10q10k10q10k.net

What changed in 1ST SOURCE CORP's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of 1ST SOURCE CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+264 added−242 removedSource: 10-K (2025-02-18) vs 10-K (2024-02-20)

Top changes in 1ST SOURCE CORP's 2024 10-K

264 paragraphs added · 242 removed · 203 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

30 edited+8 added−1 removed54 unchanged
Biggest changeWe are also subject to various state laws, including the California Consumer Privacy Act, that generally require us (directly or indirectly through our vendors) to protect the personal information of individual customers and notify them if confidentiality of their personal information is or may have been compromised as the result of a data security breach or failure.
Biggest changeWe are also subject to various state laws, including the California Consumer Privacy Act, that generally require us (directly or indirectly through our vendors) to protect the personal information of individual customers and notify them if confidentiality of their personal information is or may have been compromised as the result of a data security breach or failure. 6 Table of Contents USA Patriot Act of 2001 — Regulations under the USA Patriot Act require financial institutions to maintain appropriate controls to combat money laundering activities, perform due diligence of private banking and correspondent accounts, establish standards for verifying customer identity, and provide records related to suspected anti-money laundering activities upon request from federal authorities.
Specialty Finance Group Services — Our Specialty Finance Group provides comprehensive commercial equipment loan and lease products in four areas: construction equipment; new and pre-owned aircraft; auto and light trucks; and medium and heavy duty trucks. Construction equipment financing includes financing of new and pre-owned equipment (i.e., bulldozers, excavators, cranes, loaders, and asphalt and concrete plants etc.).
Specialty Finance Group Services — Our Specialty Finance Group provides comprehensive commercial new and pre-owned equipment loan and lease products in four areas: construction equipment; aircraft; auto and light trucks; and medium and heavy duty trucks. Construction equipment financing includes financing of new and pre-owned equipment (i.e., bulldozers, excavators, cranes, loaders, and asphalt and concrete plants etc.).
Business . 1ST SOURCE CORPORATION 1st Source Corporation, an Indiana corporation incorporated in 1971, is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source”, the “Company”, “we”, and “our”), a broad array of financial products and services. 1st Source Bank (“Bank”), its banking subsidiary, offers commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of our 78 banking center locations in 18 counties in Indiana and Michigan and Sarasota County in Florida. 1st Source Bank’s Specialty Finance Group, with 18 locations nationwide, offers specialized financing services for construction equipment, new and pre-owned private and cargo aircraft, and various vehicle types (cars, trucks, vans) for fleet purposes.
Business . 1ST SOURCE CORPORATION 1st Source Corporation, an Indiana corporation incorporated in 1971, is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source”, the “Company”, “we”, and “our”), a broad array of financial products and services. 1st Source Bank (“Bank”), its banking subsidiary, offers commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through most of our 77 banking center locations in 18 counties in Indiana and Michigan and Sarasota County in Florida. 1st Source Bank’s Specialty Finance Group, with 18 locations nationwide, offers specialized financing services for construction equipment, new and pre-owned private and cargo aircraft, and various vehicle types (cars, trucks, vans) for fleet purposes.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve set the reserve requirement ratio for all net transaction accounts to zero percent, and this requirement remained in place throughout 2023; therefore, all of the Bank’s net transaction accounts as of December 31, 2023 were exempt from reserve requirements.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve set the reserve requirement ratio for all net transaction accounts to zero percent, and this requirement remained in place throughout 2024; therefore, all of the Bank’s net transaction accounts as of December 31, 2024 were exempt from reserve requirements.
Aircraft financing consists of financings for new and pre-owned general aviation aircraft (including helicopters) for private and corporate users, aircraft distributors and dealers, charter operators, cargo carriers, and other aircraft operators. 1st Source Bank provides selective international aircraft financing, primarily in Mexico and Brazil.
Aircraft financing consists of financings for new and pre-owned general aviation aircraft (including helicopters) for private and corporate users, select aircraft distributors and dealers, charter operators, cargo carriers, and other aircraft operators. 1st Source Bank also provides selective international aircraft financing, primarily in Mexico and Brazil.
Regulatory capital requirements to which we are subject are disclosed in Part II, Item 8, Financial Statements and Supplementary Data — Note 20 of the Notes to Consolidated Financial Statements. As of December 31, 2023, we were in compliance with all applicable regulatory capital requirements and guidelines.
Regulatory capital requirements to which we are subject are disclosed in Part II, Item 8, Financial Statements and Supplementary Data — Note 20 of the Notes to Consolidated Financial Statements. As of December 31, 2024, we were in compliance with all applicable regulatory capital requirements and guidelines.
OTHER CONSOLIDATED SUBSIDIARIES 1st Portfolio Management, Inc. owns and manages certain available-for-sale investment securities. 1st Source Bank is the managing general partner in nine subsidiaries that have interests in tax-advantaged investments with third parties.
OTHER CONSOLIDATED SUBSIDIARIES 1st Portfolio Management, Inc. owns and manages certain available-for-sale investment securities. 1st Source Bank is the managing general partner in eight subsidiaries that have interests in tax-advantaged investments with third parties.
Federal banking regulators will consider our performance in these areas as they review any applications we may file to engage in mergers or acquisitions or to open a branch or facility. On October 24, 2023, federal banking agencies issued a final rule designed to strengthen and modernize the regulations implementing the CRA.
Federal banking regulators will consider our performance in these areas as they review any applications we may file to engage in mergers or acquisitions or to open a branch or facility. The federal banking agencies issued a final rule in 2023 designed to strengthen and modernize the regulations implementing the CRA.
The auto and light truck finance receivables generally range from $100,000 to $45 million with fixed or variable interest rates and terms of one to eight years. The medium and heavy duty truck division provides new and pre-owned fleet financing for highway tractors, medium duty trucks and trailers to the trucking industry.
The auto and light truck finance relationships generally range from $100,000 to $40 million with fixed or variable interest rates and terms of one to eight years. The medium and heavy duty truck division provides new and pre-owned fleet financing for highway tractors, medium duty trucks and trailers to the trucking industry.
OUR PEOPLE At December 31, 2023, we had approximately 1,170 colleagues on a full-time equivalent basis. As a service-driven business, our long-term success depends on our people. And as we have grown, the importance of our talent strategy has intensified. We are committed to a multi-dimensional approach to talent and culture.
OUR PEOPLE At December 31, 2024, we had approximately 1,205 colleagues on a full-time equivalent basis. As a service-driven business, our long-term success depends on our people. And as we have grown, the importance of our talent strategy has intensified. We are committed to a multi-dimensional approach to talent and culture.
At December 31, 2023, the Bank was categorized as “well capitalized,” meaning that our total risk-based capital ratio exceeded 10.00%, our Tier 1 risk-based capital ratio exceeded 8.00%, our common equity Tier 1 risk-based capital ratio exceeded 6.50%, our leverage ratio exceeded 5.00%, and we are not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. 1st Source and the Bank have elected not to utilize the community bank leverage ratio framework adopted by the Federal Reserve and the other federal banking agencies in 2020.
At December 31, 2024, the Bank was categorized as “well capitalized,” meaning that our total risk-based capital ratio exceeded 10.00%, our Tier 1 risk-based capital ratio exceeded 8.00%, our common equity Tier 1 risk-based capital ratio exceeded 6.50%, our leverage ratio exceeded 5.00%, and we are not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. 1st Source and the Bank have elected not to utilize the optional community bank leverage ratio framework implemented by the Federal Reserve and the other federal banking agencies.
Aircraft finance receivables generally range from $500,000 to $25 million with fixed or variable interest rates and terms of one to ten years. 3 Table of Contents We offer auto and light truck fleet financing for new and pre-owned vehicles to automobile and light truck rental companies, commercial leasing companies, and single unit fleet financing for users of specialty vehicles (step vans, vocational work trucks, motor coaches, shuttle buses and funeral cars).
Aircraft finance relationships generally range from $500,000 to $30 million with fixed or variable interest rates and terms of one to ten years. 3 Table of Contents We offer auto and light truck fleet financing for new and pre-owned vehicles to automobile and light truck rental companies, commercial leasing companies, and a limited number of single unit financing for users of specialty vehicles (step vans, vocational work trucks, motor coaches, shuttle buses and funeral cars).
We provide developmental opportunities for our colleagues at all levels through a robust set of formal and informal programs. • 1st Source University enables colleagues to build skills and knowledge in multiple facets of our business. • In 2023, 1st Source colleagues completed over 40,000 training modules consisting of over 1,310 different courses covering topics such as regulations, leadership development, relationship building, cybersecurity, communication, and unconscious bias. • The 1st Source L.E.A.D. program is a set of immersive experiences and collaborative interactions, developing leadership capability over a twelve-month period.
We provide developmental opportunities for our colleagues at all levels through a robust set of formal and informal programs. • 1st Source University enables colleagues to build skills and knowledge in multiple facets of our business. • In 2024, 1st Source colleagues completed over 43,500 training modules consisting of over 985 different courses covering topics such as regulations, leadership development, relationship building, cybersecurity, communication, and unconscious bias. • The 1st Source L.E.A.D. program is a set of immersive experiences and collaborative interactions, developing leadership capability over a twelve-month period.
In 2023, we reimbursed over $163,000 to colleagues for tuition at 16 different Colleges and Universities with an average of approximately $3,600 per colleague who used the benefit. • To encourage our colleagues to build careers delivering the highest levels of outstanding client service at 1st Source Bank, we developed mastery career paths for critical roles including personal and commercial banking, management and pre-management, and customer service.
In 2024, we reimbursed over $132,500 to colleagues for tuition at 16 different Colleges and Universities with an average of approximately $3,900 per colleague who used the benefit. • To encourage our colleagues to build careers delivering the highest levels of outstanding client service at 1st Source Bank, we developed mastery career paths for critical roles including personal and commercial banking, management and pre-management, and customer service.
Medium and heavy duty truck finance receivables generally range from $50,000 to $20 million with fixed or variable interest rates and terms of three to eight years.
Medium and heavy duty truck finance relationships generally range from $50,000 to $25 million with fixed or variable interest rates and terms of three to eight years.
Our culture is what unifies our colleagues across our diverse business model, ensures we are best positioned to serve our diverse clients and propels our continuous evolution. • For the second consecutive year, all new employees completed a series of facilitated training sessions on unconscious bias within six months of hire. • Diversity in leadership starts with our Board of Directors and we are proud to report that five of our twelve Board Members (42%) are women or minority. 4 Table of Contents • For the seventh consecutive year, more than 21% of our new hires were diverse colleagues. • In 2023, the Company was recognized by Newsweek as a Greatest Workplace for Parents and Families and by Forbes as a Best Midsize Employer and Best-In-State Bank.
Our culture is what unifies our colleagues across our diverse business model, ensures we are best positioned to serve our diverse clients and propels our continuous evolution. • For the third consecutive year, all new employees completed a series of facilitated training sessions on unconscious bias within six months of hire. 4 Table of Contents • Diversity in leadership starts with our Board of Directors and we are proud to report that five of our twelve Board Members (42%) are women or minority. • For the eighth consecutive year, more than 21% of our new hires were diverse colleagues. • In 2024, the Company was recognized as Forbes America’s Best Banks and for the third consecutive year as Forbes Best-In-State Bank.
Community Engagement — Our organization is only as strong as the communities we serve. 1st Source and our colleagues are proud to support our local schools, nonprofits, and faith groups. • In 2023, our colleagues donated approximately 14,300 hours to a total of 600 different organizations. • In 2023, our colleagues contributed over $186,000 to local United Way organizations. • In 2023, 1st Source contributed over $700,000 to over 470 deserving and successful community service organizations.
Community Engagement — Our organization is only as strong as the communities we serve. 1st Source and our colleagues are proud to support our local schools, nonprofits, and faith groups. • In 2024, our colleagues donated approximately 13,900 hours to a total of 530 different organizations. • In 2024, our colleagues contributed over $190,000 to local United Way organizations. • In 2024, 1st Source contributed over $600,000 to over 400 deserving and successful community service organizations.
While our Specialty Finance lending portfolio is concentrated in certain equipment types, we serve a diverse client base. We are not dependent upon any single industry or client. At December 31, 2023, we had consolidated total assets of $8.73 billion, total loans and leases of $6.52 billion, total deposits of $7.04 billion, and total shareholders’ equity of $989.57 million.
