What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-20 compared with 2023-02-16 · 153 added, 145 removed, 1567 unchanged (16% of the section changed)

15 unchanged sentences

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 16, 2023, expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2024, expressed an unqualified opinion thereon.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit, Finance and Risk Committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan and Lease Losses

Critical Audit Matter

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

As described in Note 5 to the consolidated financial statements, the Company’s consolidated allowance for loan and lease losses (ALLL) was $147.55 million at December 31, 2023.

14 unchanged sentences

• Testing the design and operating effectiveness of internal controls, including those related to technology over the ALLL, the establishment of qualitative adjustments for current and expected conditions, grading and risk classification of loans and establishment of specific reserves on individually evaluated loans and management’s review controls over the ALLL balance as a whole including attending internal Company Credit Policy Committee meetings and Audit Committee discussions and analysis.

• Testing clerical and computational accuracy of the formulas within the calculation.

• Testing of completeness and accuracy of the information and reports utilized in the ALLL, including reports used in management review controls over the ALLL.

1 unchanged sentence

• Evaluating the current and expected qualitative adjustments, including assessing the basis for the adjustments and the reasonableness of the significant assumptions including growth in gross domestic product, unemployment rates, housing market trends, commodity prices, and inflation rates.

• Evaluating the forecast adjustment, including assessing that it is reasonable and supportable.

• Evaluating significant assumptions utilized in the probability of default/loss given default model including probability of default run-out frequency, length, and look-back period and loss given default months of delay, look-back period and loss horizon.

• Evaluating significant assumptions utilized in the cohort model including look-back period, months of delay, and loss horizon.

• Evaluating the relevance and reliability of data and assumptions.

• Testing of the loan review function and the accuracy of loan grades determined.

Specifically, utilizing internal professionals to assist us in evaluating the appropriateness of loan grades and to assess the reasonableness of specific impairments on loans.

• Evaluating the overall reasonableness of qualitative factors and the appropriateness of their direction and magnitude and the Company’s support for the direction and magnitude compared to previous years.

• Evaluating credit quality indicators such as trends in delinquencies, nonaccruals, charge-offs, and loan grades.

• Identifying fields in the various loan systems that defined the loan pools and tested the design and operating effectiveness of internal controls surrounding the input and maintenance of those fields.

/s/ FORVIS, LLP (Formerly, BKD, LLP)

Specifically, utilizing internal professionals to assist us in evaluating the appropriateness of loan grades.

• Evaluating the overall reasonableness of qualitative factors and the Company’s support for magnitude.

/s/ FORVIS, LLP

We have served as the Company’s auditor since 2015.

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

13 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ FORVIS, LLP (Formerly, BKD, LLP)

/s/ FORVIS, LLP

Fort Wayne, Indiana

9 unchanged sentences

Commercial and agricultural 766,223 812,031

Solar 381,163 348,302

Renewable energy 399,708 381,163

Auto and light truck 966,912 808,117

70 unchanged sentences

Equipment rental 8,837 12,274 16,647

(Losses) gains on investment securities available-for-sale ( 184 ) ( 680 ) 279

Losses on investment securities available-for-sale ( 2,926 ) ( 184 ) ( 680 )

Other 19,895 15,042 12,560

19 unchanged sentences

The accompanying notes are a part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31 (Dollars in thousands)

1 unchanged sentence

Net income $ 124,934 $ 120,532 $ 118,557

Other comprehensive (loss) income:

Unrealized (depreciation) appreciation of investment securities available-for-sale ( 181,237 ) ( 37,867 ) 17,666

Reclassification adjustment for realized losses (gains) included in net income 184 680 ( 279 )

Other comprehensive income (loss):

Unrealized appreciation (depreciation) of investment securities available-for-sale 51,360 ( 181,237 ) ( 37,867 )

Reclassification adjustment for realized losses included in net income 2,926 184 680

Income tax effect ( 12,919 ) 43,224 8,955

Other comprehensive (loss) income, net of tax ( 137,829 ) ( 28,232 ) 13,199

Comprehensive (loss) income ( 17,297 ) 90,325 94,660

Other comprehensive income (loss), net of tax 41,367 ( 137,829 ) ( 28,232 )

Comprehensive income (loss) 166,301 ( 17,297 ) 90,325

Comprehensive (income) loss attributable to noncontrolling interests ( 7 ) ( 23 ) ( 23 )

Comprehensive (loss) income available to common shareholders $ ( 17,320 ) $ 90,302 $ 94,636

Comprehensive income (loss) available to common shareholders $ 166,294 $ ( 17,320 ) $ 90,302

The accompanying notes are a part of the consolidated financial statements.

