At its April 2024 meeting, the Board of Directors approved a cash dividend of $0.34 per common share, up 6.25% from the cash dividend declared a year ago. The cash dividend is payable to shareholders of record on May 6, 2024, and will be paid on May 15, 2024. Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, "We are pleased with our increase in revenue and net interest margin expansion compared to the previous quarter. Average loans grew $116.21 million, up 1.82%, while average dep ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) 1st Source Corporation is an Indiana-based bank holding company with $8.73 billion in assets as of December 31, 2023, offering diverse financial services through its subsidiary, 1st Source Bank, and its nationwide Specialty Finance Group, all subject to extensive federal and state regulation Company Overview (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Total Assets | $8.73 billion | | Total Loans and Leases | $6.52 billion | | Total Deposits | $7.04 billion | | Total Shareholders' Equity | $989.57 million | | Banking Centers | 78 | | Full-time Equivalent Colleagues | ~1,170 | - The company's primary subsidiary, 1st Source Bank, provides a broad range of services including commercial, consumer, trust, and wealth advisory services through its **78 banking centers** in Indiana, Michigan, and Florida[12](index=12&type=chunk) - The Specialty Finance Group operates nationwide, offering specialized financing for construction equipment, private and cargo aircraft, and various fleet vehicles[12](index=12&type=chunk)[18](index=18&type=chunk) - 1st Source and its bank subsidiary are extensively regulated by multiple agencies, including the Federal Reserve, the Indiana Department of Financial Institutions (DFI), the FDIC, and the CFPB[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company emphasizes its commitment to Diversity, Equity, and Inclusion, noting that **42%** of its Board Members are women or minorities and that it has been recognized by Forbes and Newsweek as a top employer[31](index=31&type=chunk)[37](index=37&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces a range of material risks categorized as credit, market, liquidity, operational, legal/compliance, and reputational, with key exposures in commercial and specialty finance loan portfolios, interest rate fluctuations, technology security, and extensive government regulation - Credit Risks: The company is exposed to credit risks from its loan portfolios. Commercial and commercial real estate loans carry higher risks, and the Specialty Finance Group's portfolio is sensitive to economic slowdowns, fuel costs, and other destabilizing events. The aircraft portfolio has foreign exposure, particularly in Mexico and Brazil[58](index=58&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - Market Risks: Profitability is sensitive to interest rate fluctuations, which affect net interest income. The company is also impacted by general economic conditions, inflation, and market volatility, which can affect loan demand, asset quality, and trust and wealth advisory fees[68](index=68&type=chunk)[70](index=70&type=chunk)[72](index=72&type=chunk) - Liquidity Risks: The company's ability to meet financial obligations depends on maintaining adequate liquidity. A sudden inability to obtain funds, as seen in the Spring 2023 bank failures, could have a material adverse effect. The parent company also relies heavily on dividends from its subsidiaries, which are subject to regulatory limits[73](index=73&type=chunk)[74](index=74&type=chunk) - Operational Risks: The company faces significant risk from technology security breaches, including hacking, phishing, and ransomware. It is also dependent on its senior management team and its ability to keep pace with rapid technological changes in the financial services industry[76](index=76&type=chunk)[77](index=77&type=chunk)[81](index=81&type=chunk) - Legal/Compliance and Reputational Risks: The business is subject to extensive and changing government regulations, which can increase costs and limit services. Reputational threats arise from competition, potential unethical practices, data security failures, and negative perceptions regarding Environmental, Social, and Governance (ESG) issues[83](index=83&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) [Unresolved Staff Comments](index=13&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[90](index=90&type=chunk) [Cybersecurity](index=13&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity risk management is overseen by the Audit, Finance & Risk Committee of the Board, based on FFIEC guidance and the CRI Profile framework, with multi-layered governance, regular third-party assessments, and robust third-party risk management - Oversight for cybersecurity risk is delegated to the Audit, Finance & Risk Committee of the Board, which receives quarterly reports from the Chief Information Security Officer (CISO) and Chief Risk Officer (CRO)[91](index=91&type=chunk) - The company's risk management processes are based on the Federal Financial Institution Examination Council (FFIEC) guidance and the Cybersecurity Risk Institute (CRI) Profile, which is tailored for financial institutions and based on the NIST framework[92](index=92&type=chunk) - Governance involves a multi-layered committee structure, including an Information Security Committee and an Enterprise Risk Management Committee, to ensure issues are assessed, remediated, and escalated appropriately[94](index=94&type=chunk) - The company regularly engages third-party assessors for penetration testing, technology 'health checks,' and social engineering tests to evaluate the effectiveness of its cyber defenses and employee training[95](index=95&type=chunk) [Properties](index=14&type=section&id=Item%202.%20Properties) The company's headquarters is located in a leased office complex in downtown South Bend, Indiana, and as of December 31, 2023, it operated **78 banking centers** across Indiana, Michigan, and Florida, with plans to develop an operations and training facility on a portion of its **35 acres** in St. Joseph County - The main headquarters is in a leased building in South Bend, Indiana, with the lease running through September 2027[98](index=98&type=chunk) - As of year-end 2023, the company owned or leased **78 banking center locations** across 18 counties in Indiana and Michigan, and Sarasota County in Florida[99](index=99&type=chunk) - 1st Source Bank owns **35 acres** in St. Joseph County and plans to construct a new operations and training facility on **29 acres**, subject to approvals and market conditions[99](index=99&type=chunk) [Legal Proceedings](index=14&type=section&id=Item%203.