While our Specialty Finance lending portfolio is concentrated in certain equipment types, we serve a diverse client base. We are not dependent upon any single industry or client. At December 31, 2024, we had consolidated total assets of $8.93 billion, total loans and leases of $6.85 billion, total deposits of $7.23 billion, and total shareholders’ equity of $1.11 billion.
We are a registered bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA), subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (Federal Reserve). We are required to file annual reports with the Federal Reserve and provide additional information as required.
We are a registered bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA), subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (Federal Reserve).
Sarbanes-Oxley Act of 2002 (SOA) — The SOA includes provisions intended to enhance corporate responsibility and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws, and which increase penalties for accounting and auditing improprieties at public traded companies.
At December 31, 2024, the Bank had $100 million of BTFP borrowings. 7 Table of Contents Sarbanes-Oxley Act of 2002 (SOA) — The SOA includes provisions intended to enhance corporate responsibility and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws, and which increase penalties for accounting and auditing improprieties at public traded companies.
Construction equipment finance receivables generally range from $100,000 to $33 million with fixed or variable interest rates and terms of one to ten years.
Construction equipment finance relationships which may include multiple pieces of equipment generally range from $100,000 to $35 million with fixed or variable interest rates and terms of one to ten years.
The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company. 5 Table of Contents Capital Standards — The federal bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks.
The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company.
The Bank, as an Indiana state bank and member of the Federal Reserve System, is subject to prudential supervision by the Indiana Department of Financial Institutions (DFI) and the Federal Reserve Bank of Chicago (FRB Chicago). 1st Source Bank is regularly examined by and subject to regulations promulgated by the DFI and the Federal Reserve.
We are required to file annual reports with the Federal Reserve and provide additional information as required. 5 Table of Contents The Bank, as an Indiana state bank and member of the Federal Reserve System, is subject to prudential supervision by the Indiana Department of Financial Institutions (DFI) and the Federal Reserve Bank of Chicago (FRB Chicago). 1st Source Bank is regularly examined by and subject to regulations promulgated by the DFI and the Federal Reserve.
The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to industry changes including mobile and internet banking, provide greater clarity and consistency in the application of CRA regulations and tailor CRA evaluations and data collection to bank size and type. 6 Table of Contents Laws and Regulations Governing Extensions of Credit — The Bank is subject to restrictions imposed by the Federal Reserve Act on extensions of credit to 1st Source or our subsidiaries, and on investments in our securities and the use of our securities as collateral for loans to any borrowers.
The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to industry changes including mobile and internet banking, provide greater clarity and consistency in the application of CRA regulations and tailor CRA evaluations and data collection to bank size and type.
In March 2023, the Federal Reserve created a Bank Term Funding Program (BTFP) to provide funding to eligible depository institutions in addition to the funding provided through its “discount window.” The BTFP offers loans up to one year in length that can be prepaid without penalty.
In March 2023, the Federal Reserve created a Bank Term Funding Program (BTFP) to provide funding to eligible depository institutions in addition to the funding provided through its “discount window.” The Federal Reserve ceased extending advances under the BTFP on March 11, 2024.
The SOA requires that audit committees be empowered to engage independent counsel and other advisors, and requires a public company to provide funding to pay the company’s auditors and any advisors the audit committee retains. 7 Table of Contents Consumer Financial Protection Laws — The Bank is subject to numerous federal and state consumer financial protection laws and regulations that extensively govern its transactions with consumers.
The SOA requires that audit committees be empowered to engage independent counsel and other advisors, and requires a public company to provide funding to pay the company’s auditors and any advisors the audit committee retains.
The Bank is also subject to regulations promulgated by the Consumer Financial Protection Bureau (CFPB) and to supervision for compliance with such regulations by the DFI and the FRB Chicago.
The Bank is also subject to regulations promulgated by the Consumer Financial Protection Bureau (CFPB), but the DFI and the FRB Chicago, rather than the CFPB, currently examine the Bank for compliance with such regulations, and will continue to do so until the Bank's regulatory assets exceed $10 billion for four consecutive quarter-ends.
The program is built around a series of best-in-class leadership principles. • The Commercial Banker Development Program is a rotational program for recent college graduates designed to expose participants to fundamentals of commercial banking. • The Tuition Reimbursement Program reflects our culture of continuous learning.
It focuses on strategies for maximizing the talents of each individual, strengthening team effectiveness, and building high performing teams that deliver on the 1st Source mission to help our clients achieve security, build wealth, and realize their dreams. • The Commercial Banker Development Program is a rotational program for recent college graduates designed to expose participants to fundamentals of commercial banking. • The Tuition Reimbursement Program reflects our culture of continuous learning.
The amount that can be borrowed under the BTFP is based upon the par value of the securities pledged as collateral to the Federal Reserve. Advances can be requested under the BTFP until March 11, 2024. At December 31, 2023, the Bank had $100 million of BTFP borrowings.
Under the BTFP, the Federal Reserve offered loans up to one year in length and may be prepaid without penalty. The amount that could be borrowed under the BTFP was based upon the par value of the securities pledged as collateral to the Federal Reserve.
In 2023, 56 career paths were tracked in our new Learning Management System. 897 career paths were accessed by our colleagues, 411 were completed, and more than 6,700 skills were developed. • The Business of Banking series, facilitated internally, helps colleagues learn more about the banking industry as well as different areas of 1st Source Bank.
Our colleagues use the same learning resources provided to our clients on 1stsource.com, to better prepare them to discuss these important financial topics. • The Business of Banking series, facilitated internally, helps colleagues learn more about the banking industry as well as different areas of 1st Source Bank.
Removed
USA Patriot Act of 2001 — Regulations under the USA Patriot Act require financial institutions to maintain appropriate controls to combat money laundering activities, perform due diligence of private banking and correspondent accounts, establish standards for verifying customer identity, and provide records related to suspected anti-money laundering activities upon request from federal authorities.
Added
The program is built around a series of best-in-class leadership principles. • The 1st Source Engaging Manager program is a development program designed to help managers achieve their purpose to develop and lead engaging teams.
Added
In 2024, 66 career paths were tracked in our Learning Management System.
Added
Our colleagues, completed 468 career paths, made progress on 310 paths, and more than 5,100 skills were developed. • Our personal finance course is just one of the ways that we helped our colleagues learn the 1st Source philosophy on topics including: Savings and Emergency Fund, Budgeting, Credit and Debt, Renting and Home Ownership, Investing and Retirement, and Protecting your Assets and Charitable Giving.
Added
More than 40 leaders across the bank spend time discussing their departments, and how they contribute to our mission to help our clients achieve security, build wealth, and realize their dreams.
Added
We expect the Trump administration will seek to implement a regulatory reform agenda that is significantly different from that of the Biden administration, impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies.
Added
Capital Standards — The federal bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks.
Added
Laws and Regulations Governing Extensions of Credit — The Bank is subject to restrictions imposed by the Federal Reserve Act on extensions of credit to 1st Source or our subsidiaries, and on investments in our securities and the use of our securities as collateral for loans to any borrowers.
Added
Consumer Financial Protection Laws — The Bank is subject to numerous federal and state consumer financial protection laws and regulations that extensively govern its transactions with consumers.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

17 edited+16 added−7 removed67 unchanged
Biggest changeChanges in key personnel and their responsibilities may be disruptive to our businesses and could have a material adverse effect on our businesses, financial condition, and results of operations. 11 Table of Contents Technology security breaches — Information security risks have increased due to the sophistication and activities of organized crime, hackers, terrorists and other external parties and the use of online, telephone, and mobile banking channels by clients.
Biggest changeTechnology security breaches — Information security risks have increased due to the sophistication and activities of organized crime, hackers, terrorists and other external parties and the use of online, telephone, and mobile banking channels by clients. Any compromise of our security could impair our reputation and deter our clients from using our banking services.
Such persons may believe that our practices, including our lending practices, are not sufficiently robust from an ESG perspective and may publish their views. Adverse publicity regarding such assessments of our ESG performance could damage our reputation or prospects. Adverse market perception can adversely affect the trading price of our shares. Item 1B. Unresolved Staff Comments. None
Such persons may believe that our practices, including our lending practices, are not sufficiently robust from an ESG perspective and may publish their views. Adverse publicity regarding such assessments of our ESG performance could damage our reputation or prospects. Adverse market perception can adversely affect the trading price of our shares. Item 1B. Unresolved Staff Comments.
Additionally, some residential mortgages are sold into the secondary market and serviced by our principal banking subsidiary, 1st Source Bank. Consumer loans are primarily all other non-real estate loans to individuals in our regional market area. Consumer loans can entail risk, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets.
Additionally, some residential mortgages are sold into the secondary market and serviced by our principal banking subsidiary, 1st Source Bank. 8 Table of Contents Consumer loans are primarily all other non-real estate loans to individuals in our regional market area. Consumer loans can entail risk, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets.
The duration and severity of the current inflationary period and the resulting impact on us cannot be predicted with precision. 10 Table of Contents Liquidity Risks We could experience an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern — The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business.
Liquidity Risks We could experience an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern — The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business.
Clients who rely on the use of assets financed through the Specialty Finance Group to produce income could be negatively affected, and we could experience substantial loan and lease losses.
Our construction and transportation related businesses could be adversely affected by slowdowns in the economy. Clients who rely on the use of assets financed through the Specialty Finance Group to produce income could be negatively affected, and we could experience substantial loan and lease losses.
Issuing debit cards to our clients exposes us to potential losses which, in the event of a data breach at one or more major retailers may adversely affect our business, financial condition, and results of operations.
Issuing debit cards to our clients exposes us to potential losses which, in the event of a data breach at one or more major retailers may adversely affect our business, financial condition, and results of operations. Furthermore, there continues to be heightened legislative and regulatory focus on privacy, data protection and information security.
Such events can result in costly remediation measures and litigation or governmental investigation and responding to security breaches can place unanticipated demands on the time and attention of management.
Information security breaches can also disrupt the operation of information systems on which we depend, adversely affecting our business operations. Such events can result in costly remediation measures and litigation or governmental investigation and responding to security breaches can place unanticipated demands on the time and attention of management.
We are especially dependent on a limited number of key management personnel, many of whom do not have employment agreements with us. The loss of the chief executive officer and other senior management and key personnel could have a material adverse impact on our operations because other officers may not have the experience and expertise to readily replace these individuals.
The loss of the chief executive officer and other senior management and key personnel could have a material adverse impact on our operations because other officers may not have the experience and expertise to readily replace these individuals. Many of these senior officers have primary contact with our clients and are important in maintaining personal relationships with our client base.
Many of these senior officers have primary contact with our clients and are important in maintaining personal relationships with our client base. The unexpected loss of services of one or more of these key employees could have a material adverse effect on our operations and possibly result in reduced revenues if we were unable to find suitable replacements promptly.
The unexpected loss of services of one or more of these key employees could have a material adverse effect on our operations and possibly result in reduced revenues if we were unable to find suitable replacements promptly. Competition for senior personnel is intense, and we may not be successful in attracting and retaining such personnel.
These dividends are the principal source of funds we use to pay dividends on our common stock and interest and principal on our debt. Various federal and state laws and regulations limit the amount of dividends our subsidiaries may pay to us.
Various federal and state laws and regulations limit the amount of dividends our subsidiaries may pay to us. In the event our subsidiaries are unable to pay dividends to us, we may not be able to service debt, pay other obligations, or pay dividends on our common stock.
In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.
In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. The 1st Source Specialty Finance Group loan and lease portfolio consists of commercial loans and leases secured by construction and transportation equipment, including aircraft, autos, trucks, and vans.
We maintain a cyber insurance policy that is designed to cover a majority of loss resulting from cyber security breaches, but there is no assurance such coverage or other protective measures we employ will be adequate to address all potential material adverse impacts.
We maintain a cyber insurance policy that is designed to cover a majority of loss resulting from cyber security breaches, but there is no assurance such coverage or other protective measures we employ will be adequate to address all potential material adverse impacts. 11 Table of Contents We also confront the risk of being compromised by emails sent by perpetrators posing as company executives or vendors in order to dupe company personnel into sending large sums of money to accounts controlled by the perpetrators.
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. 12 Table of Contents Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results — We invest and/or finance certain tax-advantaged projects promoting affordable housing, community redevelopment and renewable energy sources.
Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results — We invest and/or finance certain tax-advantaged projects promoting affordable housing, community redevelopment and renewable energy sources.
We are dependent upon the services of our management team — Our future success and profitability is substantially dependent upon our management and the banking acumen of our senior executives. We believe that our future results will also depend in part upon our ability to attract and retain highly skilled and qualified management.
