Financial Analysis

Contingent Liabilities, Commitments, and Financial Instruments with Off-Balance-Sheet Risk Contingent Liabilities 1st Source and its subsidiaries are defendants in various legal proceedings arising in the normal course of business. In the opinion of management, based upon present information including the advice of legal counsel, the ultimate resolution of these proceedings will not have a material effect on the Companys consolidated financial position or results of operations. 1st Source Bank sells residential mortgage loans to Fannie Mae as well as FHA-insured, USDA-insured and VA-guaranteed loans in Ginnie Mae mortgage-backed securities. Additionally, the Bank has sold loans on a service released basis to various other financial institutions in the past. The agreements under which the Bank sells these mortgage loans contain various representations and warranties regarding the acceptability of loans for purchase. On occasion, the Bank may be required to indemnify the loan purchaser for credit losses on loans that were later deemed ineligible for purchase or may be required to repurchase a loan. Both circumstances are collectively referred to as repurchases. The Companys liability for repurchases, included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition, was $0.05 million and $0.12 million as of December 31, 2025 and 2024, respectively. The mortgage repurchase liability represents the Companys best estimate of the loss that it …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Borrowed Funds and Mandatorily Redeemable Securities The following table shows the details of long-term debt and mandatorily redeemable securities as of December 31. (Dollars in thousands) 2025 2024 Federal Home Loan Bank borrowings (1.04%) $ 10,000 $ 10,000 Mandatorily redeemable securities 27,783 22,073 Other long-term debt 5,547 7,083 Total long-term debt and mandatorily redeemable securities $ 43,330 $ 39,156 Annual maturities of long-term debt outstanding at December 31, 2025, for the next five years and thereafter beginning in 2026, are as follows: $12.03 million; $1.57 million; $0.94 million; $0.79 million; $0.12 million; and $27.88 million. At December 31, 2025, the Federal Home Loan Bank borrowings represented a source of funding for community economic development activities, agricultural loans and general funding for the bank and consisted of one fixed rate note maturing in 2026. This note was collateralized by $13.50 million of certain real estate loans. Mandatorily redeemable securities as of December 31, 2025 and 2024, of $27.78 million and $22.07 million, respectively reflected the book value shares under the 1st Source Executive Incentive Plan. See Note 16 - Stock Based Compensation (Stock Award Plans) for additional information. Dividends paid on these shares and changes in book value per share are recorded as Other interest expense on the Consolidated Statements of Income. Total interest expense recorded for 2025, 2024, and 2023 was $4.48 million, $2.97 milli …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

Stock Based Compensation As of December 31, 2025, the Company had four active stock-based employee compensation plans. 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 December 31, 2025. These stock-based employee compensation plans were established to help retain and motivate key employees. All of the plans have been approved by the shareholders of 1st Source Corporation. The Executive Compensation and Human Resources Committee (the Committee) of the 1st Source Corporation Board of Directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award under the stock-based compensation plans. Stock-based compensation to employees is recognized as compensation cost on the Consolidated Statements of Income based on their fair values on the measurement date, which, for 1st Source, is the date of grant. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. The total fair value of share awards vested was $5.81 million during 2025, $4.73 million in 2024, and $3.56 million in 2023. The following table shows the combined summary of activity regarding active stock option …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

Fair Value Measurements The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. 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 December 31, 2025 and 2024, all mortgages held for sale were carried at fair value. The following table shows the differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount the Company is contractually entitled to receive at maturity on December 31, 2025 and 2024. (Dollars in thousands) Fair value carrying amount Aggregate unpaid principal Excess of fair value carrying amount over (under) unpaid principal December 31, 2025 Mortgages held for sale reported at fair value: Total Loans $ 4,866 $ 4,647 $ 219 (1) December 31, 2024 Mortgages held for sale reported at fair value: Total Loans $ 2,569 $ 2,343 $ 226 (1) (1) The excess of fair va …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Intangible Assets and Goodwill At December 31, 2025, intangible assets consisted of goodwill of $83.90 million and other intangible assets of $0.00 million, which was net of accumulated amortization of $0.40 million. At December 31, 2024, intangible assets consisted of goodwill of $83.90 million and other intangible assets of $0.00 million, which was net of accumulated amortization of $0.14 million. Intangible asset amortization was $0.26 million, $0.02 million, and $0.11 million for 2025, 2024, and 2023, respectively. There is no expected future amortization expense related to other intangible assets as of December 31, 2025, as such assets are fully amortized. The following table shows a summary of other intangible assets as of December 31. (Dollars in thousands) 2025 2024 Other intangibles: Gross carrying amount $ 404 $ 146 Less: accumulated amortization (404) (144) Net carrying amount $ $ 2 …

GoodwillAndIntangibleAssetsDisclosureTextBlock · excerpt; the full note is in the filing

