What changed in this filing

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Item 1. Business

2024-02-20 compared with 2023-02-16 · 76 added, 100 removed, 89 unchanged (66% of the section changed)

1ST SOURCE CORPORATION

1st Source Corporation, an Indiana corporation incorporated in 1971, is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source”, “we”, and “our”), a broad array of financial products and services.

1st Source Corporation, an Indiana corporation incorporated in 1971, is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source”, the “Company”, “we”, and “our”), a broad array of financial products and services.

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 78 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 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.

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

We are not dependent upon any single industry or client.

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1ST SOURCE BANK

1st Source Bank is a wholly owned subsidiary of 1st Source Corporation that offers a broad range of consumer and commercial banking services through its lending operations, retail branches, and fee based businesses.

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, and acquisition financing.

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.

Business Services — 1st Source Bank provides commercial, small business, agricultural, and real estate loans primarily to privately owned businesses to finance industrial and commercial properties, equipment, inventories and accounts receivable, acquisitions and for general corporate purposes.

Other business services include commercial leasing, treasury management services, payment services, including digital and real time/immediate payments, Fedwires, ACH and merchant 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.

We provide construction and 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.

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 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.

Consumer Services — 1st Source Bank provides a full range of consumer banking products and services through our banking centers, client service center, and on-line.

Traditional banking services include checking and savings accounts, certificates of deposits, Health Savings Accounts and Individual Retirement Accounts as well as loans, credit cards, mortgages and home equity lines of credit.

1st Source also offers a full line of on-line and mobile banking products.

Our Automated Teller Machine network supports our debit and credit card program.

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.

Trust and Wealth Advisory Services — 1st Source Bank provides a wide range of trust, investment, agency, and custodial services for individual, corporate, and not-for-profit clients.

These services include the administration of estates and personal trusts, as well as the management of investment accounts for individuals, employee benefit plans, and charitable foundations.

Specialty Finance Group Services — 1st Source Bank, through its Specialty Finance Group, provides a broad range of comprehensive equipment loan and lease products addressing the financing needs of a broad array of companies.

This group can be broken down into four areas:

1st Source also offers insurance products through 1st Source Insurance offices or in our banking centers.

We also offer a variety of financial planning (through our network of financial advisors), financial literacy, and other consultative services.

Trust and Wealth Advisory Services — 1st Source Bank provides a wide range of trust, investment, agency, and custodial services for individual, estate and trust, corporate, and not-for-profit clients, as well as employee benefit plans and charitable foundations.

Specialty Finance Group Services — Our Specialty Finance Group provides comprehensive commercial equipment loan and lease products in four areas:

construction equipment;

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and medium and heavy duty trucks.

Construction equipment financing includes financing of equipment (i.e., asphalt and concrete plants, bulldozers, excavators, cranes and loaders, etc.) to the construction industry.

Construction equipment financing includes financing of new and pre-owned equipment (i.e., bulldozers, excavators, cranes, loaders, and asphalt and concrete plants etc.).

Construction equipment finance receivables generally range from $100,000 to $33 million with fixed or variable interest rates and terms of one to ten years.

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.

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

1st Source Bank provides selective international aircraft financing, primarily in Mexico and Brazil.

Aircraft finance receivables generally range from $500,000 to $25 million with fixed or variable interest rates and terms of one to ten years.

The auto and light truck division (including specialty vehicles such as step vans, vocational work trucks, motor coaches, shuttle buses and funeral cars) consists of fleet financings to automobile and light truck rental companies, commercial leasing companies, and single unit to fleet financing for users of specialty vehicles.

We offer auto and light truck fleet financing for new and pre-owned vehicles to automobile and light truck rental companies, commercial leasing companies, and single unit fleet financing for users of specialty vehicles (step vans, vocational work trucks, motor coaches, shuttle buses and funeral cars).

The auto and light truck finance receivables generally range from $100,000 to $45 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 and trailers to the commercial trucking industry.

The medium and heavy duty truck division provides new and pre-owned fleet financing for highway tractors, medium duty trucks and trailers to the 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 three to eight years.

