||||||||||||||||||||||||||||||||
| Insurance commissions | 1,918 | 1,845 | 73 | 3.96 | % | 6,220 | 5,970 | 250 | 4.19 | % | ||||||||||||||||||||||||||||||||||||||||
| Equipment rental | 452 | 693 | (241) | (34.78) | % | 1,581 | 2,371 | (790) | (33.32) | % | ||||||||||||||||||||||||||||||||||||||||
| Losses on investment securities available-for-sale | (3,818) | (1,877) | (1,941) | (103.41) | % | (3,805) | (2,874) | (931) | (32.39) | % | ||||||||||||||||||||||||||||||||||||||||
| Other | 8,747 | 5,422 | 3,325 | 61.32 | % | 17,844 | 15,899 | 1,945 | 12.23 | % | ||||||||||||||||||||||||||||||||||||||||
| Total noninterest income | $ | 24,696 | $ | 21,906 | $ | 2,790 | 12.74 | % | $ | 72,716 | $ | 68,066 | $ | 4,650 | 6.83 | % | ||||||||||||||||||||||||||||||||||
Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased during the three and nine months ended September 30, 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 September 30, 2026, December 31, 2025, and September 30, 2025, was $6.68 billion, $6.28 billion, and $6.07 billion, respectively. The increase in trust and wealth advisory fees was due to strong equity market performance and also included elevated estate administration fees during the three and nine months ended September 30, 2026.
Service charges on deposit accounts increased for the three and nine months ended September 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 nine month periods ended September 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 nine months ended September 30, 2026, over the comparable periods in 2025. The decrease was mainly from lower secondary loan servicing volumes and reduced profit margins generating fewer gains on loan sales as well as a reduction in loan servicing fee income.
Insurance commissions increased during the three and nine months ended September 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 nine months ended September 30, 2026, over the comparable periods in 2025. The decline was the result of a reduction in the average equipment rental portfolio by 35.52% over the same nine month period a year ago, due to changing customer preferences and competitive pricing pressures for new business.
42
Table of Contents
Losses on available-for-sale investment securities during 2026 and 2025 were exclusively the result of repositioning the portfolio. During the quarter, $68 million of securities with a weighted average yield of 1.83% were sold and used to purchase approximately $68 million of securities with a weighted average yield of 5.10%.
Other income increased for the three and nine months ended September 30, 2026, compared to the same periods in 2025. The increase was primarily the result of higher partnership investment gains including the sale of renewable energy tax equity investments of $3.03 million and increased income from bank owned life insurance claims offset by a reduction in customer interest rate swap fees.
NONINTEREST EXPENSE
The following table shows the details of noninterest expense.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | $ Change | % Change | 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 32,752 | $ | 32,217 | $ | 535 | 1.66 | % | $ | 98,725 | $ | 96,132 | $ | 2,593 | 2.70 | % | ||||||||||||||||||||||||||||||||||
| Net occupancy | 3,239 | 3,085 | 154 | 4.99 | % | 10,174 | 9,344 | 830 | 8.88 | % | ||||||||||||||||||||||||||||||||||||||||
| Furniture and equipment | 1,463 | 1,566 | (103) | (6.58) | % | 4,590 | 4,597 | (7) | (0.15) | % | ||||||||||||||||||||||||||||||||||||||||
| Data processing | 7,478 | 7,578 | (100) | (1.32) | % | 22,543 | 22,279 | 264 | 1.18 | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation – leased equipment | 334 | 557 | (223) | (40.04) | % | 1,211 | 1,894 | (683) | (36.06) | % | ||||||||||||||||||||||||||||||||||||||||
| Professional fees | 2,082 | 1,765 | 317 | 17.96 | % | 5,809 | 4,932 | 877 | 17.78 | % | ||||||||||||||||||||||||||||||||||||||||
| FDIC and other insurance | 1,462 | 1,454 | 8 | 0.55 | % | 4,365 | 4,332 | 33 | 0.76 | % | ||||||||||||||||||||||||||||||||||||||||
Business development and marketing | 2,638 | 2,846 | (208) | (7.31) | % | 6,605 | 6,655 | (50) | (0.75) | % | ||||||||||||||||||||||||||||||||||||||||
| Other | 3,775 | 3,708 | 67 | 1.81 | % | 10,743 | 10,117 | 626 | 6.19 | % | ||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | 55,223 | $ | 54,776 | $ | 447 | 0.82 | % | $ | 164,765 | $ | 160,282 | $ | 4,483 | 2.80 | % | ||||||||||||||||||||||||||||||||||
Salaries and employee benefits increased during the three and nine months ended September 30, 2026, compared to the same periods in 2025. Higher salaries and employee benefits were a result of normal merit increases, increased incentive compensation, and increased employee benefit plan contributions, offset by lower group insurance costs as a result of lower health insurance claims during the quarter.
Net occupancy expense increased during the three and nine months ended September 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, rent increases, and higher premises expenses and repairs.
Furniture and equipment expense, including depreciation, decreased during the third quarter of 2026, compared to the same period in 2025, and was relatively flat year to date compared to the same time period a year ago. The decrease during the quarter was mainly due to fewer furniture and equipment purchases and lower equipment maintenance costs.
Data processing expense decreased during the three months ended September 30, 2026, compared to the same period a year ago mainly due to a decrease in debit card processing expenses.
Depreciation on leased equipment decreased for the three and nine months ended September 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 nine months ended September 30, 2026, compared to the same periods a year ago due primarily to higher consulting fees from technology projects and increased legal fees.
FDIC and other insurance remained flat during the three and nine months ended September 30, 2026, compared to the same periods in 2025.
Business development and marketing expense decreased during the three and nine months ended September 30, 2026, compared with the same periods in 2025. The decrease was primarily due to a reduction in marketing promotions.
Other expenses were higher during the three and nine months ended September 30, 2026, compared to the same periods a year ago. The increase was primarily the result of higher collection and repossession legal expenses, increased training expenses and a rise in debit card losses, offset by increased gains on the sale of fixed assets and repossessions.
43
Table of Contents
INCOME TAXES
The provision for income taxes for the three and nine month periods ended September 30, 2026, was $14.62 million and $40.06 million compared to $12.71 million and $33.69 million for the same periods in 2025. The effective tax rate was 22.78% and 23.11% for the quarters ended September 30, 2026, and 2025, respectively, and 22.62% and 22.34% for the nine months ended September 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 September 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 third 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 | ||||||||||||||||||||||
| July 01 - 31, 2026 | — | $ | — | — | 428,611 | |||||||||||||||||||||
| August 01 - 31, 2026 | — | — | — | 428,611 | ||||||||||||||||||||||
| September 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
44
Table of Contents
ITEM 4. Mine Safety Disclosures.
None
ITEM 5. Other Information.
During the three months ended September 30, 2026, there were no
ITEM 6. Exhibits.
The following exhibits are filed with this report:
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) | |||||||
45
Table of Contents
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 | October 22, 2026 | /s/ ANDREA G. SHORT | |||||||||
| Andrea G. Short President and CEO | |||||||||||
| DATE | October 22, 2026 | /s/ BRETT A. BAUER | |||||||||
| Brett A. Bauer Treasurer and Chief Financial Officer Principal Accounting Officer | |||||||||||
46