Income Taxes The following table shows the composition of income tax expense. Year Ended December 31 (Dollars in thousands) 2025 2024 2023 Current: Federal $ 45,002 $ 31,826 $ 40,073 State 6,520 4,181 6,135 Total current 51,522 36,007 46,208 Deferred: Federal (4,838) 2,044 (7,917) State (566) 388 (1,545) Total deferred (5,404) 2,432 (9,462) Total provision $ 46,118 $ 38,439 $ 36,746 The following table shows the composition of income taxes paid (refunded). State taxes are disclosed for years when they exceed 5% of the total net taxes paid (refunded). Year Ended December 31 (Dollars in thousands) 2025 2024 2023 Federal $ (10,712) $ 7,700 $ 12,200 State 4,027 3,581 5,599 Total $ (6,685) $ 11,281 $ 17,799 State: Indiana $ 1,900 $ 1,850 $ 3,800 Illinois 365 California 422 The following table shows the reasons for the difference between income tax expense and the amount computed by applying the U.S. federal statutory income tax rate (21%) to income before income taxes. 2025 2024 2023 Year Ended December 31 (Dollars in thousands) Amount Percent of Pretax Income Amount Percent of Pretax Income Amount Percent of Pretax Income U.S. federal statutory income tax $ 42,919 21.0 % $ 35,922 21.0 % $ 33,953 21.0 % (Decrease) increase in income taxes resulting from: State taxes, net of federal income tax benefit (1) 4,703 2.3 3,610 2.1 3,626 2.2 Tax credits (861) (0.4) (701) (0.4) (510) (0.3) Nontaxable or nondeductible items (643) (0.3) (392) (0.2) (323) (0.2) Total $ 46,118 22.6 % $ 38,439 …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Employee Benefit Plans The 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan (as amended, the Plan) includes an employee stock ownership component, which is designed to invest in and hold 1st Source common stock, and a 401(k) plan component, which holds all Plan assets not invested in 1st Source common stock. The Plan encourages diversification of investments with opportunities to change investment elections and contribution levels. Employees are eligible to participate in the Plan the first of the month following 90 days of employment. The Company matches dollar for dollar on the first 4% of deferred compensation, plus 50 cents on the dollar of the next 2% deferrals. The Company will also contribute to the Plan an amount designated as a fixed 2% employer contribution. The amount of fixed contribution is equal to two percent of the participants eligible compensation. Additionally, each year the Company may, in its sole discretion, make a discretionary profit sharing contribution. As of December 31, 2025 and 2024, there were 668,737 and 699,883 shares, respectively, of 1st Source Corporation common stock held in relation to employee benefit plans. The Company contributions are allocated among the participants on the basis of compensation. Each participants account is credited with cash and/or shares of 1st Source common stock based on that participants compensation earned during the year. After completing 5 years of service in which they worked at least 1 …

PensionAndOtherPostretirementBenefitsDisclosureTextBlock · excerpt; the full note is in the filing

Segment Information The Company has one reportable operating segment, commercial banking. While our chief operating decision maker monitors revenue streams of various products and services, the identifiable segments operations are managed, and financial performance is evaluated on a company-wide basis. The commercial banking segment provides a broad array of financial products and services including commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of its 78 banking center locations in 19 counties in Indiana and Michigan and Sarasota County in Florida. The accounting policies of the commercial banking segment are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. The chief operating decision maker assesses performance for the commercial banking segment and decides how to allocate resources based on net income available to common shareholders which is also reported on the Consolidated Statements of Income as net income available to common shareholders. The measure of segment assets is reported on the Consolidated Statements of Financial Condition as total assets. The chief operating decision maker uses net income available to common shareholders to evaluate income generated from segment assets in deciding whether to reinvest profits into the commercial banking segment, pay dividends, or fund acquisitions. Net income available to common shareholders is …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

Commitments and Financial Instruments with Off-Balance-Sheet Risk Financial Instruments with Off-Balance-Sheet Risk 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The following table shows financial instruments whose contract amounts represent credit risk. (Dollars in thousands) June 30, 2026 December 31, 2025 Amounts of commitments: Loan commitments to extend credit $ 1,401,971 $ 1,438,112 Standby letters of credit $ 30,173 $ 20,870 Commercial and similar letters of credit $ 1,203 $ 1,435 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 neces …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Stock Based Compensation As of June 30, 2026, the Company had four active stock-based employee compensation plans, which are more fully described in Note 16 of the Consolidated Financial Statements in 1st Sources Annual Report on Form 10-K for the year ended December 31, 2025 and the Definitive Proxy Statement for the Companys 2026 Annual Meeting of Shareholders filed with the SEC on March 13, 2026. These plans include three executive stock award plans, the Executive Incentive Plan (EIP), the Restricted Stock Award Plan (RSAP), the Strategic Deployment Incentive Plan (SDP); and the Employee Stock Purchase Plan (ESPP). The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011, but the Company had not made any grants through June 30, 2026. Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value. For all awards except stock option awards, the grant date fair value is either the fair market value per share or book value per share (corresponding to the type of stock awarded) as of the grant date. For stock option awards, the grant date fair value is estimated using the Black-Scholes option pricing model. For all awards, the Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, for which the Company uses the related vesting term. Total fair value of options vested and expensed was zero for the six months ended June 30, 2026, and 2025. As …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

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 managements 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 assump …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

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

IncomeTaxDisclosureTextBlock

Segment Information The Company has one reportable operating segment, commercial banking. While our chief operating decision maker monitors revenue streams of various products and services, the identifiable segments operations are managed, and financial performance is evaluated on a company-wide basis. The commercial banking segment provides a broad array of financial products and services including commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of its 78 banking center locations in 19 counties in Indiana and Michigan and Sarasota County in Florida. The accounting policies of the commercial banking segment are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in 1st Sources Annual Report on Form 10-K for the year ended December 31, 2025. The chief operating decision maker assesses performance for the commercial banking segment and decides how to allocate resources based on net income available to common shareholders which is also reported on the Consolidated Statements of Income as net income available to common shareholders. The measure of segment assets is reported on the Consolidated Statements of Financial Condition as total assets. The chief operating decision maker uses net income available to common shareholders to evaluate income generated from segment assets in deciding whether to reinvest profits into the commercial banking segment or to …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing