What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-02-16 compared with 2022-02-17 · 30 added, 51 removed, 159 unchanged (34% of the section changed)

8 unchanged sentences

Access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports is available, free of charge, at www.1stsource.com soon after the material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).

Information on our website is not incorporated by reference into this Form 10-K or our other public filings.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

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Commercial, Agricultural, and Real Estate Loans — 1st Source Bank provides commercial, small business, agricultural, and real estate loans to primarily privately owned business clients mainly located within our regional market area.

Loans are made for a wide variety of general corporate purposes, including financing for industrial and commercial properties, financing for equipment, inventories and accounts receivable, renewable energy financing, and acquisition financing.

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

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

1st Source offers a full line of on-line and mobile banking products which includes person-to-person payments, mobile deposit, outside account aggregation, money management budgeting solution and bill payment.

1st Source offers a full line of on-line and mobile banking products which includes on-line and mobile account opening, person-to-person payments, mobile deposit, outside account aggregation, money management budgeting solution and bill payment.

As an added convenience, a strategically located Automated Teller Machine network serves our customers and supports the debit and credit card programs of the bank.

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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.

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

SPECIALTY FINANCE GROUP SUBSIDIARIES

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has ten offices.

1ST PORTFOLIO MANAGEMENT, INC.

1st Portfolio Management, Inc.

is a wholly owned subsidiary of 1st Source Bank that owns and manages certain available-for-sale investment securities.

CONSOLIDATED VARIABLE INTEREST SUBSIDIARIES

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, 1st Source Solar 6, LLC and 1st Source Solar 7, 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, 1st Source Solar 7, LLC and 1st Source Solar 8, LLC.

OTHER CONSOLIDATED SUBSIDIARIES

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

HUMAN CAPITAL

At December 31, 2022, we had approximately 1,150 colleagues on a full-time equivalent basis.

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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.

The COVID-19 pandemic has created challenges that required an immediate and evolving response to ensure the safety of our team members and our clients.

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.

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.

• Since 2021, all employees have completed a series of facilitated training sessions on unconscious bias within six months of hire.

• Diversity in leadership starts with our Board of Directors and we are proud to report that five of our twelve Board Members (42%) are women or minority.

• For the sixth consecutive year, more than 21% of our new hires were diverse colleagues.

• In 2022, Forbes Magazine recognized the Company again as one of America’s best employers for diversity and in 2021 as one of America’s best employers for veterans.

While we appreciate such recognition, our work here is never done and we are committed to continuous improvement in this area.

Training and Talent Development — We believe a critical driver of our future growth is the 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.

We provide developmental opportunities for our colleagues at all levels 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.

• In 2022, 1st Source colleagues completed over 38,000 training modules consisting of over 1,180 different courses covering topics such as regulations, leadership development, relationship building, cybersecurity, soft skills, and unconscious bias.

• The 1st Source L.E.A.D.

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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 Commercial Banker Development Program is a 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 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.

In 2022, we reimbursed over $137,000 to colleagues for tuition reimbursement with an average of $3,600 per colleague who used the benefit.

• The Ivy Tech Bank Cohort Education Program was developed and made available through a partnership between 1st Source and Ivy Tech Community College to provide opportunities for obtaining a college degree among colleagues in the hourly and lower-level salaried workforce.

The program was an important investment in education which then jumpstarted colleague interest in returning to school at Ivy Tech and other universities.

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.

Community Engagement — Our organization is only as strong as the communities we serve.

Our colleagues give their time, talent, and treasure to a wide variety of organizations in their local communities.

1st Source and our colleagues are proud to support our local schools, nonprofits, and faith groups while continuing to promote increased financial literacy through our straight talk and sound advice.

• In 2022, our colleagues donated approximately 13,000 hours to a total of 900 different organizations.

• In 2022, our colleagues contributed over $189,000 to local United Way organizations.

• In 2022, 1st Source contributed over $745,000 to over 450 deserving and successful community service organizations.

REGULATION AND SUPERVISION

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The Bank is also subject to numerous restrictions imposed by the Federal Reserve Act on extensions of credit to insiders of 1st Source and/or the Bank – executive officers, directors, principal shareholders, or any related interest of such persons.

Reserve Requirements — The Federal Reserve requires all depository institutions to maintain reserves against their transaction account deposits.

For all net transaction accounts in 2021, the reserve requirement ratio was set to zero percent in March 2020;

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

Reserve Requirements — The Federal Reserve’s regulations require depository institutions to maintain reserves against their transaction account deposits.

In March 2020, in response to the COVID-19 pandemic, the Federal Reserve set the reserve requirement ratio for all net transaction accounts to zero percent, and this requirement remained in place throughout 2022;

therefore, all of the Bank’s net transaction accounts as of December 31, 2022 were 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 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.

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Our management continues to monitor the ongoing implementation of the Dodd-Frank Act and as new regulations are issued, will assess their effect on our business, financial condition, and results of operations.

The Volcker Rule — The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and from investing and sponsoring hedge funds and private equity funds.

The Volcker Rule — The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and from investing in and sponsoring hedge funds and private equity funds.

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.

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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