What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-17 compared with 2025-02-18 · 161 added, 150 removed, 657 unchanged (32% of the section changed)

50 unchanged sentences

Allowance for Credit Losses — The allowance for credit losses represents management’s estimate of expected credit losses over the expected contractual life of our existing loan and lease portfolio and the establishment of an allowance that is sufficient to absorb those losses.

Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.

In determining an appropriate allowance, management makes numerous judgments, assumptions, and estimates which are inherently subjective, as they require material estimates that may be susceptible to significant change.

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Additionally, we are required to use forecasts about future economic conditions to determine the expected credit losses over the remaining life of the asset.

Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with widespread geopolitical uncertainty, continued elevated inflation, and high interest rates.

Forecast adjustments are inherently challenging for many reasons including, the current macroeconomic environment, a softening labor market, heightened geopolitical uncertainty, inflation which remains above long-term policy targets, and interest rates that are still restrictive despite recent easing.

We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions.

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Return on average common shareholders’ equity was 13.16% in 2025 versus 12.54% in 2024, and 13.48% in 2023.

Net income in 2025, as compared to 2024, was positively impacted by a $47.36 million or 15.74% increase in net interest income, which was partially offset by a $13.24 million or 6.50% increase in noninterest expense.

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

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

Dividends paid on common stock in 2025 amounted to $1.52 per share, compared to $1.40 per share in 2024, and $1.30 per share in 2023.

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Net Interest Income — Our primary source of earnings is net interest income, the difference between income on earning assets and the cost of funds supporting those assets.

Significant categories of earning assets are loans and securities while deposits and borrowings represent the major portion of interest-bearing liabilities.

Significant categories of earning assets are loans and leases and investment securities while deposits and borrowings represent the major portion of interest-bearing liabilities.

For purposes of the following discussion, comparison of net interest income is done on a tax-equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those which are fully taxable.

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During 2025, average earning assets increased $279.10 million or 3.37% while average interest-bearing liabilities increased $128.46 million or 2.20% over the comparable period in 2024.

The yield on average earning assets increased 60 basis points to 5.85% for 2024 from 5.25% for 2023 primarily due to higher rates and average balances on loans and leases, higher rates on taxable investment securities and higher average balances on other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper.

Total cost of average interest-bearing liabilities increased 64 basis points to 3.14% during 2024 from 2.50% in 2023 as a result of the higher interest rate environment and its impact on deposit competition.

The yield on average earning assets increased 16 basis points to 6.01% for 2025 from 5.85% for 2024 primarily due to higher loan and lease average balances and higher rates on investment securities offset by lower rates on other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper.

Total cost of average interest-bearing liabilities decreased 35 basis points to 2.79% during 2025 from 3.14% in 2024 mainly as a result of repricing of interest-bearing deposits and lower rates and average balances of other short-term borrowings which is primarily short-term FHLB borrowings offset by higher rates on mandatorily redeemable securities.

The result to the fully taxable-equivalent net interest margin was an increase of 43 basis points.

The largest contributor to the increase in the yield on average earning assets in 2024 was the 59 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates and higher average balances.

Average loans and leases increased $394.47 million or 6.36% in 2024 from 2023 while the yield increased to 6.84%.

Strong growth primarily within our Construction Equipment, Auto and Light Truck and Renewable Energy portfolios, and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year.

Net interest recoveries positively contributed five basis points to the yield on average loans and leases during 2024 and four basis points to the average loans and leases yield during 2023.

During 2024, the tax-equivalent yield on investment securities available-for-sale increased 15 basis points to 1.72% while the average balance decreased $106.29 million or 6.34% with the largest decreases in U.S.

The largest contributors to the increase in the yield on average earning assets in 2025 was an increase in average loan and lease balances and higher rates on taxable investment securities.

During 2025, average loans and leases increased $336.29 million or 5.10% from 2024 while the yield decreased to 6.79% from 6.84% in 2024.

Strong growth primarily within our Renewable Energy portfolio and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year.

Net interest recoveries positively contributed seven basis points to the yield on average loans and leases during 2025 and three basis points to the average loans and leases yield during 2024.

The tax-equivalent yield on investment securities increased 81 basis points to 2.53% while the average balance decreased $73.56 million or 4.68% with the largest decreases in U.S.

treasury and federal agency securities and state and municipal securities.

Average mortgages held for sale increased $0.87 million or 36.53% during 2024 while the yield increased seven basis points.

Average other investments increased $38.83 million or 52.67% during 2024 while the yield increased 29 basis points.

Average mortgages held for sale increased $0.66 million or 20.45% during 2025 while the yield decreased 33 basis points.

Average other investments increased $15.71 million or 13.96% during 2025 while the yield decreased 72 basis points.

The average balance increase in other investments was primarily a result of higher balances held at the Federal Reserve Bank.

Average interest-bearing deposits increased $305.86 million or 5.88% during 2024 while the effective rate paid on those deposits increased 66 basis points.

The increased average balance was primarily due to increases in time deposits, money market accounts, and brokered deposits.

The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix.

The deposit mix change which began during 2022 carried over into 2023 and 2024 with clients moving their funds from non-maturity accounts to higher yielding certificates of deposit and money market accounts due to the elevated interest rate environment.

Average interest-bearing deposits increased $270.38 million or 4.91% during 2025 while the effective rate paid on those deposits decreased 33 basis points.

The increased average balance was primarily due to increases in non-brokered time deposits and money market accounts.

The decrease in the average cost of interest-bearing deposits was primarily the result of Fed rate cuts during the second half of 2024 and second half of 2025 .

Average noninterest-bearing demand deposits decreased $7.05 million or 0.44% during 2025 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.

Average short-term borrowings increased $15.24 million or 7.13% during 2024 while the effective rate paid increased 63 basis points due to higher Federal Reserve Bank Term Funding Program borrowings offset with decreased FHLB borrowings and lower securities sold under agreements to repurchase balances.

Average long-term debt and mandatorily redeemable securities balances decreased $5.35 million or 11.55% during 2024 while the effective rate decreased 68 basis points primarily due to a lower imputed interest on mandatorily redeemable securities from a reduced improvement in book value per share during 2024 compared to 2023.