We are dependent upon the services of our management team and other key personnel — Our future success and profitability is substantially dependent upon our management and the banking acumen of our senior executives and other key personnel.
In the event our subsidiaries are unable to pay dividends to us, we may not be able to service debt, pay other obligations, or pay dividends on our common stock. Our inability to receive dividends from our subsidiaries could have a material adverse effect on our business, financial condition and results of operations.
Our inability to receive dividends from our subsidiaries could have a material adverse effect on our business, financial condition and results of operations.
However, the Board of Depositories could alter this requirement in the future, which could adversely affect our liquidity depending on the amount of collateral we may be required to pledge. We rely on dividends from our subsidiaries — We receive substantially all of our revenue from dividends from our subsidiaries, including, primarily, the Bank.
However, the Board of Depositories could alter this requirement in the future, which could adversely affect our liquidity depending on the amount of collateral we may be required to pledge. 10 Table of Contents Unrealized losses in our available-for-sale investment securities portfolio could adversely affect liquidity — As market interest rates increased during 2022 and 2023, we experienced increased unrealized losses within our available-for-sale investment securities portfolio.
Continued elevated levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. The Federal Reserve increased interest rates dramatically during 2022 and 2023 in an effort to halt and reverse continued elevated inflation, which has negatively impacted the value of our available-for-sale investment securities portfolio.
Elevated levels of inflation, or the aggregate effects of previous periods of elevated inflation, can have complex effects on our business and results of operations, some of which could be materially adverse.
Removed
The 1st Source Specialty Finance Group loan and lease portfolio consists of commercial loans and leases secured by construction and transportation equipment, including aircraft, autos, trucks, and vans. 8 Table of Contents Our construction and transportation related businesses could be adversely affected by slowdowns in the economy.
Added
Governmental responses to elevated levels of inflation, or the aggregate effects of previous inflationary periods, such as severe monetary and fiscal policy, can result in increased market interest rates or volatility in interest rate levels. The duration and severity of a prolonged inflationary period and the resulting impact on us cannot be predicted with precision.
Removed
Continued elevated levels of inflation could adversely impact our business and results of operations — The U.S. has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7% in 2022 and increased at a more moderate rate in 2023.
Added
Our available-for-sale investment securities portfolio consists of obligations of the U.S. Treasury and federal agencies, obligations of state and local municipalities and federal agency mortgage obligations. We held no held-to-maturity or equity securities at December 31, 2024. Many of the instruments in our securities portfolio are particularly sensitive to interest rate fluctuations, especially long-term fixed-income securities.
Removed
In addition, inflation-related increases in our interest expense is due to increased rates paid on deposits. Elevated levels of inflation has also caused increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.
Added
The unrealized losses of our securities portfolio are reflected in Accumulated Other Comprehensive Income on our Consolidated Statements of Financial Condition and reduces our book capital and tangible common equity ratio. However, unrealized losses do not affect our regulatory capital ratios.
Removed
Governmental responses to the current inflationary environment, such as severe changes to monetary and fiscal policy, or the imposition or threatened imposition of price controls, could adversely affect our business.
Added
Management continues to actively monitor the investment portfolio and may continue to take advantage of opportunistic restructuring alternatives from time to time. If we sell securities from our investment portfolio before the full recovery of their amortized cost bases (which is typically at maturity), then we may incur losses.
Removed
Competition for senior personnel is intense, and we may not be successful in attracting and retaining such personnel.
Added
We rely on dividends from our subsidiaries — We receive substantially all of our revenue from dividends from our subsidiaries, including, primarily, the Bank. These dividends are the principal source of funds we use to pay dividends on our common stock and interest and principal on our debt.
Removed
Any compromise of our security could impair our reputation and deter our clients from using our banking services. Information security breaches can also disrupt the operation of information systems on which we depend, adversely affecting our business operations.
Added
We believe that our future results will also depend in part upon our ability to attract and retain highly skilled and qualified management. We are especially dependent on a limited number of key management personnel, many of whom do not have employment agreements with us.
Removed
We also confront the risk of being compromised by emails sent by perpetrators posing as company executives or vendors in order to dupe company personnel into sending large sums of money to accounts controlled by the perpetrators.
Added
Changes in key personnel and their responsibilities may be disruptive to our businesses and could have a material adverse effect on our businesses, financial condition, and results of operations.
Added
New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities.
Added
Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have an adverse effect on our business, financial condition and results of operations.
Added
Our business is subject to fraud attempts — As a financial institution, we are susceptible to fraudulent activity rendered against us or our customers that may result in financial loss, increased costs, privacy breaches, misappropriation of assets, litigation, or damage to our reputation.
Added
These acts may take many forms including check fraud, wire fraud, phishing, social engineering, and other dishonest proceedings. There have been instances where banks have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts.
Added
Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers.
Added
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. 12 Table of Contents As we continue to grow in size and complexity, regulatory expectations and scrutiny will likely increase and could have a potential impact on our operations and business — We have organically grown steadily over the past four years.
Added
As financial institutions grow, so do the expectations of regulatory agencies regarding the financial institution’s ability to control for increasingly complex and sophisticated business operations. Certain regulations and laws have embedded asset thresholds that change regulatory expectations, have different financial statement impacts, require different committee and management compositions, or enhanced reporting requirements.
Added
For example, the Durbin Amendment to the Dodd-Frank Act limits the amount of interchange fees that banks with assets of $10.0 billion or more may charge to process electronic debit transactions. Banks must comply with the Durbin Amendment no later than July 1 of the next calendar year after the bank crosses the $10.0 billion asset threshold.
Added
While we do not currently have $10.0 billion or more in total consolidated assets, we have begun analyzing these requirements to ensure we are prepared to comply with the rules when and if they become applicable. There is potential that changes in the regulatory expectations from asset growth could impact the business operationally, strategically, or financially.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+1 added−1 removed9 unchanged
Biggest changeIn addition, we adhere to security standards set by the PCI Security Standards Council which are designed to ensure secure payments globally. 13 Table of Contents Risks from cybersecurity threats, including risks identified from previous cybersecurity incidents, have required significant investments over time in maturing our Information Security Program and attracting and retaining the personnel with requisite experience and expertise.
Biggest changeRisks from cybersecurity threats, including risks identified from previous cybersecurity incidents, have required significant investments over time in maturing our Information Security Program and attracting and retaining the personnel with requisite experience and expertise. In particular, the CISO has substantial relevant expertise in the financial services industry and formal training in the areas of information security and cybersecurity risk management.
These management oversight committees include the Information Security Committee, co-chaired by the CISO and CRO, the Operational and Compliance Risk Committee, chaired by the CFO, vice chaired by the CISO and Chief Compliance Officer, the IT Steering Committee, chaired by the Chief Information Officer, the Enterprise Risk Management Committee, chaired by the CRO and the executive management committee known as the Strategic Deployment Committee, chaired by the CEO.
These management oversight committees include the Information Security Committee, co-chaired by the CISO and CRO, the Operational and Compliance Risk Committee, chaired by the CFO, vice chaired by the CISO and Chief Compliance Officer, the IT Steering Committee, chaired by the Chief Information Officer (CIO), the Enterprise Risk Management Committee, chaired by the CRO, the Data Governance Committee, chaired by the CIO, and the executive management committee known as the Strategic Deployment Committee, chaired by the CEO.
Risk Factors - Operational Risks - Technology Security Breaches.”
Risk Factors - Operational Risks - Technology Security Breaches.” 14 Table of Contents
Our processes are designed to meet standards for all seven CRI Profile functions – governance, identification, detection, protection, response, recovery, and supply chain dependency management.
Our processes are designed to meet standards for all seven CRI Profile functions – governance, identification, detection, protection, response, recovery, and supply chain dependency management. In addition, we adhere to security standards set by the PCI Security Standards Council which are designed to ensure secure payments globally.
Before escalation to the Board, issues are generally identified and assessed through our risk governance structure established under our Enterprise Risk Management Program. The risk governance structure includes three distinct components: management oversight, third-party professional assessment, and separate oversight and review by our Internal Audit Department.
Such oversight includes regular reporting by management to the Board on the adequacy of such processes and potential material issues identified. Before escalation to the Board, issues are generally identified and assessed through our risk governance structure established under our Enterprise Risk Management Program.
Cybersecurity threats will continue to be endemic to the financial services industry for the foreseeable future. Governance Our Board and senior management oversee our processes for management of cybersecurity risks consistent with the foregoing standards. Such oversight includes regular reporting by management to the Board on the adequacy of such processes and potential material issues identified.
We will need to continue to make meaningful investments in cybersecurity controls for continuous improvement and maturation in response to constantly evolving cybersecurity threats. Cybersecurity threats will continue to be endemic to the financial services industry for the foreseeable future. Governance Our Board and senior management oversee our processes for management of cybersecurity risks consistent with the foregoing standards.
Management oversight is maintained through several committees that serve as forums for further assessment, remediation, and escalation.
The risk governance structure includes three distinct components: management oversight, third-party professional assessment, and separate oversight and review by our Internal Audit Department. Management oversight is maintained through several committees that serve as forums for further assessment, remediation, and escalation.
Removed
In particular, the CISO has substantial relevant expertise in the financial services industry and formal training in the areas of information security and cybersecurity risk management. We will need to continue to make meaningful investments in cybersecurity controls for continuous improvement and maturation in response to constantly evolving cybersecurity threats.
Added
Risks from Cybersecurity Incidents We have not encountered, to our knowledge, a cybersecurity incident that has materially impaired, or is reasonably likely to materially impair, our business strategy, operations, or financial condition.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed2 unchanged
Biggest changeJoseph County of which approximately 29 acres have been approved by the Board for development and construction of an operations and training facility. We are marketing the remaining six acres for sale.
Biggest changeJoseph County of which approximately 28 acres were approved by the Board for development and construction of an operations and training facility. During 2024 we sold the approximate seven acres of land that was not part of the 28 acres approved by the Board for development and construction.
Item 2. Properties. Our headquarters building is located in downtown South Bend, Indiana. The building is part of a larger complex, including a 300-room hotel and a 500-car parking garage. Our lease on this property runs through September 2027. As of December 31, 2023, 1st Source leases approximately 71% of the office space in this complex.
Item 2. Properties. Our headquarters building is located in downtown South Bend, Indiana. The building is part of a larger complex, including a 300-room hotel and a 500-car parking garage. Our lease on this property runs through September 2027. As of December 31, 2024, 1st Source leases approximately 71% of the office space in this complex.
At December 31, 2023, we owned or leased properties where our 78 banking centers were located. Our facilities are located in Allen, DeKalb, Elkhart, Fulton, Huntington, Kosciusko, LaPorte, Marshall, Porter, Pulaski, St.
At December 31, 2024, we owned or leased properties where our 77 banking centers were located. Our facilities are located in Allen, DeKalb, Elkhart, Fulton, Huntington, Kosciusko, LaPorte, Marshall, Porter, Pulaski, St.
Joseph, Starke, Tippecanoe, Wells, and Whitley Counties in the State of Indiana, Berrien, Cass, and Kalamazoo Counties in the State of Michigan, and Sarasota County in the state of Florida. 1st Source Bank also owns approximately 35 acres in St.
Joseph, Starke, Tippecanoe, Wells, and Whitley Counties in the State of Indiana, Berrien, Cass, and Kalamazoo Counties in the State of Michigan, and Sarasota County in the state of Florida. At December 31, 2023, we owned approximately 35 acres in St.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed2 unchanged
Biggest changeUnder the terms of the plan, 1st Source may repurchase up to 1,000,000 shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes. 1st Source has not yet repurchased any shares under this Plan.
Biggest changeUnder the terms of the plan, 1st Source may repurchase up to 1,000,000 shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes. Since the inception of the plan, 1st Source has repurchased a total of 2,997 shares.
Comparison of Five Year Cumulative Total Return * Among 1st Source, Morningstar Market Weighted NASDAQ Index** and Peer Group Index*** * Assumes $100 invested on December 31, 2018, in 1st Source Corporation common stock, NASDAQ market index, and peer group index. ** The Morningstar Weighted NASDAQ Index Return is calculated using all companies which trade as NASD Capital Markets, NASD Global Markets or NASD Global Select.
Comparison of Five Year Cumulative Total Return * Among 1st Source, Morningstar Market Weighted NASDAQ Index** and Peer Group Index*** * Assumes $100 invested on December 31, 2019, in 1st Source Corporation common stock, NASDAQ market index, and peer group index. ** The Morningstar Weighted NASDAQ Index Return is calculated using all companies which trade as NASD Capital Markets, NASD Global Markets or NASD Global Select.
For information regarding restrictions on dividends, see Part I, Item 1, Business - Regulation and Supervision - Dividends and Part II, Item 8, Financial Statements and Supplementary Data - Note 20 of the Notes to Consolidated Financial Statements. Item 6. [Reserved] 15 Table of Contents
For information regarding restrictions on dividends, see Part I, Item 1, Business - Regulation and Supervision - Dividends and Part II, Item 8, Financial Statements and Supplementary Data - Note 20 of the Notes to Consolidated Financial Statements. Item 6. [Reserved] 16 Table of Contents
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs* Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs October 01 - 31, 2023 — $ — — 1,000,000 November 01 - 30, 2023 — — — 1,000,000 December 01 - 31, 2023 — — — 1,000,000 *1st Source maintains a stock repurchase plan that was authorized by the Board of Directors on October 19, 2023.
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs* Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs October 01 - 31, 2024 — $ — — 1,000,000 November 01 - 30, 2024 2,997 59.48 2,997 997,003 December 01 - 31, 2024 — — — 997,003 *1st Source maintains a stock repurchase plan that was authorized by the Board of Directors on October 19, 2023.
The following table shows our share repurchase activity during the three months ended December 31, 2023.
The following table shows our share repurchase activity during the three months ended December 31, 2024.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the NASDAQ Global Select Market under the symbol “SRCE.” As of February 16, 2024, there were 1,593 holders of record of 1st Source common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the NASDAQ Global Select Market under the symbol “SRCE.” As of February 14, 2025, there were 1,857 holders of record of 1st Source common stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

2 edited+0 added−0 removed0 unchanged
Biggest changeFinancial Statements and Supplementary Data 38 Reports of Independent Registered Public Accounting Firm 39 Consolidated Statements of Financial Condition 42 Consolidated Statements of Income 43 Consolidated Statements of Comprehensive Income 44 Consolidated Statements of Shareholders’ Equity 44 Consolidated Statements of Cash Flow s 45 Notes to Consolidated Financial Statements 46
Biggest changeFinancial Statements and Supplementary Data 39 Reports of Independent Registered Public Accounting Firm 40 Consolidated Statements of Financial Condition 43 Consolidated Statements of Income 44 Consolidated Statements of Comprehensive Income 45 Consolidated Statements of Shareholders’ Equity 45 Consolidated Statements of Cash Flow s 46 Notes to Consolidated Financial Statements 47
Item 6. [Reserved] 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38 Item 8.
Item 6. [Reserved] 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

137 edited+36 added−30 removed68 unchanged
Biggest change(Dollars in thousands) 2023 2022 2021 Amounts of loans and leases outstanding at end of period $ 6,518,505 $ 6,011,162 $ 5,346,214 Average amount of net loans and leases outstanding during period $ 6,203,857 $ 5,566,701 $ 5,437,817 Balance of allowance for loan and lease losses at beginning of period $ 139,268 $ 127,492 $ 140,654 Charge-offs: Commercial and agricultural 4,305 625 2,930 Renewable energy — — — Auto and light truck 729 118 7,797 Medium and heavy duty truck — — — Aircraft — — — Construction equipment 54 1,114 856 Commercial real estate 248 538 — Residential real estate and home equity 101 284 228 Consumer 1,211 730 712 Total charge-offs 6,648 3,409 12,523 Recoveries: Commercial and agricultural 243 56 812 Renewable energy — — — Auto and light truck 5,591 417 1,316 Medium and heavy duty truck 12 — — Aircraft 967 785 687 Construction equipment 1,656 17 473 Commercial real estate 11 45 19 Residential real estate and home equity 334 160 16 Consumer 252 460 341 Total recoveries 9,066 1,940 3,664 Net (recoveries) charge-offs (2,418) 1,469 8,859 Provision (recovery of provision) for loan and lease losses 5,866 13,245 (4,303) Balance at end of period $ 147,552 $ 139,268 $ 127,492 Ratio of net (recoveries) charge-offs to average net loans and leases outstanding (0.04) % 0.03 % 0.16 % Ratio of allowance for loan and lease losses to net loans and leases outstanding end of period 2.26 % 2.32 % 2.38 % Coverage ratio of allowance for loan and lease losses to nonperforming loans and leases 627.08 % 526.06 % 327.28 % The following table shows net (recoveries) charge-offs as a percentage of average loans and leases by portfolio type: 2023 2022 2021 Commercial and agricultural 0.52 % 0.07 % 0.19 % Renewable energy — — — Auto and light truck (0.55) (0.04) 1.11 Medium and heavy duty truck — — — Aircraft (0.09) (0.08) (0.08) Construction equipment (0.16) 0.13 0.05 Commercial real estate 0.02 0.05 — Residential real estate and home equity (0.04) 0.02 0.04 Consumer 0.66 0.19 0.28 Total net (recoveries) charge-offs to average portfolio loans and leases (0.04) % 0.03 % 0.16 % 31 Table of Contents The allowance for loan and lease losses has been allocated according to the amount deemed necessary to provide for the estimated current expected credit losses.
Biggest change(Dollars in thousands) 2024 2023 2022 Amounts of loans and leases outstanding at end of period $ 6,854,808 $ 6,518,505 $ 6,011,162 Average amount of net loans and leases outstanding during period $ 6,598,329 $ 6,203,857 $ 5,566,701 Amount of unfunded loan commitments at end of period (1) $ 1,326,724 $ 1,478,840 $ 1,255,289 Balance of allowance for loan and lease losses at beginning of period $ 147,552 $ 139,268 $ 127,492 Charge-offs: Commercial and agricultural 9,825 4,305 625 Renewable energy — — — Auto and light truck 730 729 118 Medium and heavy duty truck — — — Aircraft 68 — — Construction equipment 1,692 54 1,114 Commercial real estate — 248 538 Residential real estate and home equity 66 101 284 Consumer 1,349 1,211 730 Total charge-offs 13,730 6,648 3,409 Recoveries: Commercial and agricultural 418 243 56 Renewable energy — — — Auto and light truck 3,273 5,591 417 Medium and heavy duty truck — 12 — Aircraft 1,279 967 785 Construction equipment 2,100 1,656 17 Commercial real estate 724 11 45 Residential real estate and home equity 26 334 160 Consumer 235 252 460 Total recoveries 8,055 9,066 1,940 Net charge-offs (recoveries) 5,675 (2,418) 1,469 Provision for credit losses - loans and leases 13,663 5,866 13,245 Balance of allowance for loan and lease losses at end of period $ 155,540 $ 147,552 $ 139,268 Balance of liability for unfunded loan commitments at beginning of period $ 8,182 $ 5,616 $ 4,196 (Recovery of) provision for credit losses - unfunded loan commitments (1,197) 2,566 1,420 Balance of liability for unfunded loan commitments at end of period $ 6,985 $ 8,182 $ 5,616 Asset Quality Ratios: Net charge-offs (recoveries) to average net loans and leases outstanding 0.09 % (0.04) % 0.03 % Allowance for loan and lease losses to net loans and leases outstanding end of period 2.27 % 2.26 % 2.32 % Liability for unfunded loan commitments to unfunded loan commitments end of period 0.53 % 0.55 % 0.45 % Allowance for loan and lease losses and liability for unfunded loan commitments to net loans and leases outstanding and unfunded loan commitments end of period 1.99 % 1.95 % 1.99 % (1) Represents noncancelable commitments The following table shows net charge-offs (recoveries) as a percentage of average loans and leases by portfolio type: 2024 2023 2022 Commercial and agricultural 1.29 % 0.52 % 0.07 % Renewable energy — — — Auto and light truck (0.26) (0.55) (0.04) Medium and heavy duty truck — — — Aircraft (0.11) (0.09) (0.08) Construction equipment (0.04) (0.16) 0.13 Commercial real estate (0.06) 0.02 0.05 Residential real estate and home equity 0.01 (0.04) 0.02 Consumer 0.81 0.66 0.19 Total net charge-offs (recoveries) to average portfolio loans and leases 0.09 % (0.04) % 0.03 % 32 Table of Contents The allowance for loan and lease losses has been allocated according to the amount deemed necessary to provide for the estimated current expected credit losses.
The results or outcomes indicated by our forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: • Local, regional, national, and international economic conditions and the impact they may have on us and our clients and our assessment of that impact. • Changes in the level of nonperforming assets and charge-offs. • Changes in estimates of future cash reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. • Inflation, interest rate, securities market, and monetary fluctuations, including substantial changes in the cost of fuel. • Political instability, acts of war or terrorism, or cybersecurity threats. • The spread of infectious diseases or pandemics. • The timely development and acceptance of new products and services and perceived overall value of these products and services by others. • Changes in consumer spending, borrowings, and savings habits. • Changes in the financial performance and/or condition of our borrowers. • Technological changes. • The impact of climate change. • Acquisitions and integration of acquired businesses. • The ability to increase market share and control expenses. • The ability to expand effectively into new markets that we target. • Changes in the competitive environment. • The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, insurance, and climate change) with which we and our subsidiaries must comply. • The effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters. • Changes in our organization, compensation, and benefit plans. • The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquires and the results of regulatory examinations or reviews. 16 Table of Contents • Greater than expected costs or difficulties related to the integration of new products and lines of business. • Our success at managing the risks described in Item 1A.
The results or outcomes indicated by our forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: • Local, regional, national, and international economic conditions and the impact they may have on us and our clients and our assessment of that impact. • Changes in the level of nonperforming assets and charge-offs. • Changes in estimates of future cash reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. • The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. • Inflation, interest rate, securities market, and monetary fluctuations, including substantial changes in the cost of fuel. • Political instability, acts of war or terrorism, or cybersecurity threats. • The spread of infectious diseases or pandemics. • The timely development and acceptance of new products and services and perceived overall value of these products and services by others. • Changes in consumer spending, borrowings, and savings habits. • Changes in the financial performance and/or condition of our borrowers. • Technological changes. • The impact of climate change. • Acquisitions and integration of acquired businesses. • The ability to increase market share and control expenses. • The ability to expand effectively into new markets that we target. • Changes in the competitive environment. • The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, insurance, and climate change) with which we and our subsidiaries must comply. • The effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters. • Changes in our organization, compensation, and benefit plans. • The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquires and the results of regulatory examinations or reviews. 17 Table of Contents • Greater than expected costs or difficulties related to the integration of new products and lines of business. • Our success at managing the risks described in Item 1A.
To estimate expected loan and lease losses under the Current Expected Credit Losses (CECL) methodology, we use a broad range of data over a long time horizon, generally back to the fourth quarter of 2007, thus capturing most of the economic business cycle which includes the Great Recession and the subsequent long and slow recovery which supports full lifetime losses.
To estimate expected loan and lease losses under the Current Expected Credit Losses (CECL) methodology, we use a broad range of data over a lengthy time horizon, generally back to the fourth quarter of 2007, thus capturing most of the economic business cycle which includes the Great Recession and the subsequent long and slow recovery which supports full lifetime losses.
Internal guidelines consist of: (i) Available Liquidity (sum of short term borrowing capacity) greater than $500 million; (ii) Liquidity Ratio (total of net cash, short term investments and unpledged marketable assets divided by the sum of net deposits and short term liabilities) greater than 15%; (iii) Dependency Ratio (net potentially volatile liabilities minus short term investments divided by total earning assets minus short term investments) less than 15%; and (iv) Loans to Deposits Ratio less than 100% At December 31, 2023, we were in compliance with the foregoing internal policies and regulatory guidelines.
Internal guidelines consist of: (i) Available Liquidity (sum of short term borrowing capacity) greater than $500 million; (ii) Liquidity Ratio (total of net cash, short term investments and unpledged marketable assets divided by the sum of net deposits and short term liabilities) greater than 15%; (iii) Dependency Ratio (net potentially volatile liabilities minus short term investments divided by total earning assets minus short term investments) less than 15%; and (iv) Loans to Deposits Ratio less than 100% At December 31, 2024, we were in compliance with the foregoing internal policies and regulatory guidelines.
Mandatorily redeemable shares are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense. 19 Table of Contents The following table provides an analysis of net interest income and illustrates interest income earned and interest expense charged for each major component of interest earning assets and the interest bearing liabilities.
