What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-17 compared with 2021-02-18 · 65 added, 61 removed, 145 unchanged (46% of the section changed)

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1st Source Bank (“Bank”), its banking subsidiary, offers commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of our 79 banking center locations in 18 counties in Indiana and Michigan and Sarasota County in Florida.

1st Source Bank’s Specialty Finance Group, with 18 locations nationwide, offers specialized financing services for construction equipment, new and used private and cargo aircraft, and various vehicle types (cars, trucks, vans) for fleet purposes.

1st Source Bank’s Specialty Finance Group, with 18 locations nationwide, offers specialized financing services for construction equipment, new and pre-owned private and cargo aircraft, and various vehicle types (cars, trucks, vans) for fleet purposes.

While our lending portfolio is concentrated in certain equipment types, we serve a diverse client base.

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Other services include commercial leasing, treasury management services and retirement planning services.

Renewable Energy Financing — 1st Source Bank provides financing for commercial solar projects across the contiguous United States, with a focus in the Northeast and Midwest states.

1st Source Bank’s approach provides solar developers with one-stop shop financing including construction loans, permanent loans, and tax equity investments for community solar, commercial and industrial, small utility scale, university, and municipal projects.

Project sizes generally range from five megawatts to 20 megawatts.

Consumer Services — 1st Source Bank provides a full range of consumer banking products and services through our banking centers and at 1stsource.com.

In a number of our markets, 1st Source also offers insurance products through 1st Source Insurance offices or in our banking centers.

The traditional banking services include checking and savings accounts, certificates of deposits and Individual Retirement Accounts.

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Consumers also have the ability to obtain consumer loans, credit cards, real estate mortgage loans and home equity lines of credit in any of our banking centers or on-line.

In a number of our markets, 1st Source also offers insurance products through 1st Source Insurance offices or in our banking centers.

Finally, 1st Source offers a variety of financial planning, financial literacy and other consultative services to our customers.

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construction equipment;

new and used aircraft;

new and pre-owned aircraft;

auto and light trucks;

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Construction equipment finance receivables generally range from $50,000 to $25 million with fixed or variable interest rates and terms of one to ten years.

Aircraft financing consists of financings for new and used general aviation aircraft (including helicopters) for private and corporate aircraft users, aircraft distributors and dealers, air charter operators, air cargo carriers, and other aircraft operators.

Aircraft financing consists of financings for new and pre-owned general aviation aircraft (including helicopters) for private and corporate aircraft users, aircraft distributors and dealers, air charter operators, air cargo carriers, and other aircraft operators.

For many years, on a limited and selective basis, 1st Source Bank has provided international aircraft financing, primarily in Mexico and Brazil.

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The auto and light truck finance receivables generally range from $50,000 to $35 million with fixed or variable interest rates and terms of one to eight years.

The medium and heavy duty truck division provides fleet financing for highway tractors, medium duty trucks (including environmental vehicles) and trailers to the commercial trucking industry.

Medium and heavy duty truck finance receivables generally range from $50,000 to $20 million with fixed or variable interest rates and terms of two to seven years.

The medium and heavy duty truck division provides fleet financing for highway tractors, medium duty trucks and trailers to the commercial trucking industry.

Medium and heavy duty truck finance receivables generally range from $50,000 to $25 million with fixed or variable interest rates and terms of three to seven years.

In addition to loan and lease financings during 2021, the group had average total deposit account balances of approximately $231 million.

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1st Source Bank is the managing general partner in the following subsidiaries that have interests in tax-advantaged investments with third parties:

1st Source Solar 2, LLC, 1st Source Solar 3, LLC, 1st Source Solar 4, LLC, 1st Source Solar 5, LLC and 1st Source Solar 6, LLC.

1st Source Solar 2, LLC, 1st Source Solar 3, LLC, 1st Source Solar 4, LLC, 1st Source Solar 5, LLC, 1st Source Solar 6, LLC and 1st Source Solar 7, LLC.

OTHER CONSOLIDATED SUBSIDIARIES

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We rely on our history and our reputation in northern Indiana dating back to 1863.

Our primary objective for personal development and personnel management is to attract, retain and develop the highest quality people.

To support this objective, our human resource programs are designed to develop colleagues and prepare them for appreciating and pursuing lifelong learning, properly serving our clients, critical roles and leadership positions for the future;

reward and support them through competitive pay and benefit programs;

enhance the Company’s culture and values through efforts aimed at making the workplace more diverse and inclusive;

and attract people and facilitate internal development and mobility to create a high-performing, diverse group of colleagues.

HUMAN CAPITAL

At December 31, 2021, we had approximately 1,130 colleagues on a full-time equivalent basis.

As a service-driven business, our long-term success depends on our people.

And as the Company grows, the importance of our talent strategy has only intensified.

For these reasons, we are committed to taking a multi-dimensional approach to talent and culture.

We are concerned with the health and safety of our colleagues, clients and the communities we serve.

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See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Coronavirus (COVID-19) Impact” for more information regarding the actions we have taken in response to the ongoing pandemic.

One of our foundational values is community leadership.

We encourage our team members and leaders to support the organizations and causes they are passionate about, and to serve their communities in the ways they are able.

The pandemic has had an impact on volunteer opportunities and events that bring people together in support of those in need.

We are pleased that this did not stop our colleagues from doing what they could, when and how they could.

During 2020, our team members volunteered over 12,000 hours of their time to such causes.

At December 31, 2020, we had approximately 1,175 colleagues on a full-time equivalent basis.

ENVIRONMENTAL SUSTAINABILITY

1st Source endeavors to be a good steward of the environment.

We have an approach that protects and conserves our natural resources through methods such as:

Developing business practices that protect and conserve natural resources — We use responsible, reputable, and monitored e-recyclers for our electronic assets.

All computers, including desktops, laptops, and monitors, are properly recycled.

We are conscious of our paper usage, recognizing that we depend on printed materials for important day-to-day office work, client communications, and acquiring new clients.

Increasingly, consumers demand more environmentally sustainable options and prefer online statements and correspondence rather that printed materials.

The majority of the paper used in our facilities is recycled through our secure shred program and in 2020 we recycled 251,000 pounds of paper.

In recent years, we have transitioned away from the traditional proxy model and have utilized the notice and access or “e-proxy” model for supplying shareholder materials for our Annual Meeting.

This has resulted in a reduction in the amount of paper consumed by us each year during this process.

We have also utilized recycled paper for the production of shareholder materials which we are required to print upon shareholder request.

The paper we use for the production of shareholder materials is also certified by the Forest Stewardship Council (FSC).

The FSC promotes environmentally appropriate, socially beneficial, and economically viable management of the world’s forests.

Additionally, we are utilizing various sustainable practices in some of our facilities such as LED lights, daylight harvesting sensors, programmable thermostats, 95% or higher efficiency furnace systems, drip irrigation, 90% recycled mats, sustainable landscaping and smart irrigation systems.

In an effort to reduce our carbon footprint, we have utilized solar panels in two of our banking centers for supplemental sustainable power.

These banking centers have supplemented approximately 23% of their total electrical usage (per banking center) with renewable solar power.

Embracing opportunities for new products, services and partnerships — In 2020, we continued our focus on renewable energy sources through lending and investment partnerships with renewable energy providers.

We recognize the opportunities and complexities associated with energy financing and understand the value of innovative technology that leverages the wind and sun, which are sustainable from an environmental and financial perspective.

To date, we have invested $84 million and provided debt financing in 32 solar projects across 12 states with current loan and lease outstandings of $293 million.

We employ a values-based, relationship-focused approach to financing solar projects and partner with strong developers who have national project pipelines.

Many of our solar clients focus on projects in Midwestern and Northeastern states.

This geographic focus is driven primarily by new and developing state solar programs, many of which require or include incentives for Community Solar projects, which are distributed generation solar projects but are typically smaller in size than small utility projects.

These solar projects consist of one or multiple solar arrays that are interconnected with the local utility grid.

A group of subscribers, including commercial businesses, small business, municipalities, and residential homes, participate in the program and receive the benefits of purchasing their electricity from the community solar array.

Community Solar projects are a strategic focus for our portfolio, with existing community solar projects in Minnesota, Illinois, New York, and Massachusetts.

In addition to our focus on Community Solar projects, we also finance solar projects that provide clean energy to colleges, universities, school districts, utilities, and municipalities as we seek to continue our efforts to reduce our carbon footprint through sustainable investments.

The 32 solar projects in our existing portfolio have a current operating capacity of 288,852 MWh per year, which is equivalent to avoiding 204,230 metric tons of carbon greenhouse emissions or 225 million pounds of coal burned.

We are committed to investing in and financing solar energy projects and are pleased with the current and ongoing environmental benefits of this portfolio that positively impact the lives of people in communities across the United States.

We will continue to finance and invest in sustainable opportunities, and we will explore new opportunities to develop products and solutions that support our clients and advance sustainability.

Adopting new technologies — We encourage our clients to take advantage of our online and mobile banking tools.

Our ATM devices allow clients to make deposits without the need for an envelope.

This reduces the use of paper, which again reduces emissions throughout our supply chain.

To help reduce emissions associated with travel, we have tools that help clients choose the banking center and ATMs closest to them.

In addition, mobile deposit features are available to our clients, enabling them to deposit checks into their accounts using their mobile devices.

Many of these approaches can create long-term value for our clients and shareholders through increased revenues, reduced costs and improved convenience.

Diversity, Equity and Inclusion — At 1st Source, we cultivate and advance diversity in all forms as part of building a strong culture, a culture in which inclusion and belonging are paramount, and where all of our colleagues strive to be open and inclusive leaders and teammates.

Our culture is what unifies our colleagues across our diverse business model, ensures we are best positioned to serve our diverse clients and propels our continuous evolution.

In 2021, Forbes Magazine recognized the Company again as one of America’s best employers for veterans which included our approach to diversity and inclusion.

While we appreciate such recognition, we are committed to continuous improvement in this area.

Oversight of Our Progress — Senior-level oversight and ongoing monitoring are critical to informing and improving our recruiting and development practices as we seek to continually create a more inclusive and diverse organization.

We are proud of a 50+ year tradition since 1st Source became independent again in 1971 supported by consistent leadership of a Board representative of racial, ethnic, gender, and experiential diversity.

This was highlighted in 2021 as two of our board members, Melody Birmingham and Tracy Graham, were recognized by Savoy Magazine on their list of Most Influential Black Corporate Directors.

Transparency and Accountability — We reinforce oversight and monitoring by, among other things, setting annual goals for diversity, equity and inclusion in our primary performance incentive plans.

In 2021, all employees completed a required series of facilitated training sessions on unconscious bias.

In addition, with our workforce, we track and monitor voluntarily disclosed diversity data to review hiring, promotion and attrition at the Company, regional and functional levels.

We also review performance data and promotion and compensation information to ensure fair and objective decision-making.

During our regular reviews of each business unit, senior management engages in focused conversations with each business about their plans and progress in professional development of their teams and with respect to diversity and inclusion.

Talent Vision and Strategy — Our people and culture are critical to the Company’s long-term success.

As such, our talent vision and strategy focus on:

• Ensuring every candidate selected has a desire to serve others and demonstrates our unique service delivery model in their personal reoccurring patterns of behavior.

• Enabling change management and performance teams that generate career opportunities for our people and create future leaders of the firm.

• Creating an environment of inclusion, belonging and diversity, where we work with purpose and everyone feels seen, heard, and engaged.

• Promoting emotional ownership and partnership throughout the Company.

Our talent vision and strategy must be implemented in the context of an evolving business with accelerating velocity of change.

To reflect the ongoing transformation in our industry, we are focused on:

• Reinforcing our culture and diversity as a source of competitive advantage.

• Delivering a consistent, fair, and high-quality experience for our people.

• Designing an organizational model that supports our diversified lines of business and growing technology capabilities.

• Developing a scalable technology platform to effectively deploy and manage our people.

processes, and technologies.

Talent Development — We believe a critical driver of our firm’s future growth is our ability to grow leaders.

We are committed to identifying and developing talent to help our colleagues accelerate their growth and achieve their career goals.

We provide developmental opportunities for our colleagues through a robust set of formal and informal programs.

• 1st Source University focuses on enabling colleagues to build skills and knowledge in specific facets of our business.

These educational experiences and resources include topics such as client relationships, technology, investments, compliance, leadership and management, and professional development.

• The 1st Source L.E.A.D.

program is a set of immersive experiences and collaborative interactions, developing leadership capability over a fourteen-month period.

The program is built around a series of best-in-class leadership principles and their application by participants as they lead their current teams.

• The Business of Banking is a year-long set of presentations for new colleagues and early career program participants to share resources and experiences designed to help colleagues explore our history and engage in shaping our future.

• 1st Source Mastery Programs provide a deep dive into skill development and mastery of specific roles to enhance role competencies and increase levels of overall performance.

These mastery programs are designed to deliver increased levels of outstanding client service by our colleagues, continually differentiating our service above our competitors over time.

They also increase talent/diversity attraction, engagement, and retention for the long term.

• The Commercial Banker Development Program is a two-year rotational program for recent college graduates designed to expose participants to fundamentals of commercial banking, including the funding and pricing of commercial loans, credit analysis and relationship sales.

• The Customer Service Representative Career Development Program is a structured approach to developing and improving one’s career serving clients in our Banking Centers.

• The Tuition Reimbursement Program reflects our philosophy of continuous learning and provides for reimbursement of tuition related expenses incurred through approved and accredited public and private not-for-profit institutions of higher education.

• The IVY Tech Bank Cohort Education Program was developed and made available through a partnership between the Company and IVY Tech Community College to provide opportunities for obtaining a college degree among colleagues in the hourly and lower-level salaried workforce.

This newly developed program has been an important investment in education and has an undeniable jumpstart effect.

We have moved from a low of 16 colleagues attending eight colleges and universities in the year prior to the program creation, to now almost 50 colleagues who are attending 22 different schools.

Many in our first cohort of students have gone on to obtain their bachelor’s degree and found success in new growth opportunities at 1st Source.

• The Banking Apprentice Program attracts locally embedded diverse high school graduates and rising seniors to work for the Company and experience the pride and fulfillment to be found in serving others and introduce them to the business of banking.

• New Employee Orientation introduces new colleagues to our history, vision, mission, and values.

• We engage in talent review and succession planning continuously but engage in a formal review annually to reaffirm existing and identify new high potential, talented and diverse colleagues as we strive to deepen, enhance, and diversify our leadership bench.

We then implement multi-year individual development plans for these colleagues which include special assignments, structured learning, assessments, external coaching, sponsorship and hands-on work, and a blend of full cohort, small group, and individually tailored development opportunities.

• As noted above, all employees in 2021 completed a multi-module unconscious bias training program which gave us an opportunity to collectively work together to identify and address our biases that will improve our interactions and make us a stronger organization.

REGULATION AND SUPERVISION

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therefore, all net transaction accounts are exempt from reserve requirements.

Dividends — The ability of the Bank to pay dividends is limited by state and federal laws and regulations that require the Bank to obtain the prior approval of the DFI and the FRB of Chicago before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years.

Dividends — The ability of the Bank to pay dividends is limited by state and federal laws and regulations that require the Bank to obtain the prior approval of the DFI and the FRB Chicago before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years.

The amount of dividends the Bank may pay may also be limited by certain covenant agreements and by the principles of prudent bank management.

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The provision of the statute imposing these restrictions is commonly called the “Volcker Rule.” The regulations implementing the Volcker Rule exempt the Bank, as a bank with less than $10 billion in total consolidated assets that does not engage in any covered activities other than trading in certain government, agency, state or municipal obligations, from any significant compliance obligations under the Volcker Rule.

2018 Regulatory Reform — In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (Regulatory Relief Act), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act.

While the Regulatory Relief Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.

The Regulatory Relief Act, among other things, expands the definition of qualified mortgages a financial institution may hold and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “community bank leverage ratio” of between 8% and 10%.

Any qualifying depository institution or its holding company that exceeds this community bank leverage ratio will be considered to have met generally applicable leverage and risk-based capital requirements.

Further, any qualifying depository institution that exceeds the new ratio will be considered to be “well capitalized” for purposes of the prompt corrective action rules.

In addition, the Regulatory Relief Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the proprietary trading prohibitions in the Volcker Rule, mortgage disclosures, and risk weights for certain high-risk commercial real estate loans.

It is difficult at this time to predict when or how any new standards under the Regulatory Relief Act will ultimately be applied to the Bank or 1st Source or what specific impact the Regulatory Relief Act and the yet-to-be-written implementing rules and regulations will have on the Bank or 1st Source.

Pending Legislation — Because of concerns relating to competitiveness and the safety and soundness of the banking industry, Congress often considers a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the nation’s financial institutions.

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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 1. Business