Average short-term borrowings decreased $142.22 million or 62.15% during 2025 while the effective rate paid decreased 209 basis points primarily due to the maturity and pay off of $100 million in borrowings from the Federal Reserve’s Bank Term Funding Program.

Average long-term debt and mandatorily redeemable securities balances increased $0.31 million or 0.75% during 2025 while the effective rate increased 364 basis points primarily due to a higher imputed interest on mandatorily redeemable securities from an increased improvement in book value per share during 2025 compared to 2024.

Mandatorily redeemable shares are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense.

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Equipment rental 3,021 5,171 8,837 (2,150) (41.58) % (3,666) (41.48) %

Losses on investment securities available-for-sale (3,889) (2,926) (184) (963) (32.91) % (2,742) NM

Losses on investment securities available-for-sale (8,679) (3,889) (2,926) (4,790) (123.17) % (963) (32.91) %

Other 20,633 16,714 19,895 3,919 23.45 % (3,181) (15.99) %

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The market value of trust assets under management at December 31, 2025 and 2024 was $6.28 billion and $5.97 billion, respectively.

The positive performance of the stock and bond markets primarily during the first nine months of 2024 resulted in an increase in the market value of trust assets under management compared to 2023.

At December 31, 2024, these trust assets were comprised of $4.03 billion of personal and agency trusts and estate administration assets, $1.18 billion of employee benefit plan assets, $0.59 million of individual retirement accounts, and $0.17 million of custody assets.

The positive performance of the stock and bond markets during 2025 resulted in an increase in the market value of trust assets under management compared to 2024.

At December 31, 2025, these trust assets were comprised of $4.37 billion of personal and agency trusts and estate administration assets, $1.05 billion of employee benefit plan assets, $0.66 billion of individual retirement accounts, and $0.20 billion of custody assets.

Service charges on deposit accounts increased in 2025 from 2024, compared to an increase in 2024 from 2023.

The growth in service charges on deposit accounts in 2025 was primarily due to higher consumer nonsufficient fund and overdraft transactions.

The growth in service charges on deposit accounts in 2024 was primarily due to a higher volume of business deposit account fees.

The growth in service charges on deposit accounts in 2023 was primarily due to increased consumer and business overdraft transactions.

Debit card income declined during 2024 following a slight decrease during 2023.

Debit card income remained relatively flat during 2025 following a slight decrease during 2024.

The decline in 2024 to 2023 was related to shifts in both client transaction behavior and the networks over which those merchants are routing transactions.

During 2023, regulatory changes to web commerce transactions implemented by the Federal Reserve had a negative impact.

Mortgage banking income increased in 2024 over 2023, compared to a decrease in 2023 from 2022.

Mortgage banking income decreased in 2025 over 2024, compared to an increase in 2024 from 2023.

During 2025, 2024, and 2023, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs.

During 2025, mortgage banking income decreased due to lower margins on loans originated for the secondary market and a reduction in servicing fees resulting from fewer loans being serviced for others.

During 2024, mortgage banking income increased due to higher production of loans originated for the secondary market resulting in increased income on loans sold into the secondary market.

During 2023, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market.

Insurance commissions decreased in 2024 compared to 2023 and increased in 2023 compared to 2022.

Insurance commissions increased in 2025 compared to 2024, and decreased in 2024 compared to 2023.

The increase in 2025 was primarily due to higher contingent commissions received and an increased book of business.

The decrease in 2024 was primarily due to fewer contingent commissions received.

The rise in 2023 was primarily due to a larger book of business and more contingent commissions received.

Equipment rental income generated from operating leases decreased during 2025 from 2024, compared to a similar reduction during 2024 from 2023.

The average equipment rental portfolio decreased in 2024 over 2023 and decreased in 2023 over 2022 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business.

The average equipment rental portfolio decreased in 2025 and 2024 as a result of reduced leasing volume primarily in the medium and heavy duty truck and construction equipment portfolios due to changing customer preferences and competitive pricing pressures for new business.

In 2025 and 2024, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.

Losses on investment securities available-for-sale during 2024 were exclusively the result of repositioning the portfolio during the fourth quarter.

Losses on investment securities available-for-sale during 2025 were exclusively the result of repositioning the portfolio during the second, third, and fourth quarters.

In the combined repositioning trades, approximately $256 million of securities with a weighted average yield of 0.92% were sold and used to purchase approximately $254 million of securities with a weighted average yield of 3.66%.

In the 2024 repositioning, approximately $63 million of securities with a weighted average yield of 0.71% were sold and used to purchase approximately $63 million of securities with a weighted average yield of 4.64%.

Losses during 2023 were primarily the result of repositioning the investment securities portfolio.

In the 2023 repositioning, approximately $40 million of securities with a weighted average yield of 1.10% were sold and used to purchase approximately $40 million of securities with a weighted average yield of 4.80%.

The remaining 2023 losses were the result of sales to support liquidity and fund loan growth during the first quarter.

Losses during 2022 were from the sale of Federal agency securities with the goal of managing portfolio risk and liquidity.

Other income decreased in 2024 from 2023 compared to an increase in 2023 from 2022.

Other income increased in 2025 from 2024, compared to a decrease in 2024 from 2023.

The increase in 2025 was mainly a result of higher partnership investment gains on sale of renewable energy tax equity investments of $2.07 million, an increase in brokerage commissions and fees of $0.41 million, and increased customer interest rate swap fees of $0.54 million offset by a write-down of $0.77 million on a small business capital investment.

The decrease in 2024 was mainly a result of lower partnership investment gains on sale of renewable energy tax equity investments, a writedown of $0.86 million on a small business capital investment and a reduction in customer interest rate swap fees of $0.48 million, offset by increased brokerage commissions and fees of $0.84 million and rental income of $0.23 million related to a repossessed asset.

The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer interest rate swap fees of $1.23 million and higher bank owned life insurance policy claims.

Noninterest Expense — Noninterest expense increased in 2025 from 2024 following an increase in 2024 from 2023.

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Business development and marketing 8,855 6,876 7,157 1,979 28.78 % (281) (3.93) %

Provision for unfunded loan commitments — 2,566 1,420 NM NM 1,146 80.70 %

Provision (recovery of provision) for unfunded

loan commitments

— — 2,566 NM NM NM NM

Other 14,075 12,385 14,867 1,690 13.65 % (2,482) (16.69) %

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Employee salaries grew $5.21 million or 5.16% in 2025 from 2024, compared to an increase of $7.45 million or 7.97% in 2024 from 2023.

The increase in 2025 was mainly a result of higher base salaries due to normal merit increases and a rise in incentive compensation.

The increase in 2024 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover as well as an increase in incentive compensation.

The increase in 2023 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover.

Employee benefits decreased $1.15 million or 5.20% in 2024 from 2023, compared to a $3.33 million or 17.73% increase in 2023 from 2022.

Employee benefits increased $2.45 million or 11.67% in 2025 from 2024, compared to a $1.15 million or 5.20% decrease in 2024 from 2023.

During 2025, group insurance costs were higher due to overall higher health insurance claims experienced and an increase in employer profit sharing contribution expense due to the utilization of accumulated plan forfeitures to offset employer contributions in the prior year.

During 2024, group insurance costs were lower due to fewer claims experienced and the utilization of accumulated plan forfeitures of $0.65 million to offset current year employer contribution expense.

During 2023, group insurance costs were higher due to a rise in claims experienced and increased company contributions to employee retirement accounts compared to levels in 2022.

Occupancy expense rose in 2025 from 2024, compared to an increase in 2024 from 2023.

The expense increase in 2025 was primarily the result of higher building depreciation and increased premises expenses.

The expense increase in 2024 was primarily the result of increased premises expenses and higher rents.

The elevated expense in 2023 was primarily the result of higher premises repairs.

Furniture and equipment expense, including depreciation, was relatively flat in 2024 from 2023 compared to an increase in 2023 from 2022.

The higher expense in 2023 was primarily due to increased computer-related hardware replacement costs.

Furniture and equipment expense, including depreciation, increased in 2025 from 2024, and was relatively flat in 2024 from 2023.

The increase in 2025 was primarily due to an increase in equipment repairs and maintenance and higher equipment depreciation.

Data processing expense rose in 2025 from 2024, following an increase in 2024 from 2023.

The increases in 2024 and 2023 were both due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.

The increases in both 2025 and 2024 were due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.

Depreciation on equipment owned under operating leases declined in 2025 from 2024, following a similar decrease in 2024 from 2023.

In 2025 and 2024, depreciation on equipment owned under operating leases correlated with the change in equipment rental income.

Professional fees increased in 2024 from 2023, compared to a decrease in 2023 from 2022.

Professional fees remained flat in 2025 from 2024, compared to an increase in 2024 from 2023.

The higher expense in 2024 can primarily be attributed to a $1.08 million reversal of accrued legal fees in the first quarter of 2023, as well as an increase in audit and examination fees and the utilization of consulting services for technology projects and compliance services during the year.

The lower expense in 2023 can primarily be attributed to a decline in the utilization of consulting services for technology projects and compliance services as well as the aforementioned reversal of accrued legal fees during the first quarter of 2023.

FDIC and other insurance expense grew in 2024 from 2023 and increased in 2023 from 2022.

The increase in 2024 was mainly the result of higher general insurance premiums during 2024 and higher blanket bond insurance premiums.

The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023.

Business development and marketing expenses decreased in 2024 from 2023 following an increase in 2023 from 2022.

FDIC and other insurance expense decreased in 2025 from 2024, and increased in 2024 from 2023.

The decrease in 2025 was mainly the result of lower insurance premiums due to a more cost effective policy renewal.

The increase in 2024 was mainly the result of higher insurance premiums during 2024.

FDIC insurance premiums remained relatively stable during 2025 and 2024.

Business development and marketing expenses increased in 2025 from 2024, following a decrease in 2024 from 2023.

The increased expense in 2025 was mainly the result of a $1.00 million dollar charitable contribution, increased business development expenses, and marketing promotions.

The decreased expense in 2024 was mainly the result of a charitable contribution of $1.00 million made during 2023 offset with higher marketing promotions during the year.

The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million and higher marketing promotions.

During 2024, we reclassified the provision for unfunded loan commitments out of Other Noninterest Expense and into the Provision for Credit Losses in the Consolidated Statements of Income.

We believe this reclassification more appropriately reflects the nature of this expense item and will enhance comparability for peer comparison purposes.

We have not reclassified the 2023 and 2022 presentation.

The increase in 2023 compared to 2022 was primarily the result of an increase in non-cancelable outstanding loan commitments and a lengthening of the average contractual draw period.

Other expenses decreased in 2024 as compared to 2023 and increased in 2023 as compared to 2022.

We believe this reclassification more appropriately reflected the nature of this expense item and enhances comparability for peer comparison purposes.

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

The higher expense in 2025 was primarily the result of fewer gains related to the sale of fixed assets and off-lease equipment, higher collection and repossession expenses, and increased intangible asset amortization offset by a reduction in fraud losses.

The lower expense in 2024 was primarily the result of higher gains on the sale of fixed assets and leased equipment, lower printing and postage costs, reduced data communication line charges and a reduction in employment and relocation costs offset by a $0.85 million stolen check fraud loss.

The higher expense in 2023 was primarily the result of higher postage and shipping costs and a rise in data communication line charges as bandwidth was improved.

Income Taxes — 1st Source recognized income tax expense in 2025 of $46.12 million, compared to $38.44 million in 2024, and $36.75 million in 2023.

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Commercial and agricultural lending outstandings were $797.59 million and $772.97 million at December 31, 2025 and December 31, 2024, respectively.

Consistent with what we saw in 2023, loan growth continued to be difficult as higher interest rates caused borrowers to manage their cash closely.

We saw this in the form of reduced line of credit (LOC) balances throughout the year although we did experience an increase from a small number of specialty finance borrowers at year end.

Further, the agriculture sector is in its second consecutive year of depressed commodity prices which caused lower LOC usage as well as reduced investment in equipment from these borrowers.

Finally, our commercial and industrial loan outstandings were impacted by the acquisition and subsequent pay-off of three of our larger credit exposures.