Mandatorily redeemable shares are issued under the terms of one of our executive incentive compensation plans and are settled based on book value per share with changes from the previous reporting date recorded as interest expense. 20 Table of Contents The following table provides an analysis of net interest income and illustrates interest income earned and interest expense charged for each major component of interest earning assets and the interest bearing liabilities.
At December 31, 2023 and 2022, the impact of these hypothetical fluctuations in interest rates on our derivative holdings was not significant, and, as such, separate disclosure is not presented. We manage the interest rate risk related to mortgage loan commitments by entering into contracts for future delivery of loans with outside parties.
At December 31, 2024 and 2023, the impact of these hypothetical fluctuations in interest rates on our derivative holdings was not significant, and, as such, separate disclosure is not presented. We manage the interest rate risk related to mortgage loan commitments by entering into contracts for future delivery of loans with outside parties.
Commercial and agricultural – Multiple industries are represented in the commercial and agricultural portfolio and the outlook for the portfolio is guarded. Small businesses are challenged to absorb higher interest rates, higher cost of capital, compete for labor, and control expenses. In our underlying industries, wholesalers have generally performed well and have been able to pass along rising costs.
Commercial and agricultural – Multiple industries are represented in the commercial and agricultural portfolio and the outlook for the portfolio remains guarded. Small businesses are challenged to absorb higher interest rates, higher cost of capital, compete for labor, and control expenses. In our underlying industries, wholesalers have generally performed well and have been able to pass along rising costs.
At December 31, 2023, potential problem loans consisted of five relationships; one relationship in the commercial and agricultural portfolio, one relationship in the aircraft portfolio, one relationship in the medium and heavy duty truck portfolio, and two relationships in the construction portfolio. Weakness in the borrowers’ operating performance have caused us to give heighten attention to these credits.
At December 31, 2024, potential problem loans consisted of five relationships; one relationship in the commercial and agricultural portfolio, one relationship in the aircraft portfolio, one relationship in the medium and heavy duty truck portfolio, and two relationships in the construction portfolio. Weakness in the borrowers’ operating performance have caused us to give heighten attention to these credits.
We utilize similar processes to estimate our liability for credit losses on unfunded loan commitments which is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Position and is provided for by direct charges to the provision for unfunded credit commitments located in Other Noninterest Expense on the Consolidated Statements of Income.
We utilize similar processes to estimate our liability for credit losses on unfunded loan commitments which is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Position and is provided for by direct charges to the provision for unfunded loan commitments located in Provision for Credit Losses on the Consolidated Statements of Income.
Our accounting policies related to the allowance for credit losses is disclosed in Note 1 under the heading “Allowance for Credit Losses.” 17 Table of Contents Fair Value Measurements — We use fair value measurements to record certain financial instruments and to determine fair value disclosures.
Our accounting policies related to the allowance for credit losses is disclosed in Note 1 under the heading “Allowance for Credit Losses.” 18 Table of Contents Fair Value Measurements — We use fair value measurements to record certain financial instruments and to determine fair value disclosures.
Further discussion of commitments and contractual obligations is included in Part II, Item 8, Financial Statements and Supplementary Data — Notes 10, 11, 12 and 18 of the Notes to Consolidated Financial Statements. 37 Table of Contents We also enter into derivative contracts under which we are required to either receive cash from, or pay cash to, counterparties depending on changes in interest rates.
Further discussion of commitments and contractual obligations is included in Part II, Item 8, Financial Statements and Supplementary Data — Notes 10, 11, 12 and 18 of the Notes to Consolidated Financial Statements. We also enter into derivative contracts under which we are required to either receive cash from, or pay cash to, counterparties depending on changes in interest rates.
The following table shows the maturities of securities available-for-sale at December 31, 2023, at the amortized costs and weighted average yields of such securities. (Dollars in thousands) Amount Yield U.S.
The following table shows the maturities of securities available-for-sale at December 31, 2024, at the amortized costs and weighted average yields of such securities. (Dollars in thousands) Amount Yield U.S.
Approximately 55% of the Bank’s exposure in this portfolio is from owner occupied facilities where we are the primary relationship bank for our clients.
Approximately 62% of the Bank’s exposure in this portfolio is from owner-occupied facilities where we are the primary relationship bank for our clients.
The contingency plan provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity. 36 Table of Contents We maintain prudent strategies to support a strong liquidity position. The following table represents our sources of liquidity as of December 31, 2023.
The contingency plan provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity. We maintain prudent strategies to support a strong liquidity position. The following table represents our sources of liquidity as of December 31, 2024.
These policies relate to the determination of the allowance for loan and lease losses and fair value measurements. Management believes it has used the best information available to make the estimations or judgments necessary to value the related assets and liabilities.
These policies relate to the determination of the allowance for credit losses and fair value measurements. Management believes it has used the best information available to make the estimations or judgments necessary to value the related assets and liabilities.
Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 3.51% in 2023, compared to 3.45% in 2022 and 3.23% in 2021.
Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 3.64% in 2024, compared to 3.51% in 2023 and 3.45% in 2022.
During 2023, higher vehicle prices, increased interest rates, reduced inventory levels and consumer’s lack of liquidity contributed to the decrease in consumer loans. 26 Table of Contents The following table shows the contractual maturities of loans and leases outstanding as of December 31, 2023 as well as classification according to the sensitivity to changes in interest rates.
During 2024, higher vehicle prices, increased interest rates, reduced inventory levels and consumer’s lack of liquidity contributed to the decrease in consumer loans. 27 Table of Contents The following table shows the contractual maturities of loans and leases outstanding as of December 31, 2024 as well as classification according to the sensitivity to changes in interest rates.
We reviewed our qualitative adjustments at the end of the 2023 which primarily consist of reasonable and supportable forecasts and made an adjustment to account for increasing delinquency and nonperforming activity within the portfolio.
We reviewed our qualitative adjustments at the end of the 2024 which primarily consist of reasonable and supportable forecasts and made an upward adjustment to account for increasing delinquency and nonperforming activity within the portfolio.
The effective tax rate in 2023 was 22.73% compared to 23.12% in 2022, and 23.45% in 2021. For a detailed analysis of 1st Source’s income taxes see Part II, Item 8, Financial Statements and Supplementary Data — Note 17 of the Notes to Consolidated Financial Statements.
The effective tax rate in 2024 was 22.47% compared to 22.73% in 2023, and 23.12% in 2022. For a detailed analysis of 1st Source’s income taxes see Part II, Item 8, Financial Statements and Supplementary Data — Note 17 of the Notes to Consolidated Financial Statements.
Nonperforming assets amounted to $24.24 million at December 31, 2023, compared to $26.93 million at December 31, 2022, and $41.33 million at December 31, 2021. During 2023, interest income on nonaccrual loans and leases would have increased by approximately $1.47 million compared to $2.68 million in 2022 if these loans and leases had earned interest at their full contractual rate.
Nonperforming assets amounted to $31.33 million at December 31, 2024, compared to $24.24 million at December 31, 2023, and $26.93 million at December 31, 2022. During 2024, interest income on nonaccrual loans and leases would have increased by approximately $2.06 million compared to $1.47 million in 2023 if these loans and leases had earned interest at their full contractual rate.
Mortgage loans held for sale were $1.44 million at December 31, 2023 and were $3.91 million at December 31, 2022. 1st Source Bank sells residential mortgage loans to Fannie Mae as well as FHA-insured and VA-guaranteed loans in Ginnie Mae mortgage-backed securities. Additionally, we have sold loans on a service released basis to various other financial institutions in the past.
Mortgage loans held for sale were $2.57 million at December 31, 2024 and were $1.44 million at December 31, 2023. 1st Source Bank sells residential mortgage loans to Fannie Mae as well as FHA-insured and VA-guaranteed loans in Ginnie Mae mortgage-backed securities. Additionally, we have sold loans on a service released basis to various other financial institutions in the past.
We believe the loans we have underwritten and sold to these entities have met or exceeded applicable transaction parameters. 27 Table of Contents Our liability for repurchases, included in Accrued Expenses and Other Liabilities on the Statements of Financial Condition, was $0.15 million and $0.17 million as of December 31, 2023 and 2022, respectively.
We believe the loans we have underwritten and sold to these entities have met or exceeded applicable transaction parameters. 28 Table of Contents Our liability for repurchases, included in Accrued Expenses and Other Liabilities on the Statements of Financial Condition, was $0.18 million and $0.15 million as of December 31, 2024 and 2023, respectively.
Management monitors these loans closely and reviews their performance on a regular basis. As of December 31, 2023 and 2022, we had $34.04 million and $7.83 million, respectively, in loans of this type which are not included in either of the non-accrual or 90 days past due loan categories.
Management monitors these loans closely and reviews their performance on a regular basis. As of December 31, 2024 and 2023, we had $20.60 million and $34.04 million, respectively, in loans of this type which are not included in either of the non-accrual or 90 days past due loan categories.
The average equipment rental portfolio decreased 29.45% in 2023 over 2022 and decreased 21.27% in 2022 over 2021 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business.
The average equipment rental portfolio decreased in 2024 over 2023 and decreased in 2023 over 2022 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business.
It is our opinion that the allowance for loan and lease losses was appropriate to absorb current expected credit losses inherent in the loan and lease portfolio as of December 31, 2023. Charge-offs for loan and lease losses were $6.65 million for 2023, compared to $3.41 million for 2022 and $12.52 million for 2021.
It is our opinion that the allowance for loan and lease losses was appropriate to absorb current expected credit losses inherent in the loan and lease portfolio as of December 31, 2024. Charge-offs for loan and lease losses were $13.73 million for 2024, compared to $6.65 million for 2023 and $3.41 million for 2022.
Our recovery for repurchase losses, included in Loan and Lease Collection and Repossession expense on the Statements of Income, was $0.07 million in 2023 compared to $0.05 million in 2022 and $0.09 million in 2021. The mortgage repurchase liability represents our best estimate of the loss that we may incur.
Our expense for repurchase losses, included in Loan and Lease Collection and Repossession expense on the Statements of Income, was $0.02 million of expense in 2024 compared to recoveries of $0.07 million in 2023 and $0.05 million in 2022. The mortgage repurchase liability represents our best estimate of the loss that we may incur.
Fair value is discussed further in Note 1 under the heading “Fair Value Measurements” and in Note 21, “Fair Value Measurements.” EARNINGS SUMMARY Net income available to common shareholders in 2023 was $124.93 million, up from $120.51 million in 2022 and up from $118.53 million in 2021.
Fair value is discussed further in Note 1 under the heading “Fair Value Measurements” and in Note 21, “Fair Value Measurements.” EARNINGS SUMMARY Net income available to common shareholders in 2024 was $132.62 million, up from $124.93 million in 2023 and up from $120.51 million in 2022.
Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at December 31, 2023 and 2022 was $5.46 billion and $4.84 billion, respectively.
Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at December 31, 2024 and 2023 was $5.97 billion and $5.46 billion, respectively.
Total net available liquidity was $3.17 billion at December 31, 2023, which accounted for approximately 50% of total deposits net of brokered and listing services certificates of deposits.
Total net available liquidity was $3.50 billion at December 31, 2024, which accounted for approximately 52% of total deposits net of brokered and listing services certificates of deposits.
The increased average balance was primarily due to increases in time deposits, public fund, and brokered deposits. The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix.
The increased average balance was primarily due to increases in time deposits, money market accounts, and brokered deposits. The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix.
Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with increasing geopolitical uncertainty, elevated inflation, high interest rates, and persistently inverted yield curve. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions.
Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with widespread geopolitical uncertainty, continued elevated inflation, and high interest rates. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions.
While difficult to predict with precision, global risks may adversely impact our borrowers impairing their ability to repay their financial obligations. The global outlook calls for slowing growth, high sovereign debt levels and continued high interest rates in developing countries pressure growth prospects. Rising global geopolitical uncertainty impacts the outlook and the escalation of various ongoing foreign conflicts.
While difficult to predict with precision, global risks may adversely impact our borrowers impairing their ability to repay their financial obligations. The global outlook calls for slow growth as high sovereign debt levels and continued high interest rates in developing countries pressure growth prospects. Global geopolitical uncertainty impacts the outlook and various ongoing foreign conflicts bring downside risk.
The yield on average earning assets increased 141 basis points to 5.25% for 2023 from 3.84% for 2022 primarily due to higher rates on loans and leases, tax exempt investment securities and other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper.
The yield on average earning assets increased 60 basis points to 5.85% for 2024 from 5.25% for 2023 primarily due to higher rates and average balances on loans and leases, higher rates on taxable investment securities and higher average balances on other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper.
The principal source of asset-funded liquidity is available-for-sale investment securities, cash and due from banks, overnight investments, securities purchased under agreements to resell, and loans and interest bearing deposits with other banks maturing within one year.
The most stable source of liability-funded liquidity is deposit growth and retention of the core deposit base. The principal source of asset-funded liquidity is available-for-sale investment securities, cash and due from banks, overnight investments, securities purchased under agreements to resell, and loans and interest bearing deposits with other banks maturing within one year.
Dividends paid on common stock in 2023 amounted to $1.30 per share, compared to $1.26 per share in 2022, and $1.21 per share in 2021.
Dividends paid on common stock in 2024 amounted to $1.40 per share, compared to $1.30 per share in 2023, and $1.26 per share in 2022.
The portfolio has been relatively stable lately, but was among the sectors affected most by the sluggish economy following the Great Recession. Our portfolio loss history has been volatile, characterized by lengthy periods of minimal losses or modest recoveries followed by short intervals of high losses.
The portfolio has maintained stable credit quality in recent years, but was among the sectors affected most by the sluggish economy following the Great Recession. Our portfolio loss history has been volatile, characterized by lengthy periods of minimal losses or modest recoveries followed by short intervals of high losses.
Percentage Change in Net Interest Income December 31, 2023 December 31, 2022 Basis Point Interest Rate Change 12 Months 24 Months 12 Months 24 Months Up 200 (1.40)% 3.01% (2.32)% 2.99% Up 100 (0.66)% 1.52% (1.15)% 1.52% Down 100 (0.18)% (2.42)% (2.39)% (5.10)% The earnings simulation model excludes the earnings dynamics related to how fee income and noninterest expense may be affected by changes in interest rates.
Percentage Change in Net Interest Income December 31, 2024 December 31, 2023 Basis Point Interest Rate Change 12 Months 24 Months 12 Months 24 Months Up 200 (2.19)% 2.79% (1.40)% 3.01% Up 100 (1.11)% 1.35% (0.66)% 1.52% Down 100 0.89% (2.10)% (0.18)% (2.42)% The earnings simulation model excludes the earnings dynamics related to how fee income and noninterest expense may be affected by changes in interest rates.
Nonetheless, if management’s underlying assumptions prove to be inaccurate, the allowance for loan and lease losses would have to be adjusted.
Nonetheless, if management’s underlying assumptions prove to be inaccurate, the allowance for credit losses would have to be adjusted.
The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer swap fees of $1.23 million and higher bank owned life insurance policy claims.
The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer interest rate swap fees of $1.23 million and higher bank owned life insurance policy claims. Noninterest Expense — Noninterest expense increased in 2024 from 2023 following an increase in 2023 from 2022.
The allowance for loan and lease losses at December 31, 2023, totaled $147.55 million and was 2.26% of loans and leases, compared to $139.27 million or 2.32% of loans and leases at December 31, 2022 and $127.49 million or 2.38% of loans and leases at December 31, 2021.
Allowance for loan and lease losses – The allowance for loan and lease losses at December 31, 2024, totaled $155.54 million and was 2.27% of loans and leases, compared to $147.55 million or 2.26% of loans and leases at December 31, 2023 and $139.27 million or 2.32% of loans and leases at December 31, 2022.
Forecasts are difficult to establish and the current environment presents challenges with high interest rates and a persistently inverted yield curve, generally tighter lending conditions, growing signs of consumer stress, and heightened uncertainty from ongoing conflicts around the world.
Forecasts are difficult to establish and the current environment presents challenges with high interest rates and continued elevated inflation, generally tighter lending conditions, growing signs of consumer stress, and heightened uncertainty from ongoing conflicts around the world.
The following table shows the amortized cost of investment securities available-for-sale as of December 31. (Dollars in thousands) 2023 2022 U.S. Treasury and Federal agencies securities $ 979,530 $ 1,090,743 U.S.
The following table shows the amortized cost of investment securities available-for-sale as of December 31. (Dollars in thousands) 2024 2023 U.S. Treasury and Federal agencies securities $ 786,417 $ 979,530 U.S.
The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023.
The increase in 2024 was mainly the result of higher general insurance premiums during 2024 and higher blanket bond insurance premiums. The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023.
The result to the fully taxable-equivalent net interest margin was an increase of six basis points. 18 Table of Contents The largest contributor to the increase in the yield on average earning assets in 2023 was the 151 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates.
The result to the fully taxable-equivalent net interest margin was an increase of 13 basis points. 19 Table of Contents The largest contributor to the increase in the yield on average earning assets in 2024 was the 59 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates and higher average balances.
Diluted net income per common share was $5.03 in 2023, $4.84 in 2022, and $4.70 in 2021. Return on average total assets was 1.48% in 2023 compared to 1.49% in 2022, and 1.53% in 2021. Return on average common shareholders’ equity was 13.48% in 2023 versus 13.81% in 2022, and 13.07% in 2021.
Diluted net income per common share was $5.36 in 2024, $5.03 in 2023, and $4.84 in 2022. Return on average total assets was 1.52% in 2024 compared to 1.48% in 2023, and 1.49% in 2022. Return on average common shareholders’ equity was 12.54% in 2024 versus 13.48% in 2023, and 13.81% in 2022.
The positive performance of the stock and bond markets primarily during the fourth quarter of 2023 resulted in an increase in the market value of trust assets under management compared to 2022.
The positive performance of the stock and bond markets primarily during the first nine months of 2024 resulted in an increase in the market value of trust assets under management compared to 2023.
These represented 28.24% of total core deposits in 2023, compared to 31.71% in 2022, and 31.20% in 2021.
These represented 25.79% of total core deposits in 2024, compared to 28.24% in 2023, and 31.71% in 2022.
Collateral values are significant to underwriting our specialty finance portfolios and volatility or declining values pose a threat. Concentration risk is impacted primarily by geographic concentration in northern Indiana and southwestern Michigan in our business banking and commercial real estate portfolios and by collateral concentration in our specialty finance portfolios. We include a factor for global risk in our analysis.
Concentration risk is impacted primarily by geographic concentration in northern Indiana and southwestern Michigan in our business banking and commercial real estate portfolios and by collateral concentration in our specialty finance portfolios. We include a factor for global risk in our analysis.
Net interest recoveries positively contributed three basis points to the yield on average loans and leases during 2023 and two basis points to the average loans and leases yield during 2022.
Net interest recoveries positively contributed five basis points to the yield on average loans and leases during 2024 and four basis points to the average loans and leases yield during 2023.
Risks include construction and developer related risks and delays, site issues, climate and weather risks, regulatory problems and permitting issues, as well as utility interconnection delays. To date, we have not incurred any losses in this portfolio and credit performance continues to be favorable.
Risks include construction and developer related risks and delays, site issues, climate and weather risks, regulatory problems and permitting issues, as well as utility interconnection delays. Maturity risk and refinancing costs are elevated given the higher interest rate environment. To date, we have not incurred any losses in this portfolio and credit performance continues to be favorable.
(Dollars in thousands) Available Internal Sources Unencumbered securities $ 1,211,222 External Sources FHLB advances (1) 450,143 FRB borrowings (2) 498,394 Fed funds purchased (3) 335,000 Brokered deposits (4) 252,746 Listing services deposits (4) 424,870 Total liquidity $ 3,172,375 % of Total deposits net brokered and listing services certificates of deposit 49.51 % (1) Availability is shown net of required stock purchases under the FHLB activity-based stock ownership requirement, which is currently 4.50%, and may vary (2) Includes access to discount window and Bank Term Funding Program (3) Availability contingent on correspondent bank approvals at time of borrowing (4) Availability contingent on internal borrowing guidelines External sources as listed in the table above are managed to approved guidelines by our Board of Directors.
(Dollars in thousands) Available Internal Sources Unencumbered securities $ 1,177,201 External Sources FHLB advances (1) 665,100 FRB borrowings (2) 404,573 Fed funds purchased (3) 410,000 Brokered deposits (4) 394,909 Listing services deposits (4) 446,039 Total liquidity $ 3,497,822 % of Total deposits net brokered and listing services certificates of deposit 51.96 % (1) Availability is shown net of required stock purchases under the FHLB activity-based stock ownership requirement, which is currently 4.50%, and may vary (2) Includes access to discount window and Bank Term Funding Program (3) Availability contingent on correspondent bank approvals at time of borrowing (4) Availability contingent on internal borrowing guidelines 37 Table of Contents External sources as listed in the table above are managed to approved guidelines by our Board of Directors.
States and political subdivisions securities 97,522 130,670 Mortgage-backed securities — Federal agencies 676,257 730,672 Corporate debt securities 8,448 16,486 Foreign government securities 600 600 Total investment securities available-for-sale $ 1,762,357 $ 1,969,171 33 Table of Contents Yields on tax-exempt obligations are calculated on a fully tax-equivalent basis assuming a 21% tax rate.
States and political subdivisions securities 86,305 97,522 Mortgage-backed securities — Federal agencies 777,962 676,257 Corporate debt securities — 8,448 Foreign government securities — 600 Total investment securities available-for-sale $ 1,650,684 $ 1,762,357 34 Table of Contents Yields on tax-exempt obligations are calculated on a fully tax-equivalent basis assuming a 21% tax rate.
(Dollars in thousands) 2023 2022 2021 Calculation of Net Interest Margin (A) Interest income (GAAP) $ 416,907 $ 293,816 $ 254,772 Fully tax-equivalent adjustments: (B) - Loans and leases 381 366 319 (C) - Tax-exempt investment securities 360 262 140 (D) Interest income - FTE (A+B+C) 417,648 294,444 255,231 (E) Interest expense (GAAP) 138,260 30,347 18,134 (F) Net interest income (GAAP) (A-E) 278,647 263,469 236,638 (G) Net interest income - FTE (D-E) 279,388 264,097 237,097 (H) Total earning assets $ 7,956,604 $ 7,661,168 $ 7,338,639 Net interest margin (GAAP-derived) (F/H) 3.50 % 3.44 % 3.22 % Net interest margin - FTE (G/H) 3.51 % 3.45 % 3.23 % 21 Table of Contents The change in interest due to both rate and volume illustrated in the following table has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(Dollars in thousands) 2024 2023 2022 Calculation of Net Interest Margin (A) Interest income (GAAP) $ 484,017 $ 416,907 $ 293,816 Fully tax-equivalent adjustments: (B) - Loans and leases 317 381 366 (C) - Tax-exempt investment securities 269 360 262 (D) Interest income - FTE (A+B+C) 484,603 417,648 294,444 (E) Interest expense (GAAP) 183,200 138,260 30,347 (F) Net interest income (GAAP) (A-E) 300,817 278,647 263,469 (G) Net interest income - FTE (D-E) 301,403 279,388 264,097 (H) Total earning assets $ 8,284,489 $ 7,956,604 $ 7,661,168 Net interest margin (GAAP-derived) (F/H) 3.63 % 3.50 % 3.44 % Net interest margin - FTE (G/H) 3.64 % 3.51 % 3.45 % 22 Table of Contents The change in interest due to both rate and volume illustrated in the following table has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Loan and lease outstandings to borrowers in Brazil and Mexico were $119.38 million and $147.61 million as of December 31, 2023, respectively, compared to $129.98 million and $136.68 million as of December 31, 2022, respectively. Outstanding balances to other borrowers in other countries were insignificant. Construction equipment financing increased $146.25 million or 15.58% in 2023 compared to 2022.
Loan and lease outstandings to borrowers in Brazil and Mexico were $129.12 million and $145.85 million as of December 31, 2024, respectively, compared to $119.38 million and $147.61 million as of December 31, 2023, respectively. Outstanding balances to other borrowers in other countries were insignificant. Construction equipment financing increased $119.16 million or 10.98% in 2024 compared to 2023.
Nonaccrual loans and leases are included in the average loan and lease balance outstanding. 2023 2022 2021 (Dollars in thousands) Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate ASSETS Investment securities available-for-sale: Taxable $ 1,632,567 $ 24,501 1.50 % $ 1,805,041 $ 26,294 1.46 % $ 1,410,797 $ 17,767 1.26 % Tax-exempt (1) 44,083 1,805 4.09 % 40,310 1,311 3.25 % 32,583 741 2.27 % Mortgages held for sale 2,368 155 6.55 % 5,178 217 4.19 % 17,026 448 2.63 % Loans and leases, net of unearned discount (1) 6,203,857 387,524 6.25 % 5,566,701 264,043 4.74 % 5,437,817 234,902 4.32 % Other investments 73,729 3,663 4.97 % 243,938 2,579 1.06 % 440,416 1,373 0.31 % Total earning assets (1) 7,956,604 417,648 5.25 % 7,661,168 294,444 3.84 % 7,338,639 255,231 3.48 % Cash and due from banks 70,304 75,836 77,275 Allowance for loan and lease losses (144,183) (133,028) (139,141) Other assets 532,072 469,135 454,374 Total assets $ 8,414,797 $ 8,073,111 $ 7,731,147 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 5,204,095 $ 123,162 2.37 % $ 4,673,494 $ 25,231 0.54 % $ 4,460,359 $ 12,276 0.28 % Short-term borrowings: Securities sold under agreements to repurchase 78,928 136 0.17 % 166,254 85 0.05 % 180,610 112 0.06 % Other short-term borrowings 134,683 6,896 5.12 % 48,716 1,412 2.90 % 6,119 3 0.05 % Subordinated notes 58,764 4,174 7.10 % 58,764 3,550 6.04 % 58,764 3,267 5.56 % Long-term debt and mandatorily redeemable securities 46,323 3,892 8.40 % 54,940 69 0.13 % 78,845 2,476 3.14 % Total interest-bearing liabilities 5,522,793 138,260 2.50 % 5,002,168 30,347 0.61 % 4,784,697 18,134 0.38 % Noninterest-bearing deposits 1,753,149 2,037,882 1,882,168 Other liabilities 151,659 103,740 112,291 Shareholders’ equity 926,935 872,721 906,951 Noncontrolling interests 60,261 56,600 45,040 Total liabilities and equity $ 8,414,797 $ 8,073,111 $ 7,731,147 Less: Fully tax-equivalent adjustments (741) (628) (459) Net interest income/margin (GAAP-derived) (1) $ 278,647 3.50 % $ 263,469 3.44 % $ 236,638 3.22 % Fully tax-equivalent adjustments 741 628 459 Net interest income/margin - FTE (1) $ 279,388 3.51 % $ 264,097 3.45 % $ 237,097 3.23 % (1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio. 20 Table of Contents Reconciliation of Non-GAAP Financial Measures — Our accounting and reporting policies conform to GAAP in the United States and prevailing practices in the banking industry.
Nonaccrual loans and leases are included in the average loan and lease balance outstanding. 2024 2023 2022 (Dollars in thousands) Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate ASSETS Investment securities available-for-sale: Taxable $ 1,539,900 $ 25,720 1.67 % $ 1,632,567 $ 24,501 1.50 % $ 1,805,041 $ 26,294 1.46 % Tax-exempt (1) 30,464 1,312 4.31 % 44,083 1,805 4.09 % 40,310 1,311 3.25 % Mortgages held for sale 3,233 214 6.62 % 2,368 155 6.55 % 5,178 217 4.19 % Loans and leases, net of unearned discount (1) 6,598,329 451,432 6.84 % 6,203,857 387,524 6.25 % 5,566,701 264,043 4.74 % Other investments 112,563 5,925 5.26 % 73,729 3,663 4.97 % 243,938 2,579 1.06 % Total earning assets (1) 8,284,489 484,603 5.85 % 7,956,604 417,648 5.25 % 7,661,168 294,444 3.84 % Cash and due from banks 65,285 70,304 75,836 Allowance for loan and lease losses (151,050) (144,183) (133,028) Other assets 540,815 532,072 469,135 Total assets $ 8,739,539 $ 8,414,797 $ 8,073,111 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 5,509,956 $ 166,842 3.03 % $ 5,204,095 $ 123,162 2.37 % $ 4,673,494 $ 25,231 0.54 % Short-term borrowings: Securities sold under agreements to repurchase 60,388 542 0.90 % 78,928 136 0.17 % 166,254 85 0.05 % Other short-term borrowings 168,460 8,434 5.01 % 134,683 6,896 5.12 % 48,716 1,412 2.90 % Subordinated notes 58,764 4,217 7.18 % 58,764 4,174 7.10 % 58,764 3,550 6.04 % Long-term debt and mandatorily redeemable securities 40,971 3,165 7.72 % 46,323 3,892 8.40 % 54,940 69 0.13 % Total interest-bearing liabilities 5,838,539 183,200 3.14 % 5,522,793 138,260 2.50 % 5,002,168 30,347 0.61 % Noninterest-bearing deposits 1,609,001 1,753,149 2,037,882 Other liabilities 161,657 151,659 103,740 Shareholders’ equity 1,057,331 926,935 872,721 Noncontrolling interests 73,011 60,261 56,600 Total liabilities and equity $ 8,739,539 $ 8,414,797 $ 8,073,111 Less: Fully tax-equivalent adjustments (586) (741) (628) Net interest income/margin (GAAP-derived) (1) $ 300,817 3.63 % $ 278,647 3.50 % $ 263,469 3.44 % Fully tax-equivalent adjustments 586 741 628 Net interest income/margin - FTE (1) $ 301,403 3.64 % $ 279,388 3.51 % $ 264,097 3.45 % (1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio. 21 Table of Contents Reconciliation of Non-GAAP Financial Measures — Our accounting and reporting policies conform to GAAP in the United States and prevailing practices in the banking industry.
Employee salaries grew $7.17 million or 8.31% in 2023 from 2022 compared to an increase of $0.62 million or 0.73% in 2022 from 2021.
Employee salaries grew $7.45 million or 7.97% in 2024 from 2023 compared to an increase of $7.17 million or 8.31% in 2023 from 2022.
DEPOSITS The following table shows the average daily amounts of deposits and rates paid on such deposits. 2023 2022 2021 (Dollars in thousands) Amount Rate Amount Rate Amount Rate Noninterest bearing demand $ 1,753,149 — % $ 2,037,882 — % $ 1,882,168 — % Interest bearing demand 2,481,362 2.33 2,554,945 0.69 2,278,498 0.13 Savings 1,181,314 0.68 1,283,143 0.08 1,172,411 0.07 Time 1,541,419 3.73 835,406 0.79 1,009,450 0.84 Total deposits $ 6,957,244 $ 6,711,376 $ 6,342,527 34 Table of Contents The following table shows the estimated scheduled maturities of the portion of time deposits in U.S. offices in excess of the FDIC insurance limit and time deposits that are otherwise uninsured.
DEPOSITS The following table shows the average daily amounts of deposits and rates paid on such deposits. 2024 2023 2022 (Dollars in thousands) Amount Rate Amount Rate Amount Rate Noninterest bearing demand $ 1,609,001 — % $ 1,753,149 — % $ 2,037,882 — % Interest bearing demand 2,463,386 2.73 2,481,362 2.33 2,554,945 0.69 Savings 1,255,111 1.45 1,181,314 0.68 1,283,143 0.08 Time 1,791,459 4.55 1,541,419 3.73 835,406 0.79 Total deposits $ 7,118,957 $ 6,957,244 $ 6,711,376 The following table shows the estimated scheduled maturities of the portion of time deposits in U.S. offices in excess of the FDIC insurance limit and time deposits that are otherwise uninsured.
We reviewed our qualitative adjustments as of year-end and made adjustments to address interest rate maturity risk and added a factor for construction risk in select segments as the loan volume of projects under construction is much higher than prior periods.
We reviewed our qualitative adjustments as of year-end and made slight adjustments to factors addressing interest rate maturity risk along with construction risk in select segments as the loan volume of projects under construction remains much higher than prior periods.
INVESTMENT PORTFOLIO The amortized cost of securities available-for-sale at year-end 2023 decreased 10.50% from 2022, following a 4.96% increase from year-end 2021 to year-end 2022. The amortized cost of securities available-for-sale at December 31, 2023 was 20.19% of total assets, compared to 23.61% of total assets at December 31, 2022.
INVESTMENT PORTFOLIO The amortized cost of securities available-for-sale at year-end 2024 decreased 6.34% from 2023, following a 10.50% decrease from year-end 2022 to year-end 2023. The amortized cost of securities available-for-sale at December 31, 2024 was 18.48% of total assets, compared to 20.19% of total assets at December 31, 2023.
At December 31, 2023, the vintage (years originated) of the underlying loans comprising our securities are: 5% in the year 2023; 12% in the year 2022; 67% in the years 2020 and 2021; 7% in the years 2018 and 2019; 5% in the years 2016 and 2017; 4% in the years 2015 prior.
At December 31, 2024, the vintage (years originated) of the underlying loans comprising our securities are: 10% in the year 2024; 3% in the year 2023; 53% in the years 2021 and 2022; 21% in the years 2019 and 2020; 6% in the years 2017 and 2018; 7% in the years 2016 and prior.
In 2023, average core deposits equaled 73.77% of average total assets, compared to 79.60% in 2022 and 78.04% in 2021. The effective rate of core deposits in 2023 was 1.45%, compared to 0.32% in 2022 and 0.12% in 2021. Average noninterest bearing core deposits decreased 13.97% in 2023 compared to an increase of 8.27% in 2022.
In 2024, average core deposits equaled 71.39% of average total assets, compared to 73.77% in 2023 and 79.60% in 2022. The effective rate of core deposits in 2024 was 1.97%, compared to 1.45% in 2023 and 0.32% in 2022. Average noninterest bearing core deposits decreased 8.22% in 2024 compared to a decrease of 13.97% in 2023.
The following table shows the amount of such components of the allowance for loan and lease losses at December 31 and the ratio of such loan and lease categories to total outstanding loan and lease balances. 2023 2022 (Dollars in thousands) Allowance Amount Percentage of Loans and Leases in Each Category to Total Loans and Leases Allowance Amount Percentage of Loans and Leases in Each Category to Total Loans and Leases Commercial and agricultural $ 17,385 11.76 % $ 14,635 13.51 % Renewable energy 6,610 6.13 7,217 6.34 Auto and light truck 16,858 14.83 18,634 13.44 Medium and heavy duty truck 8,965 4.79 7,566 5.22 Aircraft 37,653 16.54 41,093 17.93 Construction equipment 26,510 16.64 24,039 15.61 Commercial real estate 23,690 17.33 17,431 15.70 Residential real estate and home equity 7,698 9.79 6,478 9.73 Consumer 2,183 2.19 2,175 2.52 Total $ 147,552 100.00 % $ 139,268 100.00 % Nonperforming Assets — Nonperforming assets include loans past due over 90 days, nonaccrual loans and leases, other real estate, repossessions and other nonperforming assets we own.
The following table shows the amount of such components of the allowance for loan and lease losses at December 31 and the ratio of such loan and lease categories to total outstanding loan and lease balances. 2024 2023 (Dollars in thousands) Allowance Amount Percentage of Loans and Leases in Each Category to Total Loans and Leases Allowance Amount Percentage of Loans and Leases in Each Category to Total Loans and Leases Commercial and agricultural $ 21,316 11.28 % $ 17,385 11.76 % Renewable energy 8,562 7.11 6,610 6.13 Auto and light truck 18,437 13.84 16,858 14.83 Medium and heavy duty truck 7,292 4.22 8,965 4.79 Aircraft 36,663 16.39 37,653 16.54 Construction equipment 28,258 17.56 26,510 16.64 Commercial real estate 24,821 17.73 23,690 17.33 Residential real estate and home equity 7,976 9.92 7,698 9.79 Consumer 2,215 1.95 2,183 2.19 Total $ 155,540 100.00 % $ 147,552 100.00 % Nonperforming Assets — Nonperforming assets include loans past due over 90 days, nonaccrual loans and leases, other real estate, repossessions and other nonperforming assets we own.
Average loans and leases increased $637.16 million or 11.45% in 2023 from 2022 while the yield increased to 6.25%. Strong growth primarily within our Auto and Light Truck, Construction Equipment and Commercial Real Estate portfolios drove total average loans and leases higher during the year.
Average loans and leases increased $394.47 million or 6.36% in 2024 from 2023 while the yield increased to 6.84%. Strong growth primarily within our Construction Equipment, Auto and Light Truck and Renewable Energy portfolios, and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year.
Reflective of our strong loan and lease growth, partially offset by a net recovery position, we added $5.87 million to the provision for credit losses for 2023, compared to a provision of $13.25 million for 2022 and a recovery of provision of $4.30 million for 2021. 30 Table of Contents The following table summarizes our loan and lease loss experience for each of the last three years ended December 31.
Primarily reflective of our strong loan and lease growth and qualitative adjustments, we added $13.66 million to the provision for credit losses on loans and leases for 2024, compared to a provision of $5.87 million for 2023 and a provision of $13.25 million for 2022. 31 Table of Contents The following table summarizes our loan and lease loss experience for each of the last three years ended December 31.
Net interest income was $278.65 million for 2023, compared to $263.47 million for 2022 and $236.64 million for 2021. Tax-equivalent net interest income totaled $279.39 million for 2023, up $15.29 million from the $264.10 million reported in 2022. Tax-equivalent net interest income for 2022 was up $27.00 million from the $237.10 million reported for 2021.
Net interest income was $300.82 million for 2024, compared to $278.65 million for 2023 and $263.47 million for 2022. Tax-equivalent net interest income totaled $301.40 million for 2024, up $22.02 million from the $279.39 million reported in 2023. Tax-equivalent net interest income for 2023 was up $15.29 million from the $264.10 million reported for 2022.
During 2023, 2022 and 2021, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2023 and 2022, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market.
During 2024, 2023, and 2022, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2024 mortgage banking income increased due to higher production of loans originated for the secondary market resulting in increased income on loans sold into the secondary market.
Loans and leases, net of unearned discount, at December 31, 2023, were $6.52 billion and were 74.69% of total assets, compared to $6.01 billion and 72.08% of total assets at December 31, 2022. Average loans and leases, net of unearned discount, increased $637.16 million or 11.45% and increased $128.88 million or 2.37% in 2023 and 2022, respectively.
Loans and leases, net of unearned discount, at December 31, 2024, were $6.85 billion and were 76.74% of total assets, compared to $6.52 billion and 74.69% of total assets at December 31, 2023. Average loans and leases, net of unearned discount, increased $394.47 million or 6.36% and increased $637.16 million or 11.45% in 2024 and 2023, respectively.
Data processing expense rose by $2.68 million or 11.98% in 2023 from 2022, following a $2.50 million or 12.57% increase in 2022 from 2021. The increases in 2023 and 2022 were due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.
Data processing expense rose in 2024 from 2023, following an increase in 2023 from 2022. The increases in 2024 and 2023 were both due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.
This portfolio consists primarily of loans secured by autos with advances in compliance with the Bank’s underwriting standards. Losses are stable during good economic times and tend to increase when there is deterioration in local economic factors and employment rates. Loss rates have been modest since 2013, but we experienced higher write-downs within the portfolio during the year.
Consumer – Our consumer loan portfolio consists of loans to individuals in the communities we serve. This portfolio consists primarily of loans secured by autos with advances in compliance with the Bank’s underwriting standards. Losses are stable during good economic times and tend to increase when there is deterioration in local economic factors and employment rates.
Our foreign outstandings, all denominated in U.S. dollars, increased 1.66% during 2023 and were $302.41 million and $297.46 million as of December 31, 2023 and 2022, respectively.
Our foreign outstandings, all denominated in U.S. dollars, remained stable during 2024 and were $301.18 million and $302.41 million as of December 31, 2024 and 2023, respectively.
The type of loans underlying the securities were all conforming loans at the time of issuance. The underlying GSEs backing these mortgage-backed securities are rated Aaa or AA+ from the rating agencies.
The underlying GSEs backing these mortgage-backed securities are rated Aaa or AA+ from the rating agencies.
(Dollars in thousands) Federal Funds Purchased and Securities Repurchase Agreements Commercial Paper Federal Home Loan Bank Advances Federal Reserve Advances Other Short-Term Borrowings Total Borrowings 2023 Balance at December 31, 2023 $ 55,809 $ — $ 155,000 $ 100,000 $ 1,550 $ 312,359 Maximum amount outstanding at any month-end 189,138 3,491 225,000 100,000 1,694 519,323 Average amount outstanding 81,904 2,373 121,003 7,123 1,208 213,611 Weighted average interest rate during the year 0.36 % 0.09 % 5.28 % 4.98 % — % 3.29 % Weighted average interest rate for outstanding amounts at December 31, 2023 0.37 % — % 5.51 % 4.83 % — % 4.35 % 2022 Balance at December 31, 2022 $ 141,432 $ 3,096 $ 70,000 $ — $ 1,001 $ 215,529 Maximum amount outstanding at any month-end 193,798 4,072 250,000 — 1,746 449,616 Average amount outstanding 169,600 3,838 40,123 — 1,409 214,970 Weighted average interest rate during the year 0.12 % 0.04 % 3.22 % — % — % 0.70 % Weighted average interest rate for outstanding amounts at December 31, 2022 0.05 % 0.03 % 4.16 % — % — % 1.39 % During December 2023, we borrowed $100.00 million from the Federal Reserve’s Bank Term Funding Program based on the economics of the borrowing relative to our other funding sources.
(Dollars in thousands) Federal Funds Purchased and Securities Repurchase Agreements Commercial Paper Federal Home Loan Bank Advances Federal Reserve Advances Other Short-Term Borrowings Total Borrowings 2024 Balance at December 31, 2024 $ 72,346 $ — $ 75,000 $ 100,000 $ 1,852 $ 249,198 Maximum amount outstanding at any month-end 82,591 — 170,000 100,000 2,450 355,041 Average amount outstanding 61,956 — 64,987 100,027 1,878 228,848 Weighted average interest rate during the year 1.01 % — % 5.40 % 4.84 % — % 3.92 % Weighted average interest rate for outstanding amounts at December 31, 2024 1.15 % — % 4.50 % 4.76 % — % 3.60 % 2023 Balance at December 31, 2023 $ 55,809 $ — $ 155,000 $ 100,000 $ 1,550 $ 312,359 Maximum amount outstanding at any month-end 189,138 3,491 225,000 100,000 1,694 519,323 Average amount outstanding 81,904 2,373 121,003 7,123 1,208 213,611 Weighted average interest rate during the year 0.36 % 0.09 % 5.28 % 4.98 % — % 3.29 % Weighted average interest rate for outstanding amounts at December 31, 2023 0.37 % — % 5.51 % 4.83 % — % 4.35 % During December 2023, we borrowed $100 million from the Federal Reserve’s Bank Term Funding Program based on the economics of the borrowing relative to our other funding sources.
SHORT-TERM BORROWINGS The following table shows the distribution of our short-term borrowings and the weighted average interest rates thereon at the end of each of the last two years. Also provided are the maximum amount of borrowings and the average amount of borrowings, as well as weighted average interest rates for the last two years.
Also provided are the maximum amount of borrowings and the average amount of borrowings, as well as weighted average interest rates for the last two years.
Total cost of average interest-bearing liabilities increased 189 basis points to 2.50% during 2023 from 0.61% in 2022 as a result of the higher interest rate environment.
Total cost of average interest-bearing liabilities increased 64 basis points to 3.14% during 2024 from 2.50% in 2023 as a result of the higher interest rate environment and its impact on deposit competition.
There were no properties held in other real estate. 32 Table of Contents Nonperforming assets at December 31 (Dollars in thousands) 2023 2022 Loans past due over 90 days $ 149 $ 54 Nonaccrual loans and leases: Commercial and agricultural 13,267 864 Renewable energy — — Auto and light truck 4,666 14,153 Medium and heavy duty truck — 15 Aircraft — 571 Construction equipment 176 5,469 Commercial real estate 2,970 3,229 Residential real estate and home equity 1,812 1,785 Consumer 490 334 Total nonaccrual loans and leases 23,381 26,420 Total nonperforming loans and leases 23,530 26,474 Other real estate — 104 Repossessions: Commercial and agricultural — — Auto and light truck 689 311 Medium and heavy duty truck — — Aircraft — — Construction equipment — — Consumer 16 16 Total repossessions 705 327 Operating leases — 22 Total nonperforming assets $ 24,235 $ 26,927 Nonperforming loans and leases to loans and leases, net of unearned discount 0.36 % 0.44 % Nonperforming assets to loans and leases and operating leases, net of unearned discount 0.37 % 0.45 % Potential Problem Loans — Potential problem loans consist of loans that are performing but for which management has concerns about the ability of a borrower to continue to comply with repayment terms because of potential operating or financial difficulties.
There is currently one property held in other real estate related to our construction equipment portfolio. 33 Table of Contents Nonperforming assets at December 31 (Dollars in thousands) 2024 2023 Loans past due over 90 days $ 106 $ 149 Nonaccrual loans and leases: Commercial and agricultural 4,715 13,267 Renewable energy — — Auto and light truck 2,806 4,666 Medium and heavy duty truck — — Aircraft — — Construction equipment 17,976 176 Commercial real estate 1,595 2,970 Residential real estate and home equity 2,711 1,812 Consumer 810 490 Total nonaccrual loans and leases 30,613 23,381 Total nonperforming loans and leases 30,719 23,530 Other real estate 460 — Repossessions: Commercial and agricultural — — Auto and light truck — 689 Medium and heavy duty truck — — Aircraft — — Construction equipment 134 — Consumer 21 16 Total repossessions 155 705 Operating leases — — Total nonperforming assets $ 31,334 $ 24,235 Nonperforming loans and leases to loans and leases, net of unearned discount 0.45 % 0.36 % Nonperforming assets to loans and leases and operating leases, net of unearned discount 0.46 % 0.37 % Coverage ratio of allowance for loan and lease losses to nonperforming loans and leases 506.33 % 627.08 % Potential Problem Loans — Potential problem loans consist of loans that are performing but for which management has concerns about the ability of a borrower to continue to comply with repayment terms because of potential operating or financial difficulties.
Average long-term debt and mandatorily redeemable securities balances decreased $8.62 million or 15.68% during 2023 while the effective rate increased 827 basis points primarily due to higher rates on mandatorily redeemable securities from an improvement in book value per share during 2023.
Average long-term debt and mandatorily redeemable securities balances decreased $5.35 million or 11.55% during 2024 while the effective rate decreased 68 basis points primarily due to a lower imputed interest on mandatorily redeemable securities from a reduced improvement in book value per share during 2024 compared to 2023.
(Dollars in thousands) 2023 2022 Commercial and agricultural $ 766,223 $ 812,031 Renewable energy 399,708 381,163 Auto and light truck 966,912 808,117 Medium and heavy duty truck 311,947 313,862 Aircraft 1,078,172 1,077,722 Construction equipment 1,084,752 938,503 Commercial real estate 1,129,861 943,745 Residential real estate and home equity 637,973 584,737 Consumer 142,957 151,282 Total loans and leases $ 6,518,505 $ 6,011,162 At December 31, 2023, there were no concentrations within the loan portfolio of 10% or more of total loans and leases.
(Dollars in thousands) 2024 2023 Commercial and agricultural $ 772,974 $ 766,223 Renewable energy 487,266 399,708 Auto and light truck 948,435 966,912 Medium and heavy duty truck 289,623 311,947 Aircraft 1,123,797 1,078,172 Construction equipment 1,203,912 1,084,752 Commercial real estate 1,215,265 1,129,861 Residential real estate and home equity 680,071 637,973 Consumer 133,465 142,957 Total loans and leases $ 6,854,808 $ 6,518,505 At December 31, 2024, there were no concentrations within the loan portfolio of 10% or more of total loans and leases.
Losses during 2022 and 2021 were from the sale of Federal agency securities in 2022 and corporate securities in 2021 with the goal of managing portfolio risk and liquidity. 23 Table of Contents Other income improved $4.85 million or 32.26% in 2023 from 2022 compared to an increase of $2.48 million or 19.76% in 2022 from 2021.
Losses during 2022 were from the sale of Federal agency securities with the goal of managing portfolio risk and liquidity. 24 Table of Contents Other income decreased in 2024 from 2023 compared to an increase in 2023 from 2022.
Losses during 2023 of $2.88 million were the result of repositioning the investment securities portfolio. In the repositioning, approximately $40 million of securities with an average yield of 1.10% were sold and used to purchase approximately $40 million of securities with an average yield of 4.80%.
In the repositioning, approximately $63 million of securities with a weighted average yield of 0.71% were sold and used to purchase approximately $63 million of securities with a weighted average yield of 4.64%. Losses during 2023 were primarily the result of repositioning the investment securities portfolio.
Business development and marketing expenses increased $1.33 million or 22.91% in 2023 from 2022 following a decline of $2.19 million or 27.33% in 2022 from 2021. The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million made during 2023 and higher marketing promotions.
Business development and marketing expenses decreased in 2024 from 2023 following an increase in 2023 from 2022. The decreased expense in 2024 was mainly the result of a charitable contribution of $1.00 million made during 2023 offset with higher marketing promotions during the year.

… 123 more changes not shown on this page.

Other SRCE 10-K year-over-year comparisons