3 unchanged sentences

Balance at January 1, 2021 $ — $ 436,538 $ 514,176 $ ( 82,240 ) $ 18,371 $ 886,845 $ 43,825 $ 930,670

Cumulative-effect adjustment — — ( 2,552 ) — — ( 2,552 ) — ( 2,552 )

Balance at January 1, 2020, adjusted — 436,538 460,717 ( 76,702 ) 5,172 825,725 20,359 846,084

Net income — — 118,534 — — 118,534 23 118,557

Other comprehensive income — — — — 13,199 13,199 — 13,199

Other comprehensive loss — — — — ( 28,232 ) ( 28,232 ) — ( 28,232 )

Issuance of 63,527 common shares under

23 unchanged sentences

Net income — — 124,927 — — 124,927 7 124,934

Other comprehensive loss — — — — ( 137,829 ) ( 137,829 ) — ( 137,829 )

Other comprehensive income — — — — 41,367 41,367 — 41,367

Issuance of 82,840 common shares under

22 unchanged sentences

Amortization of mortgage servicing rights 845 1,287 2,117

Mortgage servicing rights (recoveries) impairments — ( 812 ) 812

Mortgage servicing rights recoveries — — ( 812 )

Amortization of right of use assets 3,073 3,181 3,095

Deferred income taxes ( 9,462 ) ( 9,461 ) 15,396

Losses (gains) on investment securities available-for-sale 184 680 ( 279 )

Losses on investment securities available-for-sale 2,926 184 680

Originations of loans held for sale, net of principal collected ( 43,665 ) ( 86,185 ) ( 261,558 )

27 unchanged sentences

Net change in short-term borrowings 96,830 15,502 49,386

Proceeds from issuance of long-term debt — — 10,000

Payments on long-term debt ( 3,450 ) ( 25,530 ) ( 13,460 )

74 unchanged sentences

Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, which is typically evidenced by a sustained repayment performance of at least six months .

Loans and leases that have been modified and economic concessions have been granted to borrowers who have experienced financial difficulties are considered a troubled debt restructuring (TDR).

These concessions typically result from the Company’s loss mitigation activities and may include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

When the Company modifies loans and leases in a TDR, it evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, or uses the current fair value of the collateral, less selling costs for collateral dependent loans.

Occasionally, the Company modifies loans and leases to borrowers in financial distress (typically denoted by internal credit quality graded “substandard” or worse) by providing term extensions, other-than-insignificant payment delays, or interest rate reductions.

In some cases, multiple modifications are made to the same loan or lease.

These modifications typically result from the Company’s loss mitigation activities.

If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for loan and lease losses estimate or a charge-off to the allowance for loan and lease losses.

In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance for loan and lease losses.

The Company sells mortgage loans to the Government National Mortgage Association (GNMA) in the normal course of business and retains the servicing rights.

24 unchanged sentences

Expected credit losses on net investments in leases, including any unguaranteed residual asset, are included in the allowance for loan and lease losses.

Allowance for Loan and Lease Losses — Effective January 1, 2020, the allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio.

Prior to January 1, 2020, the allowance was established based on an incurred loss model.

Allowance for Loan and Lease Losses — The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio.

It is the Company’s policy to maintain the allowance at a level believed to be adequate to absorb estimated credit losses within its portfolio of loans and leases.

33 unchanged sentences

Loans evaluated individually are not included in the collective evaluation.

These loans can be identified from a variety of sources including delinquency, non-accrual status and troubled debt restructurings (TDRs).

These loans can be identified from a variety of sources including delinquency, non-accrual status, and complex or unusual transactions.

The scope may include accruing loans that exhibit risk characteristics which differ from their pool or non-performing loans with risk characteristics not similar to other special attention loans in their pool.

64 unchanged sentences

In 2022, management determined conditions no longer represented a triggering event requiring quarterly analyses and returned to its historical practice of evaluating goodwill during the fourth quarter of the year.

Based on the analyses performed each quarter of 2021 and the fourth quarter of 2022, the Company determined that goodwill was no t impaired.

Based on the analyses performed each quarter of 2021 and the fourth quarters of 2022 and 2023, the Company determined that goodwill was no t impaired.

Partnership Investments — The Company accounts for its investments in partnerships for which it owns less than fifty percent and has the ability to exercise significant influence over the partnership on the equity method.

7 unchanged sentences

The balances as of December 31, 2023 and 2022 were $ 166.60 million and $ 137.15 million, respectively.

Short-Term Borrowings — Short-term borrowings consist of Federal funds purchased, securities sold under agreements to repurchase, commercial paper, Federal Home Loan Bank notes, and borrowings from non-affiliated banks.

Short-Term Borrowings — Short-term borrowings consist of Federal funds purchased, securities sold under agreements to repurchase, commercial paper, Federal Home Loan Bank advances, borrowings from the Federal Reserve, and borrowings from non-affiliated banks.

Federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings mature within one day to 365 days of the transaction date.

63 unchanged sentences

Note 2 — Recent Accounting Pronouncements

Income Taxes:

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-09 “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate.) The amendments also require that all entities disclose on an annual basis the following information about income taxes paid:

(1) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and (2) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received.) This guidance is effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The amendments should be applied on a prospective basis although retrospective application is permitted.

The Company is assessing ASU 2023-09 and its impact on its disclosures.

Segment Reporting:

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments retrospectively to all periods presented in the financial statements.

The Company is assessing ASU 2023-07 and its impact on its accounting and disclosures.

Investments-Equity Method and Joint Ventures:

In March 2023, the FASB issued ASU No.

2023-02 “Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted in any interim period.

The Company is assessing ASU 2023-02 and its impact on its accounting and disclosures.

Fair Value Measurements :

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The Company has assessed ASU 2022-03 and does not expect it to have a material impact on its accounting and disclosures.

Financial Instruments–Credit Losses :

In March 2022, the FASB issued ASU No.

2022-02 “Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, these amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

These amendments should be applied prospectively.

If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period.

An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

The Company adopted ASU 2022-02 on January 1, 2023 and it did not have a material impact on its accounting and disclosures.

Reference Rate Reform:

6 unchanged sentences

In December of 2022, the FASB issued ASU No.

2022-06 which extended the period of time prepares can utilize the reference rate reform relief guidance in Topic 848.

2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The Company continues to implement its transition plan towards cessation of LIBOR and the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR.

The Company expects to utilize the LIBOR transition relief allowed under ASU 2020-04, ASU 2021-01 and ASU 2022-06, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures.

The Company will continue to assess the impact as the reference rate transition progresses.

The Company implemented its transition plan away from LIBOR as of June 30, 2023.

The adoption of these ASUs did not have a material impact on its accounting and disclosures.

Note 3 — Investment Securities Available-For-Sale

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Total loans and leases outstanding were recorded net of unearned income and deferred loan fees and costs at December 31, 2023 and 2022, and totaled $ 6.52 billion and $ 6.01 billion, respectively.

At December 31, 2022 and 2021, net deferred loan and lease costs (fees) were $ 2.00 million and $( 0.09 ) million, respectively.

At December 31, 2022 and 2021, there were $ 0.01 million and $ 2.71 million, respectively, in deferred loan fees related to Paycheck Protection Program (PPP) loans.

At December 31, 2023 and 2022, net deferred loan and lease costs were $ 1.65 million and $ 2.00 million, respectively.

Accrued interest receivable on loans and leases at December 31, 2023 and 2022 was $ 25.35 million and $ 18.75 million, respectively.

4 unchanged sentences

During 2023, $ 8.51 million of new loans and other additions were made and $ 13.30 million of repayments and other reductions occurred.

The Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk).

The Company evaluates loans and leases, except residential real estate and home equity loans and consumer loans, for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk).

The Company uses two methods to assess credit risk:

5 unchanged sentences

All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality.

The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on our safety and soundness.

Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $ 250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses.

Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit our exposure to increased risk;

Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the Company’s exposure to increased risk;

grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention.

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Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including SBA and FSA.

This portfolio sector also includes PPP loans, which are fully guaranteed by the SBA.

There were no PPP originations during 2022 and PPP loan originations during 2021 amounted to $ 261.46 million.

As of December 31, 2022 and 2021, PPP loan balances were $ 0.90 million and $ 73.08 million, respectively, which is net of an unearned discount of $ 0.01 million and $ 2.71 million, respectively.

Solar – loans are for the purpose of financing solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure.

Renewable energy – loans are for the purpose of financing primarily solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure.

Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses.

2 unchanged sentences

The portfolio consists of multiple industries:

auto rental, auto leasing and specialty vehicle which includes bus, funeral car and step van.

auto rental, auto leasing and a small specialty vehicle segment which the Company is largely exiting.

Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business.

3 unchanged sentences

Risks include economic risks and collateral risks, principally used vehicle values.

Specialty vehicle loans are also of longer duration, generally six years but up to 104 months for new motor coaches.

The bus segment is secured primarily by shuttle buses and motor coaches, the step van segment is secured by step vans and the funeral car segment is secured by hearses and limousines.

Risks include lack of well-established mechanisms for disposition of collateral, such as auctions that are key to disposition of autos.

Loans in the portfolio generally carry personal guarantees.

Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed.

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The non-owner-occupied segment includes hotels, apartment complexes and warehousing facilities.

There is limited exposure to construction loans.

There is limited exposure to construction loans although at present, construction exposures are comparably higher than previous periods.

Many commercial real estate loans carry personal guarantees.

Additional risks in the commercial real estate portfolio stem from geographical concentration in northern Indiana and southwest Michigan and general economic conditions.

Additional risks in the commercial real estate portfolio include interest rate risk, geographical concentration in northern Indiana and southwest Michigan, and general economic conditions.

Residential real estate and home equity – loans predominantly include one-to-four family mortgages to borrowers in the Company’s local market communities and are appropriately underwritten and secured by residential real estate.

7 unchanged sentences

Total commercial and agricultural 163,158 127,374 73,359 40,209 18,951 16,274 326,898 — 766,223

Current period gross charge-offs 668 499 15 17 4 — 3,102 — 4,305

Renewable energy

Grades 1-6 177,364 23,679 86,836 29,138 56,935 25,756 — — 399,708

Grades 7-12 — — — — — — — — —

Total Solar 109,393 113,276 36,751 78,330 19,219 24,194 — — 381,163

Total renewable energy 177,364 23,679 86,836 29,138 56,935 25,756 — — 399,708

Current period gross charge-offs — — — — — — — — —

Auto and light truck

2 unchanged sentences

Total auto and light truck 604,314 250,549 64,656 27,476 14,205 5,712 — — 966,912

Current period gross charge-offs 126 360 128 33 19 63 — — 729

Medium and heavy duty truck

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Total medium and heavy duty truck 99,819 121,500 45,744 24,645 16,037 4,202 — — 311,947

Current period gross charge-offs — — — — — — — — —

Grades 1-6 269,635 355,175 197,579 140,744 37,244 36,936 6,420 — 1,043,733

1 unchanged sentence

Total aircraft 279,755 364,650 201,283 145,287 37,244 43,533 6,420 — 1,078,172

Current period gross charge-offs — — — — — — — — —

Construction equipment

2 unchanged sentences

Total construction equipment 466,799 353,834 132,875 65,508 29,543 7,803 26,044 2,346 1,084,752

Current period gross charge-offs — 44 10 — — — — — 54

Commercial real estate

2 unchanged sentences

Total commercial real estate 336,965 256,368 151,173 105,933 90,824 188,323 275 — 1,129,861

Current period gross charge-offs — 39 30 — 179 — — — 248

Residential real estate and home equity

2 unchanged sentences

Total residential real estate and home equity 87,767 110,165 89,532 88,232 31,095 72,967 152,573 5,642 637,973

Current period gross charge-offs — — — — — 54 39 8 101

Performing 53,023 47,789 19,739 6,286 2,539 1,021 12,063 — 142,460

1 unchanged sentence

Total consumer 53,086 48,035 19,862 6,317 2,567 1,027 12,063 — 142,957

Current period gross charge-offs 541 455 138 28 17 3 29 — 1,211

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2022.

5 unchanged sentences

Total commercial and agricultural 163,808 113,166 71,425 37,968 18,836 14,900 391,928 — 812,031

Renewable energy

Grades 1-6 109,393 113,276 35,660 72,652 18,518 20,654 — — 370,153

Grades 7-12 — — 1,091 5,678 701 3,540 — — 11,010

Total Solar 159,244 43,211 87,475 19,703 34,889 3,780 — — 348,302

Total renewable energy 109,393 113,276 36,751 78,330 19,219 24,194 — — 381,163

Auto and light truck

28 unchanged sentences

Commercial and agricultural $ 752,947 $ 9 $ — $ — $ 752,956 $ 13,267 $ 766,223

Solar 381,163 — — — 381,163 — 381,163

Renewable energy 399,708 — — — 399,708 — 399,708

Auto and light truck 962,226 20 — — 962,246 4,666 966,912

8 unchanged sentences

Commercial and agricultural $ 810,223 $ 944 $ — $ — $ 811,167 $ 864 $ 812,031

Solar 348,302 — — — 348,302 — 348,302

Renewable energy 381,163 — — — 381,163 — 381,163

Auto and light truck 793,610 353 1 — 793,964 14,153 808,117

8 unchanged sentences

Interest income for the years ended December 31, 2023, 2022, and 2021, would have increased by approximately $ 1.47 million, $ 2.68 million, and $ 2.62 million, respectively, if the nonaccrual loans and leases had earned interest at their full contract rate.

The following table shows the number of loans and leases classified as troubled debt restructurings (TDRs) during 2022, 2021 and 2020, by portfolio segment, as well as the recorded investment as of December 31.

The classification between nonperforming and performing is shown at the time of modification.

Modification programs focused on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions.

The modifications did not result in the contractual forgiveness of principal or interest.

The TDRs during 2020 were the result of issues that predated the COVID-19 pandemic.

There was no modifications during 2022, one modification during 2021, and two modification during 2020 that resulted in an interest rate reduction below market rate.

Consequently, the financial impact of the modifications was immaterial.

2022 2021 2020

(Dollars in thousands) Number of Modifications Recorded Investment Number of Modifications Recorded Investment Number of Modifications Recorded Investment

Performing TDRs:

Loan Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans and leases at December 31, 2023 that were both experiencing financial difficulty and modified during the twelve months ended December 31, 2023, segregated by portfolio segment and type of modification.

The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

(Dollars in thousands) Payment

Extension Interest

Reduction Combination

Payment Delay

Extension % of Total

Commercial and agricultural $ 3,016 $ — $ — $ 1,537 0.59 %

Solar — — — — — —

Auto and light truck — — — — — —

Medium and heavy duty truck — — — 11,050 3.54

Aircraft — — — — — —

Construction equipment — 1,496 — — 0.14

Commercial real estate 288 — 426 — 0.06

Residential real estate and home equity — — — — — —

Consumer — — — — — —

Total performing TDR modifications — — — — — —

Nonperforming TDRs:

Total $ 3,304 $ 1,496 $ 426 $ 12,587 0.27 %

There were $ 2.27 million of commitments to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table shows the performance of such loans and leases that have been modified during the twelve months ended December 31, 2023.

(Dollars in thousands) Current 30-59

Past Due 60-89

Past Due 90 Days or

More Past Due Total

Commercial and agricultural $ 1,706 $ — $ — $ 2,847 $ 2,847

Solar — — — — — —

Auto and light truck — — — — — —

Medium and heavy duty truck 11,050 — — — —

Aircraft — — — — 1 828

Construction equipment 1,496 — — — —

Commercial real estate 426 288 — — 288

Residential real estate and home equity — — — — — —

Consumer — — — — — —

Total nonperforming TDR modifications — — 1 5,729 2 10,733

Total TDR modifications — $ — 1 $ 5,729 2 $ 10,733

There was one nonperforming construction equipment TDR with a recorded investment of $ 3.07 million which had a payment default within the twelve months following modification for the year ended December 31, 2022, no TDRs which had payment defaults within the twelve months following modification for the year ended December 31, 2021, and one nonperforming commercial and agricultural TDR with a recorded investment of $ 0.41 million which had a payment default within the twelve months following modification during the year ended December 31, 2020.

The classification between nonperforming and performing is shown at the time of modification.

Total $ 14,678 $ 288 $ — $ 2,847 $ 3,135

The following table shows the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended December 31, 2023.

Interest Rate

Reduction Weighted-

Extension (in months) Weighted- Average Payment Delay (in months) Combination Weighted-Average Payment Delay and Term Extension (in months)

Commercial and agricultural — % 3 6 30

Medium and heavy duty truck — % 0 0 6

Construction equipment — % 5 0 0

Commercial real estate 3.00 % 0 3 0

Total 3.00 % 4 6 10

There was one modified loan that had a payment default during the twelve months ended December 31, 2023 and was modified in the twelve months prior to that default to a borrower experiencing financial difficulty.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off.

Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02

There were no loan and lease modifications classified as a TDR during the twelve months ended December 31, 2022 and one nonperforming construction equipment TDR with a recorded investment of $ 5.73 million during the twelve months ended December 31, 2021.

The classification between nonperforming and performing is determined at the time of modification.

Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions.

Modifications do not result in the contractual forgiveness of principal or interest.

There were no modifications during 2022 and one modification during 2021 that resulted in an interest rate reduction below market rate.

Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

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The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for each of the three years ended December 31.

(Dollars in thousands) Commercial and agricultural Solar Auto and light truck Medium

(Dollars in thousands) Commercial and agricultural Renewable energy Auto and light truck Medium

heavy duty truck Aircraft Construction equipment Commercial real estate Residential real estate and home equity Consumer Total

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Balance, beginning of year $ 16,680 $ 5,549 $ 28,926 $ 6,400 $ 34,053 $ 19,166 $ 22,758 $ 5,374 $ 1,748 $ 140,654

Impact of ASC 326 adoption ( 939 ) 284 ( 1,303 ) 2,414 484 372 ( 649 ) 1,688 233 2,584

Adjusted balance, beginning of year 19,987 3,029 13,097 7,026 31,542 14,492 17,701 5,297 1,667 113,838

Charge-offs 2,930 — 7,797 — — 856 — 228 712 12,523

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Balance, end of year $ 15,409 $ 6,585 $ 19,624 $ 6,015 $ 33,628 $ 19,673 $ 19,691 $ 5,084 $ 1,783 $ 127,492

The allowance for loan and lease losses increased year-over-year in 2022 as most portfolio segments experienced loan growth along with an adjustment to forecast due to increased risk during the forecast period attributable to a weakened domestic GDP outlook, persistent inflation, markedly higher interest rates and continued geopolitical uncertainty.

Allowance increases were offset by a sizeable decline in the highly reserved bus segment of the auto and light truck portfolio due to continued pay downs and the removal of multiple qualitative adjustments specific to the segment.

The bus segment was severely impacted by the pandemic and experienced sizeable credit losses in each of the previous two years.

Credit quality within the bus segment is stabilizing with minimal delinquency and minimal new special attention activity in 2022.

The year-over-year decline in reserves experienced in 2021 was due to improvements in credit quality attributable in large part to government stimulus payments which provided much needed relief to the Company’s customers during the pandemic.

Commercial and agricultural – the decline in loan balances year-over-year was primarily attributable to PPP debt forgiveness along with a modest decline in core business balances.

The allowance was flat year-over-year as lowly reserved PPP loans were offset by core business loans which carry higher reserves.

Credit quality is stable.

Solar – allowance increased due to loan growth offset by a reduction in qualitative adjustments given stable credit quality and no loss history since portfolio inception.

Auto and light truck – allowance decreased due to declining balances and reduced qualitative adjustments in the highly reserved bus segment, partially offset by strong loan growth in the core auto rental and leasing segments which carry lower loss ratios.

Medium and heavy duty truck – allowance increased due to loan growth.

Credit quality metrics continued to be relatively strong for this portfolio.

Aircraft – the allowance was principally impacted by strong loan growth in both the domestic and foreign aircraft segments.

Credit quality metrics remain stable, offset by heightened economic and political concerns related to foreign loans.

The Company has historically carried a higher allowance in this portfolio due to risk volatility.

The allowance for loan and lease losses increased year-over-year in 2023 as most portfolio segments experienced loan growth, offset by a slight decrease in the adjustment to forecast due to a marginally improved outlook.

The Company remains cautious on the forward-outlook.

The Company’s forecast adjustment represents a slight improvement from the prior period but continues to indicate below trend growth expectations during the forecast period.

Allowance increases were offset by declines in historical loss rates due to net recovery activity during the year.

Commercial and agricultural – allowance increased year-over-year due to qualitative adjustments to address increased special attention activity and expected stress on small business clients.

Renewable energy – allowance decreased due to a reduction in qualitative adjustments given stable credit quality and no loss history since portfolio inception, offset partially by modest loan growth during the period.

Auto and light truck – allowance decreased due to lower loss ratios due to recoveries in the segment, partially offset by strong loan growth in the core auto rental and leasing segments.

Medium and heavy duty truck – allowance increased due to elevated special attention balances within the portfolio which carry higher reserves.

Loan balances fell slightly and the industry outlook has weakened.

Aircraft – the allowance declined due to lower loss ratios from recovery activity primarily in the foreign aircraft segment during the period.

Loan growth was flat and credit quality metrics remain stable.

The Company carries a higher allowance in this portfolio due to historical risk volatility.

Construction equipment – allowance increase was driven by strong loan growth during the year.

Commercial real estate – the allowance decrease was a result of the removal of qualitative adjustments related to the COVID-19 pandemic during the year, primarily in the hotel segment, offset by modest loan growth in the portfolio.

Residential real estate and home equity – increased allowance due to forecast adjustments and loan growth.

Consumer – the segment saw an increase in allowance due to forecast adjustments and loan growth.

Commercial real estate – the allowance increase was due to selective loan growth across multiple segments and qualitative adjustments addressing construction risk and maturity repricing risk in an elevated interest rate environment.

Residential real estate and home equity – increased allowance due to qualitative adjustments and loan growth.

Consumer – the allowance showed minimal change as qualitative adjustments for increased delinquency and nonperforming activity in the segment offset declining loan balances during the period.

Economic Outlook

As of December 31, 2022, the most significant economic factors impacting the Company’s loan portfolios was a weakened domestic growth outlook, exacerbated by persistent inflation, higher interest rates and the protracted war in Ukraine and resultant increased geopolitical uncertainty.

As of December 31, 2023, the most significant economic factors impacting the Company’s loan portfolios was a below trend domestic growth outlook impacted by elevated inflation and high interest rates, along with various foreign conflicts and resultant increased geopolitical uncertainty.

Consumer stressors are building, and the Company remains concerned about small businesses and their ability to control expenses and compete for labor while absorbing the impact of higher interest rates and higher cost of capital.

Additionally, tighter lending conditions and the current high-rate environment are impacting commercial real estate activity.

The forecast considers global and domestic impacts from these factors as well as other key economic factors such as changes in unemployment, commodity prices, and the housing market which may impact the Company’s clients.

The Company’s assumption was that economic growth will be weak in 2023 and exhibit below trend growth during 2024 with inflation slowly moving back towards the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years.

The Company’s assumption was that economic growth will be below trend in 2024 and 2025 with inflation slowly moving back towards the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years.

As a result of geopolitical risk and economic uncertainty, the Company’s future loss estimates may vary considerably from the December 31, 2023 assumptions.

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Balance, beginning of year $ 5,616 $ 4,196 $ 4,499

Impact of ASC 326 adoption — — 777

Adjusted balance, beginning of year 4,196 4,499 3,949

Provision (recovery of provision) 2,566 1,420 ( 303 )

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Note 6 — Lease Investments

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Solar, Auto and Light Truck, Medium and Heavy Duty Truck, Aircraft, and Construction Equipment on the Consolidated Statements of Financial Condition.

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Renewable Energy, Auto and Light Truck, Medium and Heavy Duty Truck, Aircraft, and Construction Equipment on the Consolidated Statements of Financial Condition.

The Company also finances various types of construction equipment, medium and heavy duty trucks, automobiles and other equipment under leases classified as operating leases, which are included in Equipment Owned Under Operating Leases, Net, on the Consolidated Statements of Financial Condition.

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Expense related to personal property tax payments on operating leased equipment for the year ended December 31, 2023, 2022 and 2021 were $ 0.27 million, $ 0.35 million and $ 0.46 million, respectively.

During the year ended December 31, 2022, the Company recorded impairment charges of $ 0.06 million.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded impairment charges of $ 0.00 million , $ 0.06 million, and $ 0.00 million , respectively.

The impairment charges were recorded as a result of the annual review of operating lease residual values and was recognized in Depreciation — Leased Equipment on the Consolidated Statements of Income.

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and $ 21.73 million.

At December 31, 2022, the Federal Home Loan Bank borrowings represented a source of funding for community economic development activities, agricultural loans and general funding for the bank and consisted of eight fixed rate notes with maturities ranging from 2023 to 2026.

At December 31, 2023, the Federal Home Loan Bank borrowings represented a source of funding for community economic development activities, agricultural loans and general funding for the bank and consisted of five fixed rate notes with maturities ranging from 2024 to 2026.

These notes were collateralized by $ 29.67 million of certain real estate loans.

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Federal Home Loan Bank advances 155,000 5.51 70,000 4.16

Federal Reserve advances 100,000 4.83 — —

Other short-term borrowings 1,550 — 1,001 —

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In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.

As a limited partner in these operating partnerships, we are allocated credits and deductions associated with the underlying properties.

As a limited partner in these operating partnerships, the Company is allocated credits and deductions associated with the underlying properties.

The Company has determined that it is not the primary beneficiary of these investments because the general partners have the power to direct activities that most significantly influence the economic performance of their respective partnerships.

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(1) Fixed rate through life of debt.

(2) 3-Month LIBOR + 1.48 % through remaining life of debt.

(2) 3-Month Term SOFR + the 3-Month tenor spread adjustment + 1.48 % through remaining life of debt.

Note 13 — Earnings Per Share

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Note 14 — Accumulated Other Comprehensive Loss

The following table presents reclassifications out of accumulated other comprehensive loss related to unrealized gains and losses on available-for-sale securities for the two years ending December 31.

The following table presents reclassifications out of accumulated other comprehensive loss related to unrealized losses on available-for-sale securities for the two years ending December 31.

(Dollars in thousands) 2023 2022 Affected Line Item in the Statements of Income

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Total $ 36,746 22.7 % $ 36,255 23.1 % $ 36,328 23.5 %

The tax expense related to (losses) gains on investment securities available-for-sale for the years 2022, 2021, and 2020 was approximately $( 39,000 ), $( 164,000 ), and $ 67,000 , respectively.

The tax benefit related to losses on investment securities available-for-sale for the years 2023, 2022, and 2021 was approximately $ 720,000 , $ 39,000 , and $ 164,000 , respectively.

The following table shows the composition of deferred tax assets and liabilities as of December 31, 2023 and 2022.

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Accruals for employee benefits 4,103 3,752

Capitalized loan costs — 15

Tax advantaged partnerships 1,658 —

Net unrealized losses on securities available-for-sale 33,433 46,353

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No valuation allowance for deferred tax assets was recorded at December 31, 2023 and 2022 as the Company believes it is more likely than not that all of the deferred tax assets will be realized.

Additionally, the tax credit carryforward generated in 2020 was fully utilized in 2021.

Tax years that remain open and subject to audit include the federal 2020-2023 years and the Indiana 2020-2023 years.

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Short-term lease cost Net occupancy expense 9 18 20

Variable lease cost (recovery of cost) Net occupancy expense 8 — ( 30 )

Variable lease cost Net occupancy expense 8 8 —

Total operating lease cost $ 3,738 $ 3,553 $ 3,500

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There were no new significant leases that had not yet commenced as of December 31, 2023.

Financial Instruments with Off-Balance-Sheet Risk — To meet the financing needs of our clients, 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business.

Financial Instruments with Off-Balance-Sheet Risk — To meet the financing needs of its clients, 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business.

These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit.

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Loan commitments 2,824 Mortgages held for sale 107 N/A —

Forward contracts - mortgage loan 3,750 Mortgages held for sale 24 N/A —

Forward contracts - mortgage loan 3,500 N/A — Mortgages held for sale 16

Total - December 31, 2023 $ 1,091,942 $ 22,811 $ 23,156

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Loan commitments 2,638 Mortgages held for sale 67 N/A —

Forward contracts - mortgage loan 22,000 N/A — Mortgages held for sale 11

Forward contracts - mortgage loan 3,750 Mortgages held for sale 24 N/A —

Total - December 31, 2022 $ 887,988 $ 24,929 $ 25,307

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Included in other comprehensive income ( 135 )

Purchases 3,000

Settlements —

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Dividends from bank subsidiary $ 50,152 $ 49,588 $ 46,207

Rental income from (reimbursements to) subsidiaries 1,740 1,873 ( 908 )

Rental income from subsidiaries 1,832 1,740 1,873

Other 239 148 146

Investment securities and other investment gains (losses) 353 342 ( 44 )

Investment securities and other investment gains 261 353 342

Total income 52,484 51,829 48,568

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Net income $ 124,934 $ 120,532 $ 118,557

Comprehensive (loss) income $ ( 17,297 ) $ 90,325 $ 94,660

Comprehensive income (loss) $ 166,301 $ ( 17,297 ) $ 90,325

STATEMENTS OF CASH FLOWS

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Stock-based compensation 152 120 102

Realized/unrealized investment securities and other investment (gains) losses ( 353 ) ( 342 ) 44

Realized/unrealized investment securities and other investment gains ( 261 ) ( 353 ) ( 342 )

Other 2,863 ( 702 ) 1,556

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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 8. Financial Statements and Supplementary Data