Commercial loan growth continued to be somewhat constrained as our clients dealt with higher costs and tighter gross margins.

Tariff impact is partially to blame as well as slowing consumer demand.

Loan growth was particularly constrained in the small business sector.

We saw this in the form of reduced line of credit (LOC) balances throughout the year.

Further, the agricultural and recreational vehicle sectors are entering their fourth consecutive year of depressed commodity prices and demand, which caused lower LOC usage and reduced investments by these borrowers.

Finally, our commercial and industrial loan outstandings continue to be impacted by the acquisition and subsequent pay-offs by private equity firms and larger competitors.

Renewable energy loans and leases increased $165.53 million or 33.97% in 2025 over 2024.

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The increase during 2025 was due to continued positive momentum from the addition of new clients and repeat business from existing clients.

Demand for renewable energy loans and leases remained accelerated during 2024 from the incentives associated with the Inflation Reduction Act.

Demand for renewable energy loans and leases remained accelerated during 2025 from the incentives associated with the Inflation Reduction Act and the shortened phase out period of these incentives with the passage of the One Big Beautiful Bill.

Auto and light truck loans decreased $60.56 million or 6.39% in 2025 over 2024.

At December 31, 2025, auto and light truck loans had outstandings of $887.88 million and $948.44 million at December 31, 2024.

This decrease was primarily attributable to vehicle rental and commercial lessor clients’ reaction to elevated interest rates by cycling into lower cost units with increased vehicle availability, and shorter fleet holds which reflect a return to more seasonal trends.

This decrease was primarily attributable to vehicle rental clients’ reaction to cyclical market adjustments resulting in the downsizing of total fleet and transition into lower capital cost units along with our selective credit approach.

Medium and heavy duty truck loans and leases decreased $19.87 million or 6.86% in 2025.

Medium and heavy duty truck financing at December 31, 2025 and 2024 had outstandings of $269.75 million and $289.62 million, respectively.

The decrease at December 31, 2024 from December 31, 2023 can be mainly attributed to a slow trucking industry recovery coupled with a selective credit approach to maintain risk adjusted yields, with minimal changes in competitive environment, for existing customers.

Aircraft financing at year-end 2024 increased $45.63 million or 4.23% from year-end 2023.

The decrease at December 31, 2025 from December 31, 2024 can be mainly attributed to reduced equipment demand related to an ongoing trucking industry recession, selective credit approach, and maintenance of our adjusted yields.

Aircraft financing at year-end 2025 decreased $36.98 million or 3.29% from year-end 2024.

Aircraft financing at December 31, 2025 and 2024 had outstandings of $1.09 billion and $1.12 billion, respectively.

Domestic outstandings were driven by the addition of new clients and select expansions of existing aviation relationships against a background of normalizing demand post COVID-era.

Domestic aircraft average outstandings increased modestly, while end-of-period balances declined year-over-year.

The decline was driven by elevated client payoffs as aircraft owners capitalized on strong market pricing by divesting assets or aviation-related businesses during 2025.

We continue to exercise a consistent disciplined approach to aircraft types and client credit profiles.

Our foreign outstandings, all denominated in U.S.

dollars, remained stable during 2024 and were $301.18 million and $302.41 million as of December 31, 2024 and 2023, respectively.

dollars, increased 6.23% during 2025 and were $319.93 million and $301.18 million as of December 31, 2025 and 2024, respectively.

Loan and lease outstandings to borrowers in Brazil and Mexico were $136.98 million and $163.70 million as of December 31, 2025, respectively, compared to $129.12 million and $145.85 million as of December 31, 2024, respectively.

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Construction equipment financing at December 31, 2025 had outstandings of $1.22 billion, compared to outstandings of $1.20 billion at December 31, 2024.

The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst crane rental, aggregate producers and haulers, and site development clients.

The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst road builders and site development clients.

Commercial loans secured by real estate increased $54.50 million or 4.48% in 2025 over 2024.

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Approximately 61% of loans were owner occupied at December 31, 2025.

The majority of our non-owner occupied commercial real estate projects are located within our primary market area.

Funding increases in 2024 was the result of selective growth within our markets as liquidity concerns which impacted many of our competitors and their willingness to lend into commercial real estate gave us an opportunity as underwriting and yields improved.

As a result, there was a number of construction projects that were approved in 2023 and 2024 that will provide steady growth into 2025.

Through 2024, our non-owner occupied portfolio has performed well with minimal credit issues noted.

We have financed a minimal amount of commercial real estate secured by non-owner occupied office property where third-party tenants are the primary source of repayment and all are performing as agreed.

We continue to have solid loan demand within our markets as liquidity concerns, which have impacted many of our competitors’ willingness to lend as aggressively as they had been into commercial real estate, gave us more opportunities while underwriting standards and yields also improved.

The majority of our non-owner occupied commercial real estate (CRE) projects are located within our primary market area.

We had good CRE loan growth in 2025, fueled by continued funding of in-process projects nearing completion throughout the year.

This new project funding was partially offset by an increasing number of CRE payoffs, via the sale of projects or refinancing in secondary markets.

We continue to have very minimal exposure to non-owner occupied office property.

Residential real estate and home equity loans were $740.78 million at December 31, 2025 and $680.07 million at December 31, 2024.

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Residential mortgage and home equity outstandings grew in 2025 as clients began to turn back to home equity loans as variable rates began to decrease.

In addition, increased cost of home repairs and improvements resulted in larger loan amounts.

Also, our fixed rate term second mortgages grew as clients looked to pull equity from increased home values instead of doing cash out refinances, which would impact their low mortgage rates that were locked in during COVID.

In addition, the overall increase in home values, as well as home repairs and improvements, has resulted in more loans in our portfolio.

Consumer loans decreased $13.31 million or 9.97% in 2025 over 2024.

Consumer loans outstanding at December 31, 2025, were $120.16 million and $133.47 million at December 31, 2024.

During 2024, higher vehicle prices, increased interest rates, reduced inventory levels and consumer’s lack of liquidity contributed to the decrease in consumer loans.

During 2025, higher vehicle prices, reduced inventory levels, and consumer’s lack of liquidity contributed to the decrease in consumer loans.

The following table shows the contractual maturities of loans and leases outstanding as of December 31, 2025 as well as classification according to the sensitivity to changes in interest rates.

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Our liability for repurchases, included in Accrued Expenses and Other Liabilities on the Statements of Financial Condition, was $0.12 million and $0.18 million as of December 31, 2025 and 2024, respectively.

Our expense for repurchase losses, included in Loan and Lease Collection and Repossession expense on the Statements of Income, was $0.02 million of expense in 2024 compared to recoveries of $0.07 million in 2023 and $0.05 million in 2022.

Our expense for repurchase losses, included in Loan and Lease Collection and Repossession expense on the Statements of Income, was $0.07 million of recoveries in 2025 compared to $0.02 million of expense in 2024 and recoveries of $0.07 million in 2023.

The mortgage repurchase liability represents our best estimate of the loss that we may incur.

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Allowance for Credit Losses — The allowance for credit losses considers the historical loss experience, current conditions, and reasonable and supportable forecasts.

To estimate expected loan and lease losses under the Current Expected Credit Losses (CECL) methodology, we use a broad range of data over a lengthy time horizon, generally back to the fourth quarter of 2007, thus capturing most of the economic business cycle which includes the Great Recession and the subsequent long and slow recovery which supports full lifetime losses.

CECL requires our loan portfolio to be segregated into pools based on similar risk characteristics.

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Our forecast adjustment includes key economic factors affecting our portfolios such as growth in gross domestic product, unemployment rates, housing market trends, commodity prices, and inflation.

Forecasts are difficult to establish and the current environment presents challenges with high interest rates and continued elevated inflation, generally tighter lending conditions, growing signs of consumer stress, and heightened uncertainty from ongoing conflicts around the world.

There is considerable uncertainty surrounding economic growth prospects as we enter the new year, with varied calls ranging from soft landing to recession for the domestic economy.

GDP growth exceeded previous forecasts in 2024 but substantial headwinds remain in the forward outlook.

Uncertainty is high as global conflicts broadened, and significant changes in both the domestic and global political environments add uncertainty.

Collateral values are significant to underwriting our specialty finance portfolios and volatility or declining values pose a threat.

We actively review and adjust our amortization and down payment requirements as necessary in response to our outlook for future equipment values.

Forecasts are difficult to establish and the current environment presents ongoing challenges.

The domestic economic outlook remains uncertain amid shifting trade/tariff policies, still-elevated inflation and interest rates, softening labor conditions, signs of consumer stress and weakening sentiment, and heightened geopolitical risks.

GDP growth has largely exceeded forecasts in recent quarters, in large part due to front loading of inventory purchases in preparation for the implementation of tariffs.

However, substantial headwinds remain in the forward outlook.

Uncertainty is elevated given broadening global conflicts and significant political shifts domestically and internationally.

tariff policy remains fluid, which has created volatility in the operating backdrop for our borrowers and markets.

Collateral values are significant to underwriting our specialty finance portfolios and there is heightened potential for future policy changes to impact asset valuations.

Management cannot predict the timing or magnitude of future policy changes but actively monitors developments and adjusts underwriting, including amortization and down payment requirements, as conditions evolve.

Concentration risk is impacted primarily by geographic concentration in northern Indiana and southwestern Michigan in our business banking and commercial real estate portfolios and by collateral concentration in our specialty finance portfolios.

We include a factor for global risk in our analysis.

While difficult to predict with precision, global risks may adversely impact our borrowers impairing their ability to repay their financial obligations.

The global outlook calls for slow growth as high sovereign debt levels and continued high interest rates in developing countries pressure growth prospects.

Global geopolitical uncertainty impacts the outlook and various ongoing foreign conflicts bring downside risk.

While difficult to predict with precision, global risks may adversely impact our borrowers, weakening their ability to repay their financial obligations.

The global outlook calls for slowing growth, pressured by high sovereign debt levels and fiscal vulnerabilities, rising protectionism and trade tensions, and still-elevated interest rates and inflation.

Global geopolitical uncertainty impacts the outlook and various ongoing foreign conflicts introduce downside risk.

Trade tensions are rising which increases the potential for supply chain disruptions.

Terrorism remains a persistent concern and risks of a catastrophic event are elevated.

In Brazil and Mexico where we have a presence with our aircraft lending, we remain concerned with persistent inflation, high interest rates and their resultant economic impact.

Inflation is concerning in Brazil where a weakening currency and fiscal expansion are fueling an inflationary rebound.

Mexico also faces an uncertain inflationary outlook and modest growth prospects.

In Brazil and Mexico, where we have a presence with our aircraft lending, there are concerns with deteriorating economic growth prospects, persistent inflation and high interest rates, and long-standing structural issues including income inequality, poverty, and crime.

Inflation remains a headline concern in Brazil where central bank rates are currently at a nearly two-decade high, and a heavy public debt burden pressures fiscal policy.

Mexico is facing prospects of weakened economic growth, elevated inflation, and ongoing U.S.

trade tensions.

The following discussion focuses on relevant economic conditions and various circumstances impacting the December 31, 2025 allowance for loan and lease losses of each of our loan and lease segments.

Commercial and agricultural – Multiple industries are represented in the commercial and agricultural portfolio and the outlook for the portfolio remains guarded.

Small businesses are challenged to absorb higher interest rates, higher cost of capital, compete for labor, and control expenses.

In our underlying industries, wholesalers have generally performed well and have been able to pass along rising costs.

Manufacturers remain under pressure as demand for durable goods remains soft.

The recreational vehicle industry, which is centered in our footprint, continues to struggle with lower demand and production overcapacity as it navigates a sharp decline from record high shipment levels reached in 2022.

The outlook for 2025 remains weak;

minimally improved from 2024.

Pressures in the agricultural markets are becoming evident, as sharp declines in commodity prices coupled with continued high input costs hurt 2024 results and dampened prospects for the upcoming year.

We experienced higher charge-offs in the commercial and agricultural portfolio for a second consecutive year after a previously sustained period of low credit losses.

Credit quality remains acceptable, but we have seen increased special attention activity within the portfolio.

Renewable energy – Our renewable energy (predominately solar) portfolio continues to perform well.

Commercial and agricultural – The allowance increased year-over-year due to modest loan growth, partially offset by a slight decline in special attention balances which carry higher reserves, and lower historical loss rates within the portfolio prior to the impact of the forecast adjustment.

Multiple industries are represented in the commercial and agricultural portfolio and the outlook for the portfolio remains guarded.

Small businesses remain challenged to absorb still-elevated interest rates, higher cost of capital, compete for labor, and control expenses.

In our underlying industries, wholesalers have generally performed well, while manufacturers remain under pressure.

The recreational vehicle industry, which is centered in our footprint, continues to struggle with low demand as it navigates a sharp pullback from record high shipment levels reached in 2022.

The outlook for 2026 reflects ongoing weak demand and only modest improvement as compared to 2025.

Pressures in the agricultural sector remain evident, although grain did find some footing in 2025 after experiencing sharp declines the previous year.

Charge-off rates in the commercial and agricultural portfolio were modest in 2025 and credit quality remains acceptable, but we continue to see elevated special attention activity within the portfolio, particularly in small dollar accounts.

Renewable energy – Our allowance increased primarily due to loan growth, along with a slight increase in qualitative adjustments to address changes in the regulatory environment applicable to the portfolio.

Our renewable energy (predominately solar) portfolio continues to perform well.

Growth opportunities abound and overall credit quality remains solid.

Risks include construction and developer related risks and delays, site issues, climate and weather risks, regulatory problems and permitting issues, as well as utility interconnection delays.

Maturity risk and refinancing costs are elevated given the higher interest rate environment.

Maturity risk and refinancing costs are elevated given the elevated interest rate environment.

To date, we have not incurred any losses in this portfolio and credit performance continues to be favorable.

Auto and light truck – The primary auto rental segment of the auto and light truck portfolio reported lower loan demand and weakening credit metrics after several years of strong performance.

We are seeing evidence of industry struggles in the portfolio as higher interest rates, higher vehicle costs, and shrinking rental rates take their toll.

Credit quality weakened during the year evidenced by an increase in special attention downgrades, delinquency, and requests for payment relief.

Wholesale used vehicle valuations softened through the first half of 2024 but stabilized in the second half, ending the year generally flat overall.

Prices did soften within the electric vehicle segment of which we have limited exposure.

Overall, vehicle values remain above the longer-term trend line and constrained original equipment manufacturer (OEM) production volumes have likely provided some pricing support.

Clients are returning to more normalized fleet cycles, but increased vehicle costs have strained performance and extended inventory holding times.

We have tightened our underwriting standards to maintain appropriate terms in an attempt to limit our exposure to downward price movements in the underlying vehicle collateral.

The auto leasing segment performed well in 2024 and the portfolio exhibits stable credit quality and low delinquency.

Auto and light truck – The primary auto rental segment of the auto and light truck portfolio remains under stress as the industry struggles with overcapacity, higher vehicle prices, elevated interest costs, and weak rental rates.

Our allowance increased due to higher special attention balances, which are reserved at higher rates, an increase in historical loss rates, and an increase in qualitative adjustments to address continued elevated risk within the auto rental segment.

The decline in loan balances within the portfolio is largely due to borrowers’ de-fleeting activity in the auto rental segment to address overcapacity.

Credit quality weakened for a second consecutive year in the auto rental segment, as average delinquency and non-performing rates increased year-over-year.

Wholesale used vehicle prices have held up better than in past industry downturns and stable asset valuations, along with tighter underwriting standards, have limited charge-off exposures.

Overall, wholesale vehicle prices ended the year relatively stable and remain above the longer-term valuation trend line.

Somewhat muted original equipment manufacturers’ (“OEM”) production volumes have also likely provided pricing support to used vehicle markets.

The auto leasing segment performed well in 2025 and the portfolio continues to exhibit stable credit quality and low delinquency.

Leasing customers lease to auto rental companies as well as other commercial entities.

Our auto leasing portfolio is concentrated in larger client exposures.

We remain diligent in setting our terms and residual values appropriately and monitoring fleet mix given recent volatility in vehicle prices.

Despite signs of weakening credit metrics, the auto and light truck portfolio reported a net recovery position for the year.

To account for weakening credit metrics in our auto rental segment, we adjusted qualitative factors for elevated special attention risk within our allowance for loan and lease losses.

Medium and heavy duty truck – The industry continues to struggle with overcapacity and weak freight rates.

This portfolio has historically been a barometer for overall economic weakness and the industry has experienced several high-profile carrier bankruptcies and generally difficult conditions.

We remain diligent in our underwriting, setting residual values appropriately and monitoring fleet mix given the potential for volatility in vehicle prices.

Medium and heavy duty truck – The portfolio’s allowance decreased due to lower loan balances.

The industry remains challenged by overcapacity, but freight rates appear to be stabilizing.

This portfolio has historically been a barometer for overall economic weakness and the industry has experienced several high-profile carrier bankruptcies and generally difficult conditions over the last several years.

In previous downturns, small companies and independent owner-operators were hit the hardest and asset valuations were pressured.

Asset valuations have weakened.

The portfolio reported a slight decline in loan balances for the year and has exhibited some credit weakness, although it has likely outperformed the industry as a whole and the Company did not incur any credit losses in the portfolio during the period.

The possibility of labor unrest within the shipping industry raises the potential for volatility in the segment and we continue to monitor for signs of credit deterioration in our portfolio given the industry’s increased risk profile.

Aircraft – The Company experienced modest loan growth in the domestic aircraft segment during the period while growth in our foreign portfolio was essentially flat.

Aircraft collateral values, particularly those in our niche, strengthened considerably early in this economic cycle but are now showing signs of softening with increasing available inventory.

Asset valuations have weakened in the segment.

We did not incur any credit losses in the portfolio during the period.

Aircraft – The portfolio’s allowance decreased as we experienced a modest decline in loan balances year-over-year in our domestic aircraft segment, while growth in our foreign aircraft segment was essentially flat.

Credit quality metrics remain stable.

Aircraft collateral values, particularly those in our niche, strengthened considerably early in this economic cycle but have leveled off with more available inventory.

The portfolio has maintained stable credit quality in recent years, but was among the sectors affected most by the sluggish economy following the Great Recession.

Our portfolio loss history has been volatile, characterized by lengthy periods of minimal losses or modest recoveries followed by short intervals of high losses.

We experienced minimal loss in the portfolio this year, but our portfolio loss history has experienced past volatility, characterized by lengthy periods of minimal losses or modest recoveries followed by short intervals of high losses.

In this portfolio, we have $320 million of foreign exposure, primarily domiciled in Mexico and Brazil.

Brazil’s economy generally outperformed expectations during 2024, but faces increasing inflationary and fiscal concerns, higher interest rates, and a sharply weakening currency.

The Mexican economy experienced modest growth in 2024, and remains highly dependent on the U.S.

Brazil’s economy remains burdened by high sovereign debt levels and high interest rates.

Mexico’s economic growth is expected to be somewhat weak as it manages through ongoing U.S.

trade tensions.

Heavy indebtedness and financial problems with state-owned oil firm Pemex are an ongoing concern for Mexico’s broader growth prospects.

Construction equipment – Our construction equipment portfolio reported another year of solid growth, but at a slower rate as compared to previous periods.

Infrastructure spending has had a positive impact for many contractors within the segment.

The portfolio experienced stable credit quality in the time period between the Great Recession and the pandemic, but there have been credit quality concerns with unanticipated downgrades to special attention in recent years.

The portfolio reported increased monthly delinquency activity during the period and currently accounts for the Company’s highest share of nonperforming assets.

The portfolio has also recognized several sizeable losses in recent years which have been successfully mitigated, achieving fairly high recovery rates with time.

There remains elevated concern for construction contractors as the portfolio is inherently vulnerable to energy price volatility, high interest rates, and changes in the regulatory environment.

Construction equipment – Our construction equipment portfolio reported more muted loan growth in 2025, compared to relatively high growth rates in previous years since the end of the pandemic.

The allowance decrease was primarily driven by a reduction in qualitative factors for elevated problem loan activity in the segment due to improving credit quality trends.

Infrastructure spending continues to have a positive impact on many contractors within the segment.

Credit quality generally improved as delinquency rates were muted, special attention balances, which are reserved at higher rates, ended the year lower and non-performing balances also declined.

The portfolio has experienced some elevated loss activity in recent years which has been successfully mitigated, achieving fairly high recovery rates with time.

There is ongoing concern for construction contractors as the portfolio is inherently vulnerable to energy price volatility, high interest rates, and changes in the regulatory environment.

Construction projects can have unknown costs or delays and large project risk is ever-present.

Volatile energy, labor, and material prices create difficulties for cost structures in an industry that often operates under longer-term contracts lacking adequate cost escalators.

Our portfolio has seen multiple instances of contractors having difficulty managing and collecting receivables which resulted in severe payment difficulties.

Shifting trade policies add uncertainty, potentially increasing raw material and equipment costs.

Historically, we have experienced less volatility in this portfolio than the broader industry as losses have been mitigated by appropriate underwriting and a global market for used construction equipment.

We reviewed our qualitative adjustments at year-end, and maintained factors for concentration risk of overall bank capital given the portfolio’s loan growth, elevated problem loan activity in the segment given steady special attention volumes, and added a factor for increasing delinquency and nonperforming asset trends.

Commercial real estate – Similar to the commercial portfolio, our commercial real estate loans are concentrated in our local market with local customers although we do fund select projects outside our market with multi-state developers that are headquartered in our footprint.

The allowance increase was due to loan growth in both owner and non-owner-occupied segments.

We continue to monitor construction risk and maturity repricing risk in the elevated interest rate environment.

Approximately 61% of the Bank’s exposure in this portfolio is from owner-occupied facilities where we are the primary relationship bank for our clients.

We reviewed our qualitative adjustments as of year-end and made slight adjustments to factors addressing interest rate maturity risk along with construction risk in select segments as the loan volume of projects under construction remains much higher than prior periods.

We have seen an uptick in special attention activity in our owner-occupied segment, while our non-owner-occupied segment has maintained generally stable credit quality.

We continue to be concerned about higher interest and capitalization rates within the non-owner-occupied segment and the potential negative impact on both real estate valuations and projected cash flows.

Special attention activity in both the owner-occupied and non-owner-occupied segments remains modest with generally stable credit quality.

We have seen limited evidence of slow lease-up and rental rate pressures in select markets in the multi-family segment.

We reviewed our qualitative adjustments as of year-end and made slight adjustments to a factor addressing interest rate maturity risk and a slight increase to our construction risk factor as the loan volume of projects under construction remains higher than prior periods.

Residential real estate and home equity – Our residential real estate and home equity portfolio consists of loans to individuals in the communities we serve.

The allowance increased due to loan growth.

Generally, residential mortgage loans are originated using standards that result in salable mortgages.

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Losses in these portfolios have been immaterial since 2013.

Qualitative factors in the portfolio are primarily for reasonable and supportable forecasts, although we maintained a previous adjustment to account for an elevated amount of non-salable adjustable-rate mortgages in the loan mix with repricing risk at maturity.

Qualitative factors in the portfolio are primarily for reasonable and supportable forecasts, although we maintain an adjustment to account for an elevated amount of non-salable adjustable-rate mortgages in the loan mix with repricing risk at maturity.

Consumer – Our consumer loan portfolio consists of loans to individuals in the communities we serve.

This portfolio consists primarily of loans secured by autos with advances in compliance with the Bank’s underwriting standards.

Losses are stable during good economic times and tend to increase when there is deterioration in local economic factors and employment rates.

Loss rates had been modest from 2013 through the end of the pandemic, but we experienced higher write-downs within the portfolio in each of the last two years.

We reviewed our qualitative adjustments at the end of the 2024 which primarily consist of reasonable and supportable forecasts and made an upward adjustment to account for increasing delinquency and nonperforming activity within the portfolio.

The allowance was minimally changed year-over-year as lower loan balances were offset by higher historical loss rates in the portfolio.

Delinquency rates remain manageable but are trending upward.

