Form 8-K - Current report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 18, 2024

1st Source Corporation

(Exact name of registrant as specified in its charter)


Indiana	0-6233	35-1068133
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

100 North Michigan Street, South Bend, Indiana 46601

(Address of principal executive offices) (Zip Code)

574-235-2000

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock - without par value

SRCE

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

ITEM 2.02 Results of Operations and Financial Condition.

On January 18, 2024, 1st Source Corporation issued a press release that announced its fourth quarter earnings for 2023. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

ITEM 9.01 Financial Statements and Exhibits.

Exhibit 99.1: Press release dated January 18, 2024, with respect to 1st Source Corporation’s financial results for the fourth quarter ended December 31, 2023.

101 Pursuant to Rule 406 of Regulation S-T, the cover page is formatted in Inline XBRL (Inline eXtensible Business reporting Language).

104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


						1st SOURCE CORPORATION
						(Registrant)


Date: January 18, 2024						/s/ BRETT A. BAUER
						Brett A. Bauer
						Treasurer and Chief Financial Officer
						Principal Accounting Officer

Exhibit 99.1



For:	Immediate Release	Contact:	Brett Bauer
	January 18, 2024		574-235-2000

1st Source Corporation Reports Record Annual Earnings,

Cash Dividend Declared, History of Increased Dividends Continues

FULL YEAR AND QUARTERLY HIGHLIGHTS

•Net income was a record $124.93 million for the year of 2023, up 3.67% from 2022 and was $28.43 million for the fourth quarter of 2023, down 13.69% from the previous quarter and down 8.49% from the fourth quarter of 2022. Diluted net income per common share was a record $5.03 for the year of 2023, up 3.93% from 2022 and was $1.15 for the fourth quarter of 2023, down 12.88% from the previous quarter and down 8.00% from the prior year’s fourth quarter due primarily to repositioning of the investment securities portfolio and a contribution to the 1st Source Foundation as described below.

•Cash dividend of $0.34 per common share was approved, up 6.25% from the cash dividend declared a year ago.

•Average loans and leases grew $637.16 million in 2023, up 11.45% from 2022 and grew $141.98 million during the fourth quarter, up 2.27% (9.08% annualized growth) from the previous quarter.

•Tax-equivalent net interest margin was 3.51% for 2023, up six basis points from 2022 and was 3.51% for the fourth quarter of 2023, up five basis points from the prior quarter and down 18 basis points from the fourth quarter of 2022.

•During the fourth quarter, repositioning of the investment securities portfolio resulted in losses of $2.88 million on the sale of available-for-sale securities. 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%.

•Charitable contribution of $1 million was made to the 1st Source Foundation during the fourth quarter.

•During 2023, gains on the sale of renewable energy tax equity investments of $3.43 million were recognized - $1.11 