%20Legal%20Proceedings) The company and its subsidiaries are involved in various legal proceedings incidental to their business operations, none of which management anticipates will have a material adverse effect on the company's consolidated financial position or results of operations - Management does not expect any ongoing legal proceedings to have a material adverse effect on the company's financial position or results[101](index=101&type=chunk) [Mine Safety Disclosures](index=14&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[103](index=103&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=15&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) 1st Source Corporation's common stock trades on the NASDAQ Global Select Market under the symbol 'SRCE', with **1,593 holders** of record as of February 16, 2024, and the company has an authorized stock repurchase plan for up to **1,000,000 shares** though no shares were repurchased under this plan in Q4 2023, with dividend payments subject to federal and state regulations - The company's common stock is traded on the NASDAQ under the symbol 'SRCE', with **1,593 holders** of record as of February 16, 2024[104](index=104&type=chunk) - A stock repurchase plan was authorized in October 2023 for up to **1,000,000 shares**. No shares were repurchased under this plan during the fourth quarter of 2023[107](index=107&type=chunk) - Dividend payments are subject to restrictions outlined in federal and state regulations[108](index=108&type=chunk) [Reserved](index=15&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, net income available to common shareholders increased to $124.93 million ($5.03 per diluted share) from $120.51 million in 2022, driven by a **5.76%** increase in net interest income and a lower provision for credit losses, with the net interest margin (FTE) improving slightly to **3.51%**, total loans and leases growing by **$507.34 million** (**8.44%**) to **$6.52 billion**, and the company maintaining a strong liquidity position and 'well capitalized' status Key Performance Indicators (2021-2023) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Income (millions) | $124.93 | $120.51 | $118.53 | | Diluted EPS | $5.03 | $4.84 | $4.70 | | Return on Average Assets | 1.48% | 1.49% | 1.53% | | Return on Average Equity | 13.48% | 13.81% | 13.07% | | Dividends per Share | $1.30 | $1.26 | $1.21 | - The increase in 2023 net income was primarily driven by a **$15.18 million** rise in net interest income and a **$7.38 million** decrease in the provision for credit losses, partially offset by a **$17.03 million** increase in noninterest expense[124](index=124&type=chunk) - The fully taxable-equivalent net interest margin increased by **six basis points** to **3.51%** in 2023, as the **141 basis point** increase in the yield on earning assets outpaced the **189 basis point** increase in the cost of interest-bearing liabilities[127](index=127&type=chunk)[128](index=128&type=chunk) - Total loans and leases grew by **$507.34 million** (**8.44%**) to **$6.52 billion** at year-end 2023, driven by strong performance in the Auto and Light Truck, Construction Equipment, and Commercial Real Estate portfolios[167](index=167&type=chunk)[168](index=168&type=chunk) - Nonperforming assets decreased to **$24.24 million** (**0.37%** of loans and leases) at year-end 2023 from **$26.93 million** at year-end 2022[204](index=204&type=chunk)[207](index=207&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the 'Interest Rate Risk Management' discussion within Item 7, Management's Discussion and Analysis, where the company models the impact of hypothetical interest rate changes on its pre-tax net interest income, projecting a **1.40%** decrease over 12 months but a **3.01%** increase over 24 months from an immediate 200 basis point rate increase as of December 31, 2023 - The information for this section is contained within the 'Interest Rate Risk Management' section of Item 7[240](index=240&type=chunk) Hypothetical Impact of Interest Rate Changes on Pre-Tax Net Interest Income (Dec 31, 2023) | Basis Point Change | 12-Month Impact | 24-Month Impact | | :--- | :--- | :--- | | Up 200 | (1.40)% | 3.01% | | Up 100 | (0.66)% | 1.52% | | Down 100 | (0.18)% | (2.42)% | [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2023, and the preceding two years, including unqualified opinions from FORVIS, LLP on both the financial statements and the effectiveness of internal control over financial reporting, with the Allowance for Credit Losses identified as a critical audit matter - The independent registered public accounting firm, FORVIS, LLP, issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[245](index=245&type=chunk) - FORVIS, LLP also issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2023, based on the COSO framework[256](index=256&type=chunk) - The firm identified the Allowance for Credit Losses as a critical audit matter due to the significant judgment and subjectivity involved in management's estimates, particularly regarding economic conditions and qualitative factor adjustments[251](index=251&type=chunk)[253](index=253&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $8,727,958 | $8,339,416 | | Net Loans and Leases | $6,370,953 | $5,871,894 | | Total Deposits | $7,038,581 | $6,928,265 | | Total Shareholders' Equity | $989,568 | $864,068 | Consolidated Income Statement Highlights (in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net Interest Income | $278,647 | $263,469 | | Provision for Credit Losses | $5,866 | $13,245 | | Noninterest Income | $90,623 | $91,262 | | Noninterest Expense | $201,724 | $184,699 | | Net Income | $124,934 | $120,532 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=83&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[517](index=517&type=chunk) [Controls and Procedures](index=83&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, and internal control over financial reporting was also effective with no material changes during the fourth quarter of 2023 - The CEO and CFO concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[518](index=518&type=chunk) - Management's assessment, based on the COSO framework, concluded that internal control over financial reporting was effective as of December 31, 2023[522](index=522&type=chunk) - No material changes were made to internal control over financial reporting during the fourth quarter of 2023[519](index=519&type=chunk) [Other Information](index=83&type=section&id=Item%209B.%20Other%20Information) The company reports that during the fourth quarter of 2023, no director or officer adopted, modified, or terminated a 'Rule 10b5-1 trading plan' or a 'non-Rule 10b5-1 trading arrangement' - No director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q4 2023[525](index=525&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=83&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - None[527](index=527&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, and corporate governance matters is incorporated by reference from its 2024 Proxy Statement - The required information is incorporated by reference from the 2024 Proxy Statement, specifically under the headings 'Proposal Number 1: Election of Directors,' 'Board Committees and Other Corporate Governance Matters,' and 'Delinquent Section 16(a) Reports'[530](index=530&type=chunk) [Executive Compensation](index=84&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 'Compensation Discussion & Analysis' section of the company's 2024 Proxy Statement - The required information is incorporated by reference from the 'Compensation Discussion & Analysis' section of the 2024 Proxy Statement[532](index=532&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=84&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, as well as details on equity compensation plans, is incorporated by reference from the company's 2024 Proxy Statement, with **828,611 securities** remaining available for future issuance under all equity compensation plans as of December 31, 2023 - The required information is incorporated by reference from the 'Voting Securities and Principal Holders Thereof' and 'Proposal Number 1: Election of Directors' sections of the 2024 Proxy Statement[533](index=533&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Approved by Shareholders | 8,308 | 766,830 | | Not Approved by Shareholders | 0 | 61,781 | | **Total** | **8,308** | **828,611** | [Certain Relationships and Related Transactions, and Director Independence](index=84&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the 'Proposal Number 1: Election of Directors', 'Board Committees and Other Corporate Governance Matters,' and 'Transactions with Related Persons' sections of the 2024 Proxy Statement[536](index=536&type=chunk) [Principal Accountant Fees and Services](index=84&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the 'Relationship with Independent Registered Public Accounting Firm' section of the company's 2024 Proxy Statement - The required information is incorporated by reference from the 'Relationship with Independent Registered Public Accounting Firm' section of the 2024 Proxy Statement[538](index=538&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=85&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the annual report, including corporate governance documents, employment agreements, compensation plans, a list of subsidiaries, consent of the independent auditor, and various SEC-required certifications - The Consolidated Financial Statements and Notes are filed as part of this report[541](index=541&type=chunk) - Exhibits filed include Articles of Incorporation, By-Laws, employment agreements for key executives, various stock and incentive plans, a list of subsidiaries, consent of the independent auditor, and CEO/CFO certifications[542](index=542&type=chunk)[543](index=543&type=chunk) [Form 10-K Summary](index=87&type=section&id=Item%2016.%20Form%2010-K%20Summary) A summary of the Form 10-K was not provided - Not provided[545](index=545&type=chunk)

For the transition period from to Commission file number 0-6233 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 1st Source Corporation (Exact name of registrant as specified in its charter) Indiana 35-1068133 (State ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6233 1st Source Corporation (Exact name of registrant as specified in its charter) (State or other jurisdiction o ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR Indiana 35-1068133 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 100 North Michigan Street South Bend, IN 46601 (Address of principal executive offices) (Zip Code) (574) 235-2000 ☐ TRANSITION REPORT PURSUANT ...

5% Well Capitalized 13.42% 13.64% 14.73% 15.50% 14.84% 2018 2019 2020 2021 2022 Tier 1 Risk Based Ratio 8% Well Capitalized TANGIBLE BOOK VALUE PER COMMON SHARE* 35 YEARS OF CONSECUTIVE DIVIDEND GROWTH page 30 December 31, 2007 – January 20, 2023 —NASDAQ Bank PERFORMANCE FINANCIAL 35 Years of consecutive dividend growth Consistent and superior financial performance with a focus on long-term earnings per share and tangible book value growth Leading market share in community banking markets page 33 Brett A. B ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6233 1st Source Corporation (Exact name of registrant as specified in its charter) (State or other jurisdiction of in ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents 1st Source Corporation's unaudited consolidated financial statements, including condition, income, comprehensive income, equity, and cash flows, for specified periods [Consolidated Statements of Financial Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) Consolidated Statements of Financial Condition Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------------------------------ | :----------- | :----------- | :------- | :------- | | Total assets | $8,097,486 | $8,096,289 | $1,197 | 0.01% | | Cash and due from banks | $86,952 | $54,420 | $32,532 | 59.78% | | Federal funds sold and interest bearing deposits with other banks | $30,652 | $470,767 | $(440,115) | -93.49% | | Investment securities available-for-sale | $1,801,194 | $1,863,041 | $(61,847) | -3.32% | | Total loans and leases | $5,762,078 | $5,346,214 | $415,864 | 7.78% | | Allowance for loan and lease losses | $(135,736) | $(127,492) | $(8,244) | 6.47% | | Net loans and leases | $5,626,342 | $5,218,722 | $407,620 | 7.81% | | Equipment owned under operating leases, net | $32,964 | $48,433 | $(15,469) | -31.94% | | Accrued income and other assets | $362,038 | $269,469 | $92,569 | 34.35% | | Total liabilities | $7,211,126 | $7,126,825 | $84,301 | 1.18% | | Total deposits | $6,621,231 | $6,679,065 | $(57,834) | -0.87% | | Total short-term borrowings | $340,462 | $200,027 | $140,435 | 70.21% | | Total shareholders' equity | $826,059 | $916,255 | $(90,196) | -9.84% | | Accumulated other comprehensive loss | $(162,277) | $(9,861) | $(152,416) | 1545.65% | | Total equity | $886,360 | $969,464 | $(83,104) | -8.57% | - The decrease in investment securities available-for-sale was primarily due to negative market value adjustments resulting from temporary, non-credit-related, net unrealized losses caused by changes in interest rates, market spreads, and market conditions[159](index=159&type=chunk) - The increase in total loans and leases was mainly driven by growth in the auto and light truck, construction equipment, and aircraft portfolios, partially offset by approximately **$69 million** in Paycheck Protection Program (PPP) loans forgiven by the SBA[160](index=160&type=chunk) - The decrease in total deposits was primarily due to a decline in time deposits, which was partially offset by an increase in interest-bearing public fund deposits[162](index=162&type=chunk) - Short-term borrowings increased significantly, mainly due to higher short-term FHLB borrowings, largely to support strong loan growth[162](index=162&type=chunk) - Total shareholders' equity decreased primarily due to a substantial increase in accumulated other comprehensive losses[166](index=166&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net Income and EPS (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to common shareholders | $32,737 | $32,483 | $89,441 | $90,811 | | Basic net income per common share | $1.32 | $1.29 | $3.59 | $3.59 | | Diluted net income per common share | $1.32 | $1.29 | $3.59 | $3.59 | Key Income Statement Components (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Total interest income | $206,556 | $190,791 | $15,765 | 8.26% | | Total interest expense | $14,542 | $14,220 | $322 | 2.26% | | Net interest income | $192,014 | $176,571 | $15,443 | 8.75% | | Provision (recovery of provision) for credit losses | $7,903 | $(3,186) | $11,089 | NM | | Total noninterest income | $67,982 | $76,264 | $(8,282) | -10.86% | | Total noninterest expense | $136,322 | $137,402 | $(1,080) | -0.79% | | Income before income taxes | $115,771 | $118,619 | $(2,848) | -2.40% | | Income tax expense | $26,295 | $27,797 | $(1,502) | -5.40% | | Net income | $89,476 | $90,822 | $(1,346) | -1.48% | Cash Dividends Per Common Share | Period | 2022 | 2021 | | :-------------------------- | :--- | :--- | | 3 Months Ended Sep 30 | $0.32 | $0.31 | | 9 Months Ended Sep 30 | $0.94 | $0.90 | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $32,745 | $32,481 | $89,476 | $90,822 | | Unrealized depreciation of available-for-sale securities | $(72,275) | $(6,833) | $(200,061) | $(21,695) | | Other comprehensive loss, net of tax | $(55,266) | $(5,187) | $(152,416) | $(15,954) | | Comprehensive (loss) income | $(22,521) | $27,294 | $(62,940) | $74,868 | - The significant comprehensive loss for the three and nine months ended September 30, 2022, was primarily driven by a substantial increase in unrealized depreciation of available-for-sale securities, reflecting adverse changes in interest rates and market conditions[10](index=10&type=chunk)[166](index=166&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' Equity Changes (9 Months Ended Sep 30, 2022, in thousands) | Metric | Jan 1, 2022 | Sep 30, 2022 | Change | | :--------------------------------- | :---------- | :----------- | :------- | | Total shareholders' equity | $916,255 | $826,059 | $(90,196) | | Net income | N/A | $89,441 | N/A | | Other comprehensive loss | $(9,861) | $(162,277) | $(152,416) | | Common stock dividend | N/A | $(23,303) | N/A | | Cost of common stock acquired for treasury | $(114,209) | $(119,743) | $(5,534) | - The primary driver for the decrease in total shareholders' equity was a significant increase in accumulated other comprehensive loss, which rose by **$152.42 million**[166](index=166&type=chunk)[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (9 Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | Change | | :--------------------------------- | :--- | :--- | :------- | | Net cash provided by operating activities | $131,743 | $105,074 | $26,669 | | Net cash used in investing activities | $(574,696) | $(296,898) | $(277,798) | | Net cash provided by financing activities | $35,370 | $586,059 | $(550,689) | | Net change in cash and cash equivalents | $(407,583) | $394,235 | $(801,818) | | Cash and cash equivalents, end of period | $117,604 | $637,282 | $(519,678) | - The net decrease in cash and cash equivalents was primarily due to a reduction in excess liquidity from fewer PPP loan forgiveness proceeds and positive loan growth[175](index=175&type=chunk) - Investing activities saw a significant increase in cash usage, driven by purchases of investment securities available-for-sale and a net increase in loans and leases[14](index=14&type=chunk) - Financing activities provided substantially less cash, mainly due to decreases in demand and savings accounts and time deposits, partially offset by an increase in short-term borrowings[14](index=14&type=chunk) [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [Note 1 — Accounting Policies](index=8&type=section&id=Note%201%20%E2%80%94%20Accounting%20Policies) - The unaudited consolidated financial statements are prepared according to SEC rules, with certain GAAP disclosures omitted, and should be read in conjunction with the **2021 Annual Report on Form 10-K**[17](index=17&type=chunk)[18](index=18&type=chunk) - Financial statements require management to make estimates and assumptions that affect reported amounts of assets, liabilities, income, and expense[19](index=19&type=chunk) - Loans and leases are stated at the principal amount outstanding, net of unamortized deferred fees/costs and unearned income. Interest accrual is generally discontinued when a loan or lease is **90 days delinquent** or deemed nonperforming[20](index=20&type=chunk)[22](index=22&type=chunk) - Troubled Debt Restructurings (TDRs) involve economic concessions to borrowers experiencing financial difficulties and are evaluated for impairment based on the present value of expected future cash flows or the current fair value of collateral[23](index=23&type=chunk)[24](index=24&type=chunk) [Note 2 — Recent Accounting Pronouncements](index=9&type=section&id=Note%202%20%E2%80%94%20Recent%20Accounting%20Pronouncements) - ASU 2022-03 clarifies that contractual sale restrictions on equity securities are not considered in fair value measurement, effective for fiscal years beginning after December 15, 2023. The Company does not expect a material impact[25](index=25&type=chunk) - ASU 2022-02 eliminates TDR recognition and measurement guidance, requiring evaluation of modifications as new or existing loans, and enhances disclosure requirements. It is effective for fiscal years beginning after December 15, 2022, and the Company is assessing its impact[26](index=26&type=chunk) - ASU 2020-04 and 2021-01 provide temporary optional guidance to ease accounting for reference rate reform (e.g., LIBOR transition), effective through December 31, 2022. The Company expects to utilize this relief and does not anticipate a material impact[27](index=27&type=chunk) [Note 3 — Investment Securities Available-For-Sale](index=10&type=section&id=Note%203%20%E2%80%94%20Investment%20Securities%20Available-For-Sale) Investment Securities Available-for-Sale (Fair Value, in thousands) | Security Type | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | U.S. Treasury and Federal agencies securities | $1,031,577 | $1,084,006 | $(52,429) | -4.84% | | U.S. States and political subdivisions securities | $115,231 | $95,701 | $19,530 | 20.41% | | Mortgage-backed securities — Federal agencies | $637,690 | $659,727 | $(22,037) | -3.34% | | Corporate debt securities | $16,113 | $23,009 | $(6,896) | -29.97% | | Foreign government and other securities | $583 | $598 | $(15) | -2.51% | | **Total debt securities available-for-sale** | **$1,801,194** | **$1,863,041** | **$(61,847)** | **-3.32%** | Gross Unrealized Losses on Available-for-Sale Securities (in thousands) | Security Type | Sep 30, 2022 | Dec 31, 2021 | Change | | :--------------------------------- | :----------- | :----------- | :------- | | U.S. Treasury and Federal agencies securities | $(99,667) | $(13,018) | $(86,649) | | U.S. States and political subdivisions securities | $(10,777) | $(1,129) | $(9,648) | | Mortgage-backed securities — Federal agencies | $(102,210) | $(8,459) | $(93,751) | | **Total gross unrealized losses** | **$(213,054)** | **$(22,608)** | **$(190,446)** | - At September 30, 2022, **728 out of 748** available-for-sale securities were in an unrealized loss position. The Company does not consider these to be credit losses and does not intend to sell these investments before recovery of amortized cost, as the losses are due to changes in interest rates, market spreads, and market conditions[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 4 — Loan and Lease Financings](index=11&type=section&id=Note%204%20%E2%80%94%20Loan%20and%20Lease%20Financings) - The Company categorizes its loan and lease portfolios into **nine segments** based on similar risk characteristics, using credit quality grades (**1-12**) and credit risk classifications to assess risk[37](index=37&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) Total Loans and Leases (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------- | :----------- | :----------- | :------- | :------- | | Total loans and leases | $5,762,078 | $5,346,214 | $415,864 | 7.78% | Loan and Lease Portfolio Amortized Cost (Top 3 Growth Segments, in thousands) | Segment | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :----------------------- | :----------- | :----------- | :------- | :------- | | Auto and light truck | $743,324 | $603,775 | $139,549 | 23.11% | | Construction equipment | $878,692 | $754,273 | $124,419 | 16.49% | | Aircraft | $997,995 | $898,401 | $99,594 | 11.09% | Loan and Lease Delinquency Aging (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | Current | $5,728,821 | $5,301,658 | $427,163 | 8.06% | | 30-59 Days Past Due | $3,116 | $2,987 | $129 | 4.32% | | 60-89 Days Past Due | $2,162 | $2,614 | $(452) | -17.29% | | 90 Days or More Past Due and Accruing | $166 | $249 | $(83) | -33.33% | | Nonaccrual | $27,813 | $38,706 | $(10,893) | -28.14% | - No loan and lease modifications were classified as troubled debt restructurings (TDRs) during the three and nine months ended September 30, 2022. The recorded investment of TDRs decreased to **$4.04 million** at September 30, 2022, from **$7.06 million** at December 31, 2021[56](index=56&type=chunk)[59](index=59&type=chunk) [Note 5 — Allowance for Credit Losses](index=16&type=section&id=Note%205%20%E2%80%94%20Allowance%20for%20Credit%20Losses) Allowance for Loan and Lease Losses (ALLL, in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------- | :----------- | :----------- | :------- | :------- | | Balance, end of period | $135,736 | $127,492 | $8,244 | 6.47% | Provision (Recovery of Provision) for Credit Losses (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | | :--------------------------------- | :--- | :--- | :------- | | Provision (recovery of provision) | $7,903 | $(3,186) | $11,089 | Net Charge-offs (Recoveries) (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | | :--------------------------------- | :--- | :--- | :------- | | Net charge-offs (recoveries) | $(341) | $3,713 | $(4,054) | - The increase in the ALLL was primarily due to loan growth, particularly in construction equipment, aircraft, medium and heavy duty truck, and residential real estate portfolios, and the maintenance of the forecast adjustment due to economic concerns[64](index=64&type=chunk)[70](index=70&type=chunk) - Credit quality remains on an improving trend, evidenced by declining total special attention credit outstandings and minimal charge-off activity during the quarter[64](index=64&type=chunk) - The economic outlook includes a weakened domestic GDP outlook, continued geopolitical uncertainty (Ukraine war), ongoing supply chain difficulties, and persistent inflation, which are expected to adversely impact the loan and lease portfolio over the next **two years**[70](index=70&type=chunk)[71](index=71&type=chunk) Liability for Credit Losses on Unfunded Loan Commitments (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Balance, end of period | $5,216 | $4,363 | [Note 6 — Lease Investments](index=18&type=section&id=Note%206%20%E2%80%94%20Lease%20Investments) Direct Finance Leases - Interest Income (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :------- | :------- | | Interest income on lease receivable | $6,112 | $4,880 | $1,232 | 25.25% | Operating Leases - Income and Depreciation (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :------- | :------- | | Income related to lease payments | $9,718 | $12,830 | $(3,112) | -24.26% | | Depreciation expense | $7,912 | $10,562 | $(2,650) | -25.09% | - The decline in operating lease equipment rental income and depreciation was due to a reduction in the construction equipment and auto and light truck portfolios, resulting in a **19% decrease** in the average equipment rental portfolio, driven by changing customer preferences and competitive pricing pressures[223](index=223&type=chunk) [Note 7 — Mortgage Servicing Rights](index=19&type=section&id=Note%207%20%E2%80%94%20Mortgage%20Servicing%20Rights) Mortgage Servicing Rights (MSRs) Carrying and Fair Value (in thousands) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | Net carrying value of MSRs | $4,298 | $4,519 | $(221) | -4.89% | | Fair value of MSRs | $7,493 | $4,999 | $2,494 | 49.89% | - At September 30, 2022, the fair value of MSRs exceeded their carrying value by **$3.20 million**, an increase from **$0.48 million** at September 30, 2021, representing increases in fair value that could not be recorded above cost basis[80](index=80&type=chunk) Mortgage Loan Contractual Servicing Fees (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :------- | :------- | | Contractual servicing fees | $2,130 | $2,400 | $(270) | -11.25% | [Note 8 — Commitments and Financial Instruments with Off-Balance-Sheet Risk](index=19&type=section&id=Note%208%20%E2%80%94%20Commitments%20and%20Financial%20Instruments%20with%20Off-Balance-Sheet%20Risk) Off-Balance-Sheet Financial Instruments (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | Loan commitments to extend credit | $1,199,066 | $1,148,984 | $50,082 | 4.36% | | Standby letters of credit | $18,761 | $24,657 | $(5,896) | -23.91% | | Commercial and similar letters of credit | $400 | $8,531 | $(8,131) | -95.31% | - The Company uses the same credit policies and collateral requirements for off-balance-sheet instruments as it does for on-balance-sheet instruments[84](index=84&type=chunk) - Interest rate risk associated with mortgage loan commitments is managed by entering into contracts for future deliveries of loans[85](index=85&type=chunk) [Note 9 — Derivative Financial Instruments](index=20&type=section&id=Note%209%20%E2%80%94%20Derivative%20Financial%20Instruments) Non-Hedging Derivative Financial Instruments (Notional/Contractual Amount, in thousands) | Instrument | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | Interest rate swap contracts | $947,564 | $1,064,721 | $(117,157) | -11.00% | | Loan commitments | $1,460 | $15,086 | $(13,626) | -90.32% | | Forward contracts - mortgage loan | $2,250 | $22,000 | $(19,750) | -89.77% | Gain (Loss) from Non-Hedging Derivative Financial Instruments (9 Months Ended Sep 30, in thousands) | Instrument | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Interest rate swap contracts (Other expense) | $(69) | $420 | | Interest rate swap contracts (Other income) | $83 | $307 | | Loan commitments (Mortgage banking) | $(424) | $(704) | | Forward contracts - mortgage loan (Mortgage banking) | $93 | $512 | | **Total** | **$(317)** | **$535** | - The Company enters into offsetting interest rate swaps with clients and other financial institutions, which means changes in the fair value of these underlying derivative contracts do not significantly impact the Company's results of operations[89](index=89&type=chunk) [Note 10 — Variable Interest Entities](index=21&type=section&id=Note%2010%20%E2%80%94%20Variable%20Interest%20Entities) Unconsolidated VIE Investments (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :------- | :------- | | Investment carrying amount | $55,546 | $35,968 | $19,578 | 54.43% | | Unfunded capital and other commitments | $51,428 | $29,670 | $21,758 | 73.33% | | Maximum exposure to loss | $50,048 | $50,319 | $(271) | -0.54% | - The Company's investments in VIEs primarily relate to affordable housing, community development, and renewable energy sources, generating returns through federal and state income tax credits and other tax benefits[97](index=97&type=chunk) Tax Credits Recognized from VIEs (9 Months Ended Sep 30, in thousands) | Credit Type | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Federal income tax credits (affordable housing/community development) | $1,550 | $1,560 | | Investment tax credits (renewable energy) | $9,480 | $3,320 | - The Company sponsors the 1st Source Master Trust (Capital Trust), an unconsolidated VIE, which issues mandatorily redeemable capital securities backed by the Company's junior subordinated debentures. These subordinated notes qualify as Tier 1 capital[103](index=103&type=chunk)[104](index=104&type=chunk) Subordinated Notes (in thousands) | Issuance | Amount | Interest Rate | Maturity Date | | :----------------- | :----- | :------------ | :------------ | | June 2007 issuance | $41,238 | 7.22% | 6/15/2037 | | August 2007 issuance | $17,526 | 4.77% | 9/15/2037 | | **Total** | **$58,764** | | | [Note 11 — Earnings Per Share](index=23&type=section&id=Note%2011%20%E2%80%94%20Earnings%20Per%20Share) Earnings Per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic earnings per common share | $1.32 | $1.29 | $3.59 | $3.59 | | Diluted earnings per common share | $1.32 | $1.29 | $3.59 | $3.59 | Weighted Average Common Shares Outstanding (9 Months Ended Sep 30) | Metric | 2022 | 2021 | | :--------------------------------- | :----------- | :----------- | | Basic | 24,697,106 | 25,126,703 | | Diluted | 24,697,106 | 25,126,703 | - No stock options were outstanding or had a dilutive effect on earnings per common share for the periods presented[108](index=108&type=chunk)[109](index=109&type=chunk) [Note 12 — Stock Based Compensation](index=24&type=section&id=Note%2012%20%E2%80%94%20Stock%20Based%20Compensation) - The Company has four active stock-based employee compensation plans: the Executive Incentive Plan (EIP), the Restricted Stock Award Plan (RSAP), the Strategic Deployment Incentive Plan (SDP), and the Employee Stock Purchase Plan[110](index=110&type=chunk) - As of September 30, 2022, total unrecognized compensation cost related to non-vested share-based arrangements was **$8.70 million**, expected to be recognized over a weighted-average period of **3.24 years**[113](index=113&type=chunk) - No stock options were outstanding or exercised during the nine months ended September 30, 2022 and 2021[112](index=112&type=chunk) [Note 13 — Accumulated Other Comprehensive Income (Loss)](index=24&type=section&id=Note%2013%20%E2%80%94%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Realized losses included in net income | $0 | $(680) | | Tax effect | $0 | $164 | | Net of tax | $0 | $(516) | - For the nine months ended September 30, 2022, there were no realized losses on investment securities available-for-sale reclassified into net income, in contrast to the prior year[115](index=115&type=chunk) [Note 14 — Income Taxes](index=24&type=section&id=Note%2014%20%E2%80%94%20Income%20Taxes) - The total amount of unrecognized tax benefits that would affect the effective tax rate was **zero** at September 30, 2022, and December 31, 2021[116](index=116&type=chunk) - No interest or penalties related to income taxes were recognized for the three and nine months ended September 30, 2022 and 2021[116](index=116&type=chunk) - Tax years **2018-2021** remain open and subject to audit for both federal and Indiana income taxes[117](index=117&type=chunk) [Note 15 — Fair Value Measurements](index=24&type=section&id=Note%2015%20%E2%80%94%20Fair%20Value%20Measurements) - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs), or Level 3 (unobservable inputs and significant management judgment)[119](index=119&type=chunk)[127](index=127&type=chunk) Assets Measured at Fair Value on a Recurring Basis (Sep 30, 2022, in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------- | :------ | :------ | :------ | :------ | | Investment securities available-for-sale | $570,045 | $1,226,751 | $4,398 | $1,801,194 | | Mortgages held for sale | $0 | $3,058 | $0 | $3,058 | | Interest rate swap agreements (assets) | $0 | $26,918 | $0 | $26,918 | | **Total Assets** | **$570,045** | **$1,256,727** | **$4,398** | **$1,831,170** | Liabilities Measured at Fair Value on a Recurring Basis (Sep 30, 2022, in thousands) | Liability Type | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------- | :------ | :------ | :------ | :------ | | Interest rate swap agreements (liabilities) | $0 | $27,424 | $0 | $27,424 | | **Total Liabilities** | **$0** | **$27,424** | **$0** | **$27,424** | Level 3 Assets (Direct Placement Municipal Securities) Valuation (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------- | :----------- | :----------- | | Fair Value | $4,398 | $1,849 | | Valuation Methodology | Discounted cash flows | Discounted cash flows | | Unobservable Input | Credit spread assumption | Credit spread assumption | | Weighted Average Input | 4.79% | 1.58% | Non-recurring Fair Value Measurements (Sep 30, 2022, in thousands) | Asset Type | Carrying Value | Fair Value | Unobservable Inputs (Weighted Average) | | :--------------------------------- | :------------- | :----------- | :------------------------------------- | | Collateral-dependent impaired loans | $851 | $851 | Discount for lack of marketability (36.2%) | | Mortgage servicing rights | $4,298 | $7,493 | Constant prepayment rate (9.6%), Discount rate (12.0%) | | Repossessions | $26 | $30 | Discount for lack of marketability (13%) | - Impairment charges (recoveries) on collateral-dependent impaired loans, mortgage servicing rights, repossessions, and other real estate were **$0.00 million** for the quarter ended September 30, 2022[145](index=145&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, capital, liquidity, and interest rate sensitivity for specified periods [FINANCIAL CONDITION](index=32&type=section&id=FINANCIAL%20CONDITION) Total Assets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :----------- | :----------- | :----------- | :------- | :------- | | Total assets | $8,097,486 | $8,096,289 | $1,197 | 0.01% | Key Balance Sheet Changes (Sep 30, 2022 vs Dec 31, 2021, in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------------------------------ | :----------- | :----------- | :------- | :------- | | Federal funds sold and interest bearing deposits with other banks | $30,652 | $470,767 | $(440,115) | -93.49% | | Total loans and leases | $5,762,078 | $5,346,214 | $415,864 | 7.78% | | Equipment owned under operating leases | $32,964 | $48,433 | $(15,469) | -31.94% | | Total deposits | $6,621,231 | $6,679,065 | $(57,834) | -0.87% | | Short-term borrowings | $340,462 | $200,027 | $140,435 | 70.21% | | Long-term debt and mandatorily redeemable securities | $47,587 | $71,251 | $(23,664) | -33.21% | | Accrued expenses and other liabilities | $143,082 | $117,718 | $25,364 | 21.55% | - The increase in loans and leases was primarily driven by growth in the auto and light truck, construction equipment, and aircraft portfolios, partially offset by approximately **$69 million** in forgiven PPP loans[160](index=160&type=chunk) - Foreign loan and lease balances, all denominated in U.S. dollars and primarily in aircraft financing, increased to **$239.80 million** at September 30, 2022, from **$193.31 million** at December 31, 2021, with concentrations in Mexico (**$131.39 million**) and Brazil (**$79.29 million**)[160](index=160&type=chunk) - The increase in accrued income and other assets was mainly due to higher partnership investments carrying amounts, bank owned life insurance cash surrender value, and deferred tax assets related to available-for-sale debt securities[164](index=164&type=chunk) [CAPITAL](index=33&type=section&id=CAPITAL) Total Shareholders' Equity (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :----------------------- | :----------- | :----------- | :------- | :------- | | Total shareholders' equity | $826,059 | $916,255 | $(90,196) | -9.84% | - The decrease in total shareholders' equity was primarily due to an increase in accumulated other comprehensive loss to **$162.28 million** at September 30, 2022, from **$9.86 million** at December 31, 2021[166](index=166&type=chunk) Key Capital Ratios | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------- | :----------- | :----------- | | Shareholders' equity-to-assets ratio | 10.20% | 11.32% | | Book value per common share | $33.50 | $37.04 | | Trailing four quarters dividend payout ratio | 26.54% | N/A | Regulatory Capital Ratios (1st Source Corporation, Sep 30, 2022) | Capital Ratio | Actual Ratio | Minimum Capital Adequacy | To Be Well Capitalized | | :--------------------------------- | :----------- | :----------------------- | :--------------------- | | Total Capital (to Risk-Weighted Assets) | 16.50% | 8.00% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 15.24% | 6.00% | 8.00% | | Common Equity Tier 1 Capital (to Risk-Weighted Assets) | 13.50% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 12.69% | 4.00% | 5.00% | - PPP loan balances were assigned a **zero percent** risk weight, thus having no impact on total risk-weighted assets at September 30, 2022[171](index=171&type=chunk) [LIQUIDITY AND INTEREST RATE SENSITIVITY](index=34&type=section&id=LIQUIDITY%20AND%20INTEREST%20RATE%20SENSITIVITY) Cash and Cash Equivalents (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :----------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $117,604 | $525,187 | $637,282 | - The decrease in cash and cash equivalents was primarily due to a reduction in excess liquidity from fewer PPP loan forgiveness proceeds and positive loan growth[175](index=175&type=chunk) Loan to Asset Ratio | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------- | :----------- | :----------- | | Loan to asset ratio | 71.16% | 66.03% | - The Company has available borrowing sources including **$230.00 million** in additional federal funds, **$337.68 million** in additional FHLB advances, and **$468.00 million** from the Federal Reserve Bank[174](index=174&type=chunk) - The Consolidated Statements of Financial Condition was rate sensitive by **$307.87 million** more liabilities than assets scheduled to reprice within one year, or approximately **0.91%**[175](index=175&type=chunk) - No collateral is currently required for public fund deposits under Indiana law, but a potential liquidity exposure of approximately **$981 million** exists if this requirement changes[176](index=176&type=chunk) [RESULTS OF OPERATIONS](index=34&type=section&id=RESULTS%20OF%20OPERATIONS) Net Income and EPS (9 Months Ended Sep 30, in thousands, except per share amounts) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Net income available to common shareholders | $89,441 | $90,811 | $(1,370) | -1.51% | | Diluted net income per common share | $3.59 | $3.59 | $0.00 | 0.00% | Return Ratios (9 Months Ended Sep 30) | Metric | 2022 | 2021 | | :--------------------------------- | :----- | :----- | | Return on average common shareholders' equity | 13.56% | 13.45% | | Return on total average assets | 1.49% | 1.60% | - The slight decrease in net income for the nine months ended September 30, 2022, was primarily due to an increased provision for credit losses and decreased noninterest income, partially offset by higher net interest income and lower noninterest expense[179](index=179&type=chunk) [NET INTEREST INCOME](index=35&type=section&id=NET%20INTEREST%20INCOME) Net Interest Income and Margin (9 Months Ended Sep 30, FTE Basis, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Net interest income - FTE | $192,427 | $176,921 | $15,506 | 8.76% | | Net interest margin - FTE | 3.37% | 3.28% | 0.09% | 2.74% | Yield on Average Earning Assets (9 Months Ended Sep 30) | Metric | 2022 | 2021 | Change (bps) | | :--------------------------------- | :----- | :----- | :----------- | | Yield on total earning assets | 3.62% | 3.54% | 8 bps | | Yield on loans and leases | 4.51% | 4.31% | 20 bps | Cost of Average Interest-Bearing Liabilities (9 Months Ended Sep 30) | Metric | 2022 | 2021 | Change (bps) | | :--------------------------------- | :----- | :----- | :----------- | | Total cost of average interest-bearing liabilities | 0.39% | 0.40% | -1 bps | | Effective rate on average interest-bearing deposits | 0.36% | 0.29% | 7 bps | Average Earning Assets and Liabilities (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Average earning assets | $7,645,464 | $7,211,523 | $433,941 | 6.02% | | Average interest-bearing liabilities | $4,973,767 | $4,725,850 | $247,917 | 5.25% | | Average noninterest-bearing deposits | $2,037,113 | $1,818,271 | $218,842 | 12.04% | - The yield on net loans and leases was positively impacted by **5 basis points** due to the recognition of unearned fees on forgiven PPP loans in 2022, compared to a **12 basis point** impact in 2021[194](index=194&type=chunk) [PROVISION AND ALLOWANCE FOR CREDIT LOSSES](index=39&type=section&id=PROVISION%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Provision (Recovery of Provision) for Credit Losses (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | | :--------------------------------- | :--- | :--- | :------- | | Provision (recovery of provision) for credit losses | $7,903 | $(3,186) | $11,089 | Net Charge-offs (Recoveries) (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | | :--------------------------------- | :--- | :--- | :------- | | Net charge-offs (recoveries) | $(341) | $3,713 | $(4,054) | - The provision for credit losses for the three months ended September 30, 2022, was primarily driven by loan growth, with the prior quarter's forecast adjustment maintained due to the current economic outlook[202](index=202&type=chunk) - **30-day and over** loan and lease delinquency as a percentage of loan and lease balances decreased to **0.09%** at September 30, 2022, from **0.20%** a year ago, indicating an improving credit quality trend[205](index=205&type=chunk) - Economic concerns include a weakened economic outlook, geopolitical uncertainty from the Ukraine war, persistent inflation, and potential supply chain disruptions, which raise the potential for adverse impacts to the U.S. economy[203](index=203&type=chunk) - The aircraft portfolio remains a concern due to collateral concentration and **$240 million** of foreign exposure, mainly in Mexico and Brazil, where political and economic data are regularly assessed for potential impacts[204](index=204&type=chunk) [NONPERFORMING ASSETS](index=40&type=section&id=NONPERFORMING%20ASSETS) Total Nonperforming Assets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | Change (Sep 30, 2022 vs Dec 31, 2021) | % Change (Sep 30, 2022 vs Dec 31, 2021) | Change (Sep 30, 2022 vs Sep 30, 2021) | % Change (Sep 30, 2022 vs Sep 30, 2021) | | :----------------------- | :----------- | :----------- | :----------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Total nonperforming assets | $28,005 | $41,334 | $45,550 | $(13,329) | -32.25% | $(17,545) | -38.52% | Nonperforming Assets as % of Loans and Leases | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :--------------------------------- | :----------- | :----------- | :----------- | | Nonperforming assets as % of loans and leases | 0.48% | 0.77% | 0.84% | - The decrease in nonperforming assets was related to continued recovery from the pandemic, leading to lower nonaccrual loans and leases (especially in the bus segment of the auto and light truck portfolio and construction equipment) and a decrease in equipment owned under operating leases[209](index=209&type=chunk)[210](index=210&type=chunk) - Repossessions decreased primarily due to the sale of repossessed buses in the auto and light truck portfolio[212](index=212&type=chunk) - The Company currently holds no properties in other real estate assets[211](index=211&type=chunk) [NONINTEREST INCOME](index=41&type=section&id=NONINTEREST%20INCOME) Total Noninterest Income (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :----------------------- | :--- | :--- | :----- | :------- | | Total noninterest income | $67,982 | $76,264 | $(8,282) | -10.86% | Key Noninterest Income Components (9 Months Ended Sep 30, in thousands) | Component | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Trust and wealth advisory | $17,499 | $17,833 | $(334) | -1.87% | | Service charges on deposit accounts | $8,974 | $7,722 | $1,252 | 16.21% | | Debit card | $13,383 | $13,506 | $(123) | -0.91% | | Mortgage banking | $3,303 | $9,909 | $(6,606) | -66.67% | | Insurance commissions | $5,168 | $5,698 | $(530) | -9.30% | | Equipment rental | $9,718 | $12,830 | $(3,112) | -24.26% | | Other | $9,937 | $9,446 | $491 | 5.20% | - Mortgage banking income decreased significantly due to reduced origination volumes caused by higher interest rates impacting refinancing demand[221](index=221&type=chunk) - Equipment rental income declined due to a reduction in the average equipment rental portfolio (construction equipment and auto and light truck) resulting from changing customer preferences and competitive pricing pressures[223](index=223&type=chunk) - Service charges on deposit accounts increased, primarily reflecting a higher volume of consumer nonsufficient fund transactions[220](index=220&type=chunk) - Trust and wealth advisory fees decreased due to stock and bond market corrections impacting the market value of assets under management[219](index=219&type=chunk) [NONINTEREST EXPENSE](index=42&type=section&id=NONINTEREST%20EXPENSE) Total Noninterest Expense (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :----------------------- | :--- | :--- | :----- | :------- | | Total noninterest expense | $136,322 | $137,402 | $(1,080) | -0.79% | Key Noninterest Expense Components (9 Months Ended Sep 30, in thousands) | Component | 2022 | 2021 | Change | % Change | | :--------------------------------- | :--- | :--- | :----- | :------- | | Salaries and employee benefits | $77,415 | $77,680 | $(265) | -0.34% | | Data processing | $16,412 | $14,851 | $1,561 | 10.51% | | Depreciation – leased equipment | $7,912 | $10,562 | $(2,650) | -25.09% | | FDIC and other insurance | $2,682 | $1,833 | $849 | 46.32% | | Business development and marketing | $4,352 | $6,813 | $(2,461) | -36.12% | | Other | $10,340 | $7,801 | $2,539 | 32.55% | - FDIC and other insurance expenses increased significantly due to higher assessments from a larger asset base and a one-time **$0.38 million** recovery in the third quarter of 2021[233](index=233&type=chunk) - Business development and marketing expense decreased primarily due to a **$3.00 million** charitable contribution made in the third quarter of 2021, partially offset by increased business meals, entertainment, and travel[234](index=234&type=chunk) - Other expenses increased due to a rise in the loan loss provision for unfunded loan commitments, an increase in the interest rate swap valuation provision, and higher postage and printing costs[235](index=235&type=chunk) - Depreciation on leased equipment decreased in correlation with the reduction in equipment rental income and the average equipment rental portfolio[231](index=231&type=chunk) [INCOME TAXES](index=42&type=section&id=INCOME%20TAXES) Provision for Income Taxes (9 Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :----------------------- | :--- | :--- | :----- | :------- | | Provision for income taxes | $26,295 | $27,797 | $(1,502) | -5.40% | Effective Tax Rate (9 Months Ended Sep 30) | Metric | 2022 | 2021 | Change (bps) | | :----------------- | :----- | :----- | :----------- | | Effective tax rate | 22.71% | 23.43% | -72 bps | - The decrease in the year-to-date effective tax rate was primarily due to a slight decrease in the tax provision for state income taxes[237](index=237&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risks since December 31, 2021, with further details in the Annual Report on Form 10-K - No material changes in market risks have occurred since December 31, 2021[239](index=239&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management affirmed effective disclosure controls and no material changes in internal control over financial reporting as of September 30, 2022 - The Company's disclosure controls and procedures were effective as of September 30, 2022, ensuring timely and accurate reporting of information[241](index=241&type=chunk) - No material changes in internal control over financial reporting occurred during the third fiscal quarter of 2022[242](index=242&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal proceedings are not expected to materially impact financial results; a prior claim was settled for a non-material payment - Management does not expect the outcome of any legal proceedings to have a material adverse effect on the Company's consolidated financial position or results of operations[244](index=244&type=chunk) - A previously reported claim asserted by the liquidating trustee in the consolidated bankruptcy cases of IOI Integrated Systems, Inc. and Najeeb Khan was settled on September 23, 2022, for a non-material cash payment[244](index=244&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes in risk factors since December 31, 2021, with further details in the Annual Report on Form 10-K - No material changes in risk factors have occurred since December 31, 2021[245](index=245&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No equity securities were repurchased in Q3 2022; **1,576,265** shares remain available under the repurchase plan - No shares of equity securities were purchased by the issuer during July, August, or September 2022[247](index=247&type=chunk) - As of September 30, 2022, **1,576,265** shares remained available for repurchase under the stock repurchase plan authorized on July 22, 2021, which permits the repurchase of up to **2,000,000** shares[247](index=247&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities were reported[248](index=248&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported - No mine safety disclosures were reported[248](index=248&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) This section reports no other information - No other information is reported in this section[249](index=249&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) Lists filed exhibits, including securities descriptions, CEO/CFO certifications, and XBRL documents - Exhibits filed include a description of the Company's securities (**4.1**), CEO and CFO certifications (**31.1, 31.2, 32.1, 32.2**), and various XBRL taxonomy documents (**101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104**)[249](index=249&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) Report signed on October 20, 2022, by Chairman/CEO Christopher J. Murphy III and CFO Brett A. Bauer - The report was signed on **October 20, 2022**, by Christopher J. Murphy III (Chairman of the Board, President and CEO) and Brett A. Bauer (Treasurer and Chief Financial Officer, Principal Accounting Officer)[252](index=252&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6233 1st Source Corporation (Exact name of registrant as specified in its charter) Indiana 35-1068133 (State or o ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6233 1st Source Corporation (Exact name of registrant as specified in its charter) Indiana 35-1068133 (State or ...