SPECIALTY FINANCE GROUP SUBSIDIARIES

The Specialty Finance Group also consists of separate wholly owned subsidiaries of 1st Source Bank which include:

The Specialty Finance Group operates through 1st Source Bank and its subsidiaries including:

Michigan Transportation Finance Corporation, 1st Source Specialty Finance, Inc., SFG Aircraft, Inc., 1st Source Intermediate Holding, LLC, SFG Commercial Aircraft Leasing, Inc., and SFG Equipment Leasing Corporation I.

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1st Source Insurance, Inc.

is a wholly owned subsidiary of 1st Source Bank that provides insurance products and services to individuals and businesses covering corporate and personal property, casualty insurance, individual and group health insurance and life insurance.

is our insurance agency subsidiary placing property and casualty, individual and group health, and life insurance for individuals and businesses.

1st Source Insurance, Inc.

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

OTHER CONSOLIDATED SUBSIDIARIES

1st Portfolio Management, Inc.

owns and manages certain available-for-sale investment securities.

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

We have other subsidiaries that are not significant to the consolidated entity.

1ST SOURCE MASTER TRUST

Our unconsolidated subsidiary includes 1st Source Master Trust.

This subsidiary was created for the purpose of issuing $57.00 million of trust preferred securities and lending the proceeds to 1st Source.

1st Source Master Trust is an unconsolidated subsidiary created to issue $57.00 million of trust preferred securities and lending the proceeds to 1st Source.

We guarantee, on a limited basis, payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities.

The activities in which we and the Bank engage are highly competitive.

Our businesses and the geographic markets we serve require us to compete with other banks, some of which are affiliated with large bank holding companies headquartered outside of our principal market.

We compete with other banks, some of which are affiliated with large bank holding companies headquartered outside of our principal market.

The Bank also competes with other financial service companies, such as credit unions.

securities firms, insurance companies, finance or mortgage companies, real estate investment trusts, and some governmental agencies.

We generally compete on the basis of client service and responsiveness to client needs, available loan and deposit products, the rates of interest charged on loans and leases, the rates of interest paid for funds, other credit and service charges, the quality of services rendered, the convenience of banking facilities, and in the case of loans and leases to large commercial borrowers, relative lending limits.

In addition to competing with other banks within our primary service areas, the Bank also competes with other financial service companies, such as credit unions, industrial loan associations, securities firms, insurance companies, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit organizations, and other enterprises.

Additional competition for depositors’ funds comes from United States Government securities, private issuers of debt obligations, and suppliers of other investment alternatives for depositors.

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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.

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.

And as we have grown, the importance of our talent strategy has intensified.

We are committed to a multi-dimensional approach to talent and culture.

Diversity, Equity, and Inclusion — We cultivate diversity in all forms as part of building a strong culture in which inclusion and belonging are paramount.

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.

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

• For the second consecutive year, all new employees 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.

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

• In 2023, the Company was recognized by Newsweek as a Greatest Workplace for Parents and Families and by Forbes as a Best Midsize Employer and Best-In-State Bank.

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 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.

• 1st Source University enables colleagues to build skills and knowledge in multiple facets of our business.

• In 2023, 1st Source colleagues completed over 40,000 training modules consisting of over 1,310 different courses covering topics such as regulations, leadership development, relationship building, cybersecurity, communication, and unconscious bias.

• 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 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.

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.

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

The program is built around a series of best-in-class leadership principles.

• The Commercial Banker Development Program is a rotational program for recent college graduates designed to expose participants to fundamentals of commercial banking.

• The Tuition Reimbursement Program reflects our culture of continuous learning.

In 2023, we reimbursed over $163,000 to colleagues for tuition at 16 different Colleges and Universities with an average of approximately $3,600 per colleague who used the benefit.

• To encourage our colleagues to build careers delivering the highest levels of outstanding client service at 1st Source Bank, we developed mastery career paths for critical roles including personal and commercial banking, management and pre-management, and customer service.

In 2023, 56 career paths were tracked in our new Learning Management System.

897 career paths were accessed by our colleagues, 411 were completed, and more than 6,700 skills were developed.

• The Business of Banking series, facilitated internally, helps colleagues learn more about the banking industry as well as different areas of 1st Source Bank.

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.

1st Source and our colleagues are proud to support our local schools, nonprofits, and faith groups.

• In 2023, our colleagues donated approximately 14,300 hours to a total of 600 different organizations.

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To the extent the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.

Any change in applicable laws or regulations may have a material effect on our existing and prospective business and operations.

We are unable to predict the nature or the extent of the effects on our business, operations and earnings that fiscal or monetary policies, economic controls, or new federal or state legislation or regulation may have in the future.

We are a registered bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA), and, as such, we are subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (Federal Reserve).

We are required to file annual reports with the Federal Reserve and to provide the Federal Reserve such additional information as it may require.

We are a registered bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA), subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (Federal Reserve).

We are required to file annual reports with the Federal Reserve and provide additional information as required.

The Bank, as an Indiana state bank and member of the Federal Reserve System, is subject to prudential supervision by the Indiana Department of Financial Institutions (DFI) and the Federal Reserve Bank of Chicago (FRB Chicago).

As such, 1st Source Bank is regularly examined by and subject to regulations promulgated by the DFI and the Federal Reserve.

1st Source Bank is regularly examined by and subject to regulations promulgated by the DFI and the Federal Reserve.

Because the Federal Deposit Insurance Corporation (FDIC) provides deposit insurance to the Bank, we are also subject to supervision and regulation by the FDIC (even though the FDIC is not our primary Federal regulator).

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Bank Holding Company Act — Under the BHCA our activities are limited to (i) business so closely related to banking, managing, or controlling banks as to be a proper incident thereto and (ii) non-bank activities, determined by law or regulation, to be closely related to the business of banking or of managing or controlling banks.

We are also subject to capital requirements applied on a consolidated basis in a form substantially similar to those required of the Bank.

The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company.

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At December 31, 2023, the Bank was categorized as “well capitalized,” meaning that our total risk-based capital ratio exceeded 10.00%, our Tier 1 risk-based capital ratio exceeded 8.00%, our common equity Tier 1 risk-based capital ratio exceeded 6.50%, our leverage ratio exceeded 5.00%, and we are not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.

The various regulatory capital requirements that we are subject to are disclosed in Part II, Item 8, Financial Statements and Supplementary Data — Note 20 of the Notes to Consolidated Financial Statements.

1st Source and the Bank have elected not to utilize the community bank leverage ratio framework adopted by the Federal Reserve and the other federal banking agencies in 2020.

Regulatory capital requirements to which we are subject are disclosed in Part II, Item 8, Financial Statements and Supplementary Data — Note 20 of the Notes to Consolidated Financial Statements.

As of December 31, 2023, we were in compliance with all applicable regulatory capital requirements and guidelines.

In September 2019, the Federal Reserve and other federal banking agencies adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio (“CBLR”) for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria.

The CBLR provides for a simple measure of capital adequacy for qualifying institutions.

Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies’ capital rules and to have met the well-capitalized ratio requirements.

Management reviewed the CBLR framework and has determined that 1st Source and the Bank will not elect to use the CBLR framework.

Securities and Exchange Commission (SEC) and The NASDAQ Stock Market (NASDAQ) — We are also subject to regulations promulgated by the SEC and certain state securities commissions for matters relating to the offering and sale of our securities.

We are subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC.

Securities and Exchange Commission (SEC) and The NASDAQ Stock Market (NASDAQ) — We are subject to regulations promulgated by the SEC and certain states for matters relating to the offering and sale of our securities.

We are subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

We are listed on the NASDAQ Global Select Market under the trading symbol “SRCE,” and we are subject to the rules of NASDAQ for listed companies.

Gramm-Leach-Bliley Act of 1999 — The GLBA expanded the types of financial activities a bank may conduct through a financial subsidiary and established a distinct type of bank holding company, known as a financial holding company, which may engage in an expanded list of activities that are “financial in nature.” These activities include securities and insurance brokerage, securities underwriting, insurance underwriting, and merchant banking.

Gramm-Leach-Bliley Act of 1999 (GLBA) — The GLBA provides for financial activities that a bank may conduct through a financial subsidiary and established a distinct type of bank holding company, known as a financial holding company, which may engage in defined activities that are “financial in nature.” These activities include securities and insurance brokerage, securities underwriting, insurance underwriting, and merchant banking.

We do not currently intend to file notice with the Federal Reserve to become a financial holding company or to engage in expanded financial activities through a financial subsidiary of the Bank.

Financial Privacy — The GLBA also includes privacy protections for nonpublic personal information held by financial institutions regarding their customers.

In accordance with the GLBA, Federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to nonaffiliated third parties.

Rules under GLBA limit the ability of banks to disclose non-public information about customers to nonaffiliated third parties.

These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.

The privacy provisions of the GLBA affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

We are also subject to various state laws, including the recently enacted California Consumer Privacy Act, that generally require us (directly or indirectly through our vendors) to protect the personal information of individual customers and notify them if confidentiality of their personal information is or may have been compromised as the result of a data security breach or failure.

USA Patriot Act of 2001 — The USA Patriot Act of 2001 (USA Patriot Act) substantially broadened the scope of anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions.

The regulations adopted by the Treasury under the USA Patriot Act require financial institutions to maintain appropriate controls to combat money laundering activities, perform due diligence of private banking and correspondent accounts, establish standards for verifying customer identity, and provide records related to suspected anti-money laundering activities upon request from federal authorities.

We are also subject to various state laws, including the California Consumer Privacy Act, that generally require us (directly or indirectly through our vendors) to protect the personal information of individual customers and notify them if confidentiality of their personal information is or may have been compromised as the result of a data security breach or failure.

USA Patriot Act of 2001 — Regulations under the USA Patriot Act require financial institutions to maintain appropriate controls to combat money laundering activities, perform due diligence of private banking and correspondent accounts, establish standards for verifying customer identity, and provide records related to suspected anti-money laundering activities upon request from federal authorities.

A financial institution’s failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches, and could also have other serious legal and reputational consequences for the institution.

We have established policies, procedures and systems designed to comply with these regulations.

Community Reinvestment Act — The Community Reinvestment Act of 1977 requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks.

Federal banking regulators are required to consider a financial institution’s performance in these areas as they review applications filed by the institution to engage in mergers or acquisitions or to open a branch or facility.

Laws and Regulations Governing Extensions of Credit — The Bank is subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to 1st Source or our subsidiaries, and on investments in our securities and the use of our securities as collateral for loans to any borrowers.

Community Reinvestment Act of 1977 (CRA) — The CRA requires federal banking regulators to evaluate the record of the financial institutions they examined in meeting the credit needs of their local communities, including low and moderate income neighborhoods.

Federal banking regulators will consider our performance in these areas as they review any applications we may file to engage in mergers or acquisitions or to open a branch or facility.

On October 24, 2023, federal banking agencies issued a final rule designed to strengthen and modernize the regulations implementing the CRA.

The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to industry changes including mobile and internet banking, provide greater clarity and consistency in the application of CRA regulations and tailor CRA evaluations and data collection to bank size and type.

Laws and Regulations Governing Extensions of Credit — The Bank is subject to restrictions imposed by the Federal Reserve Act on extensions of credit to 1st Source or our subsidiaries, and on investments in our securities and the use of our securities as collateral for loans to any borrowers.

These restrictions may limit our ability to obtain funds from the Bank for our cash needs, including funds for acquisitions and for payment of dividends, interest and operating expenses.

Further, the BHCA, certain regulations issued by the Federal Reserve, state laws and many other federal laws govern extensions of credit and generally prohibit a bank from extending credit, engaging in a lease or sale of property, or furnishing services to a customer on condition that the customer request and obtain additional services from the bank’s holding company or from one of its subsidiaries.

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’s regulations require depository institutions to maintain reserves against their transaction account deposits.

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

Reserve Requirements — Federal Reserve 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 2023;

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See Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for further discussion of dividend limitations.

Monetary Policy and Economic Control — The commercial banking business in which we engage is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve.

Monetary Policy and Economic Control — The commercial banking business also is affected by the monetary policies of the Federal Reserve.

Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign branches, and the imposition of, and changes in, reserve requirements against certain borrowings by banks and their affiliates, are some of the tools of monetary policy available to the Federal Reserve.

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Future monetary policies and the effect of such policies on our future business and earnings, and the effect on the future business and earnings of the Bank cannot be predicted.

Sarbanes-Oxley Act of 2002 — The Sarbanes-Oxley Act of 2002 (SOA) includes provisions intended to enhance corporate responsibility and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws, and which increase penalties for accounting and auditing improprieties at public traded companies.

In March 2023, the Federal Reserve created a Bank Term Funding Program (BTFP) to provide funding to eligible depository institutions in addition to the funding provided through its “discount window.” The BTFP offers loans up to one year in length that can be prepaid without penalty.

The amount that can be borrowed under the BTFP is based upon the par value of the securities pledged as collateral to the Federal Reserve.

Advances can be requested under the BTFP until March 11, 2024.

At December 31, 2023, the Bank had $100 million of BTFP borrowings.

Sarbanes-Oxley Act of 2002 (SOA) — The SOA includes provisions intended to enhance corporate responsibility and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws, and which increase penalties for accounting and auditing improprieties at public traded companies.

The SOA generally applies to all companies, including 1st Source, that file or are required to file periodic reports with the SEC under the Exchange Act.

Among other things, the SOA also addresses functions and responsibilities of audit committees of public companies.

SOA also addresses functions and responsibilities of audit committees of public companies.

The statute, by mandating certain stock exchange listing rules, makes the audit committee directly responsible for the appointment, compensation, and oversight of the work of the company’s outside auditor, and requires the auditor to report directly to the audit committee.

The SOA authorizes each audit committee to engage independent counsel and other advisors, and requires a public company to provide the appropriate funding, as determined by its audit committee, to pay the company’s auditors and any advisors that its audit committee retains.

The SOA requires that audit committees be empowered to engage independent counsel and other advisors, and requires a public company to provide funding to pay the company’s auditors and any advisors the audit committee retains.

Consumer Financial Protection Laws — The Bank is subject to numerous federal and state consumer financial protection laws and regulations that extensively govern its transactions with consumers.

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Failure to comply with these laws may also cause the Federal Reserve or DFI to deny approval of any applications we may file to engage in merger and acquisition transactions with other financial institutions or open a new banking center.

Dodd-Frank Wall Street Reform and Consumer Protection Act — The Dodd-Frank Act, which was signed into law in 2010, significantly changed the regulation of financial institutions and the financial services industry.

The Dodd-Frank Act includes provisions affecting large and small financial institutions alike, including several provisions that profoundly affected the regulation of community banks, thrifts, and small bank and thrift holding companies.

Among other things, these provisions relax rules on interstate branching, allow financial institutions to pay interest on business checking accounts, and impose heightened capital requirements on bank and thrift holding companies.

The Dodd-Frank Act also includes several corporate governance provisions that apply to all public companies, not just financial institutions.

These include provisions mandating certain disclosures regarding executive compensation and provisions addressing proxy access by shareholders.

The Dodd-Frank Act also establishes the CFPB as an independent entity within the Federal Reserve, and the Act transferred to the CFPB primary responsibility for administering substantially all of the consumer compliance protection laws formerly administered by other federal agencies.

The Dodd-Frank Act also authorizes the CFPB to promulgate consumer protection regulations that will apply to all entities, including banks, that offer consumer financial services or products.

Dodd-Frank Wall Street Reform and Consumer Protection Act — The Dodd-Frank Act includes provisions that, among other things, relax rules on interstate branching, allow financial institutions to pay interest on business checking accounts, and impose heightened capital requirements on bank holding companies.

The Dodd-Frank Act also established the CFPB as an independent entity within the Federal Reserve, and transferred to the CFPB primary responsibility for administering substantially all federal consumer compliance protection laws.

The Dodd-Frank Act also authorizes the CFPB to promulgate consumer protection regulations that apply to all entities, including banks, that offer consumer financial services or products.

It also includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payment penalties.

The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, including some that may affect our business in substantial and unpredictable ways.

We have incurred higher operating costs in complying with the Dodd -Frank Act, and we expect that these higher costs will continue for the foreseeable future.

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 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.

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.

We cannot predict whether or in what form any proposals will be adopted or the extent to which our business may be affected.

This provision 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.

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