Loss rates were modest from 2013 through the end of the pandemic, but we have experienced higher write-downs in each of the last three years.

We review our qualitative adjustments each quarter, which primarily consist of reasonable and supportable forecasts and also include an adjustment to account for increasing delinquency and nonperforming activity within the portfolio.

Allowance for loan and lease losses – The allowance for loan and lease losses at December 31, 2025, totaled $161.85 million and was 2.30% of loans and leases, compared to $155.54 million or 2.27% of loans and leases at December 31, 2024 and $147.55 million or 2.26% of loans and leases at December 31, 2023.

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Charge-offs for loan and lease losses were $8.30 million for 2025, compared to $13.73 million for 2024 and $6.65 million for 2023.

Primarily reflective of our strong loan and lease growth and qualitative adjustments, we added $13.66 million to the provision for credit losses on loans and leases for 2024, compared to a provision of $5.87 million for 2023 and a provision of $13.25 million for 2022.

Primarily reflective of loan and lease growth and accretive forecast adjustments, we added $10.51 million to the provision for credit losses on loans and leases for 2025, compared to a provision of $13.66 million for 2024 and a provision of $5.87 million for 2023.

The following table summarizes our loan and lease loss experience for each of the last three years ended December 31.

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Balance of liability for unfunded loan commitments at beginning of period $ 6,985 $ 8,182 $ 5,616

(Recovery of) provision for credit losses - unfunded loan commitments (1,197) 2,566 1,420

Provision (recovery of provision) for credit losses - unfunded loan commitments 2,050 (1,197) 2,566

Balance of liability for unfunded loan commitments at end of period $ 9,035 $ 6,985 $ 8,182

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Nonperforming Assets — Nonperforming assets include loans past due over 90 days, nonaccrual loans and leases, other real estate, repossessions and other nonperforming assets we own.

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

Our policy is to discontinue the accrual of interest on loans and leases where principal or interest is past due and remains unpaid for 90 days or more, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential real estate and home equity loans, and consumer loans that are both well secured and in the process of collection.

Nonperforming assets amounted to $77.38 million at December 31, 2025, compared to $31.33 million at December 31, 2024, and $24.24 million at December 31, 2023.

During 2025, interest income on nonaccrual loans and leases would have increased by approximately $5.83 million compared to $2.06 million in 2024 if these loans and leases had earned interest at their full contractual rate.

Nonperforming assets at December 31, 2024 increased from December 31, 2023, mainly due to increases in nonaccrual loans and leases in the construction equipment portfolio and to a lesser extent, the residential real estate and home equity portfolio offset by a decrease in nonaccrual loans and leases in the commercial and agricultural portfolio.

Repossessions consisted mainly of units in the construction equipment portfolio.

There is currently one property held in other real estate related to our construction equipment portfolio.

Nonperforming assets at December 31, 2025 increased from December 31, 2024, mainly due to increases in nonaccrual loans and leases in the auto rental segment of our auto and light truck portfolio, partially offset by lower nonaccrual loans and leases in our construction portfolio.

Repossessions consisted mainly of units in the construction equipment and consumer portfolios.

There is no other real estate owned as of year end.

Nonperforming assets at December 31 (Dollars in thousands)

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At December 31, 2025, potential problem loans consisted of five relationships;

one relationship in the commercial and agricultural portfolio, one relationship in the aircraft portfolio, one relationship in the medium and heavy duty truck portfolio, and two relationships in the construction portfolio.

two relationships in the commercial and agricultural portfolio, two relationships in the auto and light truck portfolio, and one relationship in the commercial real estate portfolio.

Weakness in the borrowers’ operating performance have caused us to give heighten attention to these credits.

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Corporate debt securities 500 —

Foreign government securities — 600

Total investment securities available-for-sale $ 1,650,684 $ 1,762,357

Total debt securities available-for-sale $ 1,568,429 $ 1,650,684

Yields on tax-exempt obligations are calculated on a fully tax-equivalent basis assuming a 21% tax rate.

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States and political subdivisions securities 113,126 4.04

Corporate debt securities

Under 1 year — —

1 – 5 years 500 4.15

5 – 10 years — —

Over 10 years — —

Total Corporate debt securities 500 4.15

Mortgage-backed securities — Federal agencies 757,151 2.89

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Also provided are the maximum amount of borrowings and the average amount of borrowings, as well as weighted average interest rates for the last two years.

(Dollars in thousands) Federal Funds Purchased and Securities Repurchase Agreements Commercial Paper Federal Home Loan Bank Advances Federal Reserve Advances Other

(Dollars in thousands) Federal Funds Purchased and Securities Repurchase Agreements Federal Home Loan Bank Advances Federal Reserve Advances Other

Short-Term Borrowings Total Borrowings

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Weighted average interest rate for outstanding amounts at December 31, 2025

2.04 % 3.79 % — % — % 2.94 %

Balance at December 31, 2024 $ 72,346 $ 75,000 $ 100,000 $ 1,852 $ 249,198

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Weighted average interest rate for outstanding amounts at December 31, 2024

During December 2023, we borrowed $100 million from the Federal Reserve’s Bank Term Funding Program based on the economics of the borrowing relative to our other funding sources.

During January 2024, we refinanced the borrowing at a lower rate for another one year period.

1.15 % 4.50 % 4.76 % — % 3.60 %

During January 2024, we borrowed $100 million from the Federal Reserve’s Bank Term Funding Program based on the economics of the borrowing relative to our other funding sources.

During January 2025, we repaid the borrowing in full.

LIQUIDITY AND CAPITAL RESOURCES

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Purchased funds are raised from customers seeking short-term investments and are used to manage the Bank’s interest rate sensitivity.

During 2024, our reliance on purchased funds increased to 12.69% of average total assets from 11.45% in 2023.

During 2025, our reliance on purchased funds decreased to 10.54% of average total assets from 12.69% in 2024.

Shareholders’ Equity — Average shareholders’ equity equated 13.39% of average total assets in 2025, compared to 12.10% in 2024.

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(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) Includes access to discount window and Bank Term Funding Program

(2) Availability contingent on correspondent bank approvals at time of borrowing

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis