What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-18 compared with 2024-02-20 · 173 added, 141 removed, 1579 unchanged (17% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Reports of FORVIS, LLP, Independent Registered Public Accounting Firm ( FORVIS, LLP , Fort Wayne, Indiana , Auditor Firm ID:

Reports of Forvis Mazars, LLP, Independent Registered Public Accounting Firm ( Forvis Mazars, LLP , Fort Wayne, Indiana , Auditor Firm ID:

Consolidated Statements of Financial Condition

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Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit, Finance and Risk Committee

Shareholders, Board of Directors and Audit, Finance, and Risk Committee

1st Source Corporation

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We have audited the accompanying consolidated statements of financial condition of 1st Source Corporation (Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements).

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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024, 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 18, 2025, expressed an unqualified opinion thereon.

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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 committee and that:

(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.

The Company also describes in Note 1 of the consolidated financial statements the “Allowance for Loan and Lease Losses” accounting policy around this estimate.

The ALLL is an estimate of current expected credit losses in the loan and lease portfolio.

The determination of the allowance for loan and lease losses requires significant judgment reflecting the Company’s best estimate of expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

This assessment is made on a loan pool basis in most instances, with the expected credit losses estimates by using a combination of models that measures the probability of default, probability of attrition, loss given defaults and exposure at default.

The assessments of probability of default and probability of attrition are based on internal data that relates to the historical performance of each loan pool over a complete economic cycle.

Adjustments were then applied, if needed, to reflect the current impact of macroeconomic variables and to account for other expected changes that could occur in the future.

These assumptions are analyzed for a reasonable and supportable forecast period, after which, the forecasted macroeconomic assumptions reverted to their historical average, using a rational and systematic basis.

The loss given default is based on an analysis of historical recoveries for each loan pool, with adjustments to reflect the current impact of macroeconomic variables and to account for other expected changes that could occur in the future, if considered necessary.

The exposure at default was estimated by using a transitional matrix that estimates the average percentage of the loan balance that remains at the time of default.

Additional qualitative adjustments were applied in certain circumstances, to account for other factors not evaluated in the initial model.

In certain instances, loans were evaluated on an individual basis due to the management’s conclusion that they exhibited unique risk characteristics which prevented them from being similar to the identified loan pools.

The primary reason for our determination that the allowance for loan losses is a critical audit matter is that auditing the estimated allowance for loan losses involved significant judgment and high degree of subjectivity, due to the number of relevant assumptions and the nature of the qualitative factor adjustments.

Areas that contained subjectivity in evaluating management’s estimate, included evaluating management’s assessment of current and expected economic conditions and other environmental factors, evaluating assumptions utilized in determining cohort loss rates, probability of default and loss given default, evaluating the adequacy of specific allowances associated with individually evaluated loans and assessing the appropriateness of loan grades.

Our audit procedures related to the estimated allowance for loan losses at December 31, 2023, included:

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

• Evaluating the precision of management review of the adequacy of the ALLL.

• 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 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.

• 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.

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

/s/ FORVIS, LLP

(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 the 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan and Lease Losses – Qualitative Factors

Description of the Critical Audit Matter

As presented in Note 5 to the financial statements, the Company’s allowance for loan and lease losses (ALLL) was $155.5 million at December 31, 2024.

As described in Note 1 to the financial statements, the ALLL is an estimate of current expected credit losses in the loan and lease portfolio.

The determination of the ALLL requires significant judgment reflecting the Company’s estimate of expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

The Company categorizes its loan portfolios into nine segments based on similar risk characteristics.

Loans within each segment are collectively evaluated using either:

1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

For both the cohort and the PD/LGD methodologies, the Company uses qualitative adjustments to capture differences that may exist between the current and historical conditions.

Qualitative factors include but are not limited to current market risk assessment by industry, recent loss experience in particular

segments of the portfolios, movement in equipment values collateralizing specialized industry portfolios, concentrations of credit risk, delinquencies, trends in volume, experience and depth of relationship managers and division management, and the effects of changes in lending policies and practices, including changes in quality of the loan and lease origination, servicing, and risk management process.

We identified the qualitative factor adjustments included in the ALLL as a critical audit matter.

The principal considerations for our determination included the high degree of judgment and subjectivity in auditing management’s estimation of qualitative factor adjustments, which requires significant judgment.

How the Critical Audit Matter Was Addressed in the Audit

The primary procedures we performed to address this critical audit matter included:

• Tested the design and operating effectiveness of internal controls over the establishment of qualitative adjustments for current and expected conditions.

• Evaluated the current and expected qualitative adjustments, including assessing the basis for the adjustments and the reasonableness of the significant assumptions related to loan portfolio policies and underwriting, credit quality metrics, concentrations, as well as external market data including gross domestic product, unemployment rates, and housing market trends.

• Tested the completeness and accuracy and evaluated the relevance of the key data used as inputs to the qualitative adjustment estimation process, including relevant external market data, portfolio segment loan balances and other loan-specific data.

/s/ Forvis Mazars, LLP

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

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Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit, Finance and Risk Committee

Shareholders, Board of Directors and Audit, Finance, and Risk Committee

1st Source Corporation

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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 Controls Over Financial Reporting.

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

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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

/s/ Forvis Mazars, LLP

Fort Wayne, Indiana

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Investment securities available-for-sale

(amortized cost of $ 1,650,684 and $ 1,762,357 at December 31, 2024 and 2023, respectively)

1,536,299 1,622,600

Other investments 23,855 25,075

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Equipment owned under operating leases, net 11,483 20,366

Net premises and equipment 46,159 44,773

Premises and equipment, net 53,456 46,159

Goodwill and intangible assets 83,897 83,916

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Net interest income 300,817 278,647 263,469

Provision (recovery of provision) for credit losses 5,866 13,245 ( 4,303 )

Provision for credit losses 12,466 5,866 13,245

Net interest income after provision for credit losses 288,351 272,781 250,224

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Net income 132,618 124,934 120,532

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

Net loss (income) attributable to noncontrolling interests 5 ( 7 ) ( 23 )

Net income available to common shareholders $ 132,623 $ 124,927 $ 120,509

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Comprehensive income (loss) 151,709 166,301 ( 17,297 )

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

Comprehensive loss (income) attributable to noncontrolling interests 5 ( 7 ) ( 23 )

Comprehensive income (loss) available to common shareholders $ 151,714 $ 166,294 $ ( 17,320 )

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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

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— — ( 34,390 ) — — ( 34,390 ) — ( 34,390 )

Contributions from noncontrolling interests — — — — — — 20,343 20,343

Distributions to noncontrolling interests — — — — — — ( 2,332 ) ( 2,332 )

Liquidation of noncontrolling interests — — — — — — ( 5,920 ) ( 5,920 )

Balance at December 31, 2024 $ — $ 436,538 $ 890,937 $ ( 129,175 ) $ ( 87,232 ) $ 1,111,068 $ 70,438 $ 1,181,506

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Adjustments to reconcile net income to net cash provided by operating activities:

Provision (recovery of provision) for credit losses 5,866 13,245 ( 4,303 )

Provision for credit losses 12,466 5,866 13,245

Depreciation of premises and equipment 4,457 4,452 4,596

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Amortization of mortgage servicing rights 781 845 1,287

Mortgage servicing rights recoveries — — ( 812 )

Amortization of right of use assets 3,050 3,073 3,181

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Acquisition of treasury stock ( 178 ) ( 12,469 ) ( 6,836 )

Net contributions from (distributions to) noncontrolling interests 18,990 6,466 9,361

Net (distributions to) contributions from noncontrolling interests ( 2,332 ) 18,990 6,466

Cash dividends paid on common stock ( 35,396 ) ( 33,074 ) ( 32,102 )

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Right of use assets obtained in exchange for lease obligation 2,723 3,852 2,027

Liquidation of noncontrolling interests 5,920 — —

Purchases of mandatorily redeemable securities with common stock 739 — —

Cash paid for:

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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 .

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.

Occasionally, the Company modifies loans and leases to borrowers experiencing financial difficulty (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.

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The rate lock commitments on mortgage loans intended to be sold and the related hedging instruments are recorded at fair value with changes in fair value recorded in current earnings.

Transfers of Financial Assets — Transfers of financial assets are accounted for as sales when control over the assets has been relinquished.

Control over transferred assets is deemed to be surrendered when the assets have been legally isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets.

Allowance for Credit Losses:

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Qualitative factors include but are not limited to current market risk assessment by industry, recent loss experience in particular segments of the portfolios, movement in equipment values collateralizing specialized industry portfolios, concentrations of credit risk, delinquencies, trends in volume, experience and depth of relationship managers and division management, and the effects of changes in lending policies and practices, including changes in quality of the loan and lease origination, servicing and risk management process.

Loans which exhibit different risk characteristics than the pool are evaluated individually for impairment.

Loans which exhibit different risk characteristics than the pool are evaluated individually for potential credit deterioration.

Loans evaluated individually are not included in the collective evaluation.

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Individual reserves are determined based on an analysis of the loan’s expected future cash flows, the loan’s observable market value, or the fair value of the collateral less costs to sell.

When foreclosure is probable, impairment is determined based on the collateral’s fair value less costs to sell.

When foreclosure is probable, credit deterioration is determined based on the collateral’s fair value less costs to sell.

As a practical expedient, fair value less costs to sell may be used when developing the estimate of credit losses.

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Liability for Credit Losses on Unfunded Loan Commitments — The liability for credit losses on commitments to originate loans and standby letters of credit is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition.

Expected credit losses are estimated over the contractual period in which the Company is exposed to credit risk via a contractual obligation unless the obligation is unconditionally cancellable by the Company.

The liability for credit losses on unfunded loan commitments is adjusted as a provision for credit losses in Other Noninterest Expense on the Consolidated Statements of Income.

The liability for credit losses on unfunded loan commitments is adjusted in the Provision for Credit Losses on the Consolidated Statements of Income.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated useful life.

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All of the Company’s other intangible assets have finite lives and are amortized on a straight-line basis over varying periods not exceeding twenty-five years .

The Company has historically evaluated goodwill for impairment during the fourth quarter of each year, with financial data as of September 30.

During the first quarter of 2021, management determined that the deterioration in general economic conditions as a result of the COVID-19 pandemic and responses thereto represented a triggering event prompting an evaluation of goodwill impairment.

The Company performed impairment analyses in each quarter of 2021.

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 quarters of 2022 and 2023, the Company determined that goodwill was no t impaired.

The Company performed the required annual impairment test of goodwill during the fourth quarter of 2024 and determined that no impairment exists.

Bank-Owned Life Insurance (BOLI) — The Company maintains BOLI on certain executives.

BOLI balances are recorded at their cash surrender values and are included in Other Assets on the Consolidated Statements of Financial Condition.

Changes in the cash surrender values are included in Other Noninterest Income on the Consolidated Statements of Income.

At December 31, 2024 and 2023, BOLI totaled $ 86.40 million and $ 84.41 million, respectively.

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.

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Interest and penalties on income tax uncertainties are classified within Income Tax Expense on the Consolidated Statements of Income.

Treasury Stock — Common shares repurchased are recorded at cost.

Cost of shares retired or reissued is determined using the first-in, first-out method.

Net Income Per Common Share — Earnings per share is computed using the two-class method.

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Accordingly, all of the Company’s financial service operations are considered to be aggregated in one reportable operating segment.

See Note 22 for additional information on segment information.

Derivative Financial Instruments — The Company occasionally enters into derivative financial instruments as part of its interest rate risk management strategies.

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Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

Reclassifications — Certain amounts in the prior periods consolidated financial statements have been reclassified to conform with the current year presentation.

Reclassifications — Certain amounts in the prior periods consolidation financial statements have been reclassified to conform with the current year presentation.

These reclassifications had no effect on total assets, shareholders’ equity or net income as previously reported.

Note 2 — Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (FASB) issued ASU No.

2024-04 “ Debt with Conversion and Other Options (Subtopic 470-20):

Induced Conversion of Convertible Debt Issuances.

” These amendments clarify the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion.

This guidance is effective for all entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2025.

Early adoption is permitted in any interim period.

The Company is assessing ASU 2024-04 and its impact on its accounting and disclosures.

Income Statement:

In November 2024, the FASB issued ASU No.

2024-03 “ Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

” These amendments require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period.

Specifically, they will be required to:

• Disclose the amounts of (a) purchases of inventory;

(b) employee compensation;

(d) intangible asset amortization;

and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.

• Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.

• Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.

• Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

In January 2025, the FASB issued ASU No.

2025-01 clarifying the effective date for public business entities for fiscal years beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is assessing ASU 2024-03 and its impact on its accounting and disclosures.

Income Taxes:

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

In December 2023, the 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:

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.

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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.

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.

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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 :

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-03 “Fair Value Measurements (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

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.

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

Reference Rate Reform:

In March 2020, the FASB issued ASU No.

2020-04 “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

In December of 2022, the FASB issued ASU No.

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 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.

The Company adopted ASU 2023-07 on January 1, 2024 and it did not have a material impact on its accounting and disclosures.

Note 3 — Investment Securities Available-For-Sale

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During 2024, $ 19.86 million of new loans and other additions were made and $ 4.47 million of repayments and other reductions occurred.

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, 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).

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Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines.

Historically, the Company’s exposure to commercial real estate had been primarily to the less risky owner-occupied segment although growth in recent years has been in the non-owner-occupied segment which now accounts for slightly less than half of the portfolio.

Historically, the Company’s exposure to commercial real estate had been primarily to the less risky owner-occupied segment although growth in the non-owner-occupied segment of this portfolio has increased over the last several years.

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

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

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

Many commercial real estate loans carry personal guarantees.

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Total residential real estate and home equity

87,045 69,610 95,065 81,691 79,678 85,673 175,014 6,295 680,071

Current period gross charge-offs — 3 — 32 — — 30 1 66

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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

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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

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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

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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

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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

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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

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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

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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, with delinquency aging and nonaccrual status.

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Interest income for the years ended December 31, 2024, 2023, and 2022, would have increased by approximately $ 2.06 million, $ 1.47 million, and $ 2.68 million, respectively, if the nonaccrual loans and leases had earned interest at their full contract rate.

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.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table shows the amortized cost of loans and leases over $ 250,000 at December 31, 2024 and 2023, respectively, that were both experiencing financial difficulty and modified during the twelve months ended December 31, 2024 and 2023, respectively, 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.

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Extension % of Total

December 31, 2024

Commercial and agricultural $ 1,052 $ — $ — $ — 0.14 %

Auto and light truck — — — 40,150 4.23

Medium and heavy duty truck — — — 3,017 1.04

Commercial real estate 988 — — — 0.08

Total $ 2,040 $ — $ — $ 43,167 0.66 %

December 31, 2023

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

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

Construction equipment — 1,496 — — 0.14

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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.

There were $ 8.40 million and $ 2.27 million of commitments to lend additional amounts to the borrowers included in the previous table at December 31, 2024 and December 31, 2023, respectively.

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.

The following table shows the performance of such loans and leases that have been modified during the twelve months ended December 31, 2024 and December 31, 2023, respectively.

(Dollars in thousands) Current 30-59

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More Past Due Total

December 31, 2024

Commercial and agricultural $ 1,052 $ — $ — $ — $ —

Auto and light truck 39,664 — 486 — 486

Medium and heavy duty truck 3,017 — — — —

Commercial real estate 988 — — — —

Total $ 44,721 $ — $ 486 $ — $ 486

December 31, 2023

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

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

Construction equipment 1,496 — — — $ —

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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.

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, 2024 and December 31, 2023, respectively.

Interest Rate

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

December 31, 2024

Commercial and agricultural — % 0 6 0

Auto and light truck — % 0 0 3

Medium and heavy duty truck — % 0 0 4

Commercial real estate — % 0 6 0

Total — % 0 6 3

December 31, 2023

Commercial and agricultural — % 3 6 30

Medium and heavy duty truck — % 0 0 6

Construction equipment — % 5 0 0

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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.

There was one modified loan to a borrower experiencing financial difficulty that had a payment default and was modified within the twelve months prior to such default during each of the twelve month periods ended December 31, 2024 and December 31, 2023, respectively.

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.

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 and no TDRs which had payment defaults within the twelve months following modification for the year ended December 31, 2021.

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

The following table shows the recorded investment of loans and leases classified as troubled debt restructurings as of December 31, 2022.

Year Ended December 31 (Dollars in thousands)

Performing TDRs $ —

Nonperforming TDRs 3,640

Total TDRs $ 3,640

Note 5 — Allowance for Credit Losses

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Balance, end of year $ 14,635 $ 7,217 $ 18,634 $ 7,566 $ 41,093 $ 24,039 $ 17,431 $ 6,478 $ 2,175 $ 139,268

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.

The allowance for loan and lease losses increased year-over-year in 2024 as most portfolio segments experienced loan growth, and special attention balances, which are reserved at higher rates, also increased.

The Company remains cautious on the forward-outlook and the forecast adjustment was little changed from the prior period, reflecting fragile growth expectations during the forecast period.

Allowance increases were partially offset by declines in historical loss rates due to recovery activity in select portfolios and lower specific impairments as compared to the prior year-end.

Commercial and agricultural – allowance increased year-over-year due to modest loan growth, an increase in special attention balances which carry higher reserves, and higher loss rates within the portfolio.

Renewable energy – allowance increased primarily due to loan growth along with an increase in qualitative adjustments to address higher interest rate and maturity risk within the portfolio.

Auto and light truck – allowance increased due to higher special attention balances, which are reserved at higher rates, and an increase in qualitative adjustments to address increasing risk within the auto rental segment, partially offset by a slight decline in loan balances within the portfolio and recovery activity during the period.

Medium and heavy duty truck – allowance decreased due to lower loan balances within the portfolio.

The industry remains challenged by overcapacity.

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.

Loan growth was modest 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 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.

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

Commercial real estate – the allowance increase was due to loan growth across multiple segments.

The Company continues to monitor construction risk and maturity repricing risk in the elevated interest rate environment.

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

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

Economic Outlook

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.

As of December 31, 2024, the most significant economic factors impacting the Company’s loan portfolios was a fragile domestic growth outlook impacted by continued elevated inflation and high interest rates, along with various foreign conflicts and resultant geopolitical uncertainty.

Consumer stressors are evident, and the Company remains concerned about small businesses prospects and their ability to absorb high interest rates and ever-increasing expenses.

A few of the Company’s target industries are exhibiting signs of elevated risk including the auto rental, commercial and agricultural, and medium and heavy duty trucking segments.

Tighter lending conditions and the current high-rate environment continue to impact 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 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.

The Company maintains a cautious outlook for economic growth prospects in 2025 and 2026 with the expectation of an elevated interest rate environment and 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, 2024 assumptions.

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Balance, beginning of year $ 8,182 $ 5,616 $ 4,196

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

(Recovery of) provision ( 1,197 ) 2,566 1,420

Balance, end of year $ 6,985 $ 8,182 $ 5,616

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and $ 22.14 million.

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.

At December 31, 2024, 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 one fixed rate note maturing in 2026.

This note was collateralized by $ 14.00 million of certain real estate loans.

Mandatorily redeemable securities as of December 31, 2024 and 2023, of $ 22.07 million and $ 21.64 million, respectively reflected the “book value” shares under the 1st Source Executive Incentive Plan.

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Total interest expense recorded for 2024, 2023, and 2022 was $ 2.97 million, $ 3.60 million, and $( 0.35 ) million, respectively.

Negative interest expense recognized during 2022 was due to a decrease in book value per share during the year.

Negative interest expense recognized during 2022 was due to a decrease in book value per share during the year as a result of increased unrealized losses on available-for-sale investment securities within shareholders’ equity during 2022.

The following table shows the details of short-term borrowings as of December 31, 2024 and 2023.

(Dollars in thousands) Amount Weighted Average Rate Amount Weighted Average Rate

Federal funds purchased $ — — % $ — — %

Securities sold under agreements to repurchase $ 72,346 1.15 % $ 55,809 0.37 %

Commercial paper — — 3,096 0.03

Federal Home Loan Bank advances 75,000 4.50 155,000 5.51

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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

Realized losses included in net income $ ( 2,926 ) $ ( 184 ) (Losses) gains on investment securities available-for-sale

(Dollars in thousands) 2024 2023 Affected Line Item in the

Consolidated Statements of Income

Realized losses included in net income $ ( 3,889 ) $ ( 2,926 ) Losses on investment securities available-for-sale

( 3,889 ) ( 2,926 ) Income before income taxes

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Contribution expense for the years ended December 31, 2024, 2023, and 2022, amounted to $ 6.53 million, $ 6.76 million, and $ 6.22 million, respectively.

During the year ended December 31, 2024, the Company utilized $ 0.65 million of accumulated Plan forfeitures to offset employer contribution expense.

Note 16 — Stock Based Compensation

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Loan commitments 3,586 Mortgages held for sale 118 N/A —

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

Forward contracts - mortgage loan 4,500 Mortgages held for sale 17 N/A —

Total - December 31, 2024 $ 1,091,759 $ 16,559 $ 16,727

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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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1st Source Bank 1,147,376 14.57 472,526 6.00 669,412 8.50 630,034 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

Common Equity Tier 1 Capital (to Risk-

Weighted Assets):

1st Source Corporation 1,118,829 14.21 354,391 4.50 551,274 7.00 511,898 6.50

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1st Source Bank 1,071,912 13.95 460,910 6.00 652,956 8.50 614,547 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

Common Equity Tier 1 Capital (to Risk-

Weighted Assets):

1st Source Corporation 1,016,398 13.22 345,870 4.50 538,020 7.00 499,590 6.50

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Included in other comprehensive income 51

Purchases 3,000

Settlements —

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Federal funds sold and interest bearing deposits with other banks 47,989 47,989 47,989 — —

52,194 52,194 52,194 — —

Investment securities available-for-sale 1,536,299 1,536,299 446,021 1,089,246 1,032

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Also, the fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Note 22 — Segment Information

The Company has one reportable operating segment, commercial banking.

While our chief operating decision makers monitor revenue streams of various products and services, the identifiable segments’ operations are managed, and financial performance is evaluated on a company-wide basis.

The commercial banking segment provides a broad array of financial products and services including commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of its 77 banking center locations in 18 counties in Indiana and Michigan and Sarasota County in Florida.

The accounting policies of the commercial banking segment are the same as those described in Note 1 of the Notes to Consolidated Financial Statements.

The chief operating decision makers assess performance for the commercial banking segment and decide how to allocate resources based on net income available to common shareholders which is also reported on the Consolidated Statements of Income as net income available to common shareholders.

The measure of segment assets is reported on the Consolidated Statements of Financial Condition as total assets.

The chief operating decision makers use net income available to common shareholders to evaluate income generated from segment assets (return on average total assets) in deciding whether to reinvest profits into the commercial banking segment or to pay dividends or fund acquisitions.

Net income available to common shareholders is also used by the chief operating decision makers to monitor budget versus actual results.

Net income available to common shareholders as well as other common company-wide financial performance and credit quality metrics such as return on average assets, return on average shareholders’ equity, earnings per common share, net interest margin, efficiency ratio, and nonperforming assets to total assets, among others, are used for competitive analysis by benchmarking to the Company’s competitors as well as used in assessing the performance of the segment and for establishing management’s compensation.

See the Consolidated Statements of Financial Condition, the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Shareholders’ Equity, and the Consolidated Statements of Cash Flows.

The Company’s chief operating decision makers are the members of the Strategic Deployment Committee which includes the Chairman of the Board and Chief Executive Officer, the President, the Chief Financial Officer, and several Group/Division Heads that report directly to the Chief Executive Officer or President.

Note 23 — 1st Source Corporation (Parent Company Only) Financial Information

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LIABILITIES AND SHAREHOLDERS’ EQUITY

Commercial paper $ — $ 3,096

Long-term debt and mandatorily redeemable securities $ 29,156 $ 27,158

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Rental income from subsidiaries 1,961 1,832 1,740

Other 239 148 146

Investment securities and other investment gains 124 261 353

Other 307 239 148

Total income 57,615 52,484 51,829

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Income before income tax benefit and equity in undistributed income of subsidiaries 47,638 42,067 46,104

42,067 46,104 41,066

Income tax benefit 1,287 1,246 1,099

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Equity (undistributed) distributed in excess of income of subsidiaries ( 83,693 ) ( 81,621 ) ( 73,329 )

Depreciation of premises and equipment — — 1

Amortization of right of use assets 1,343 1,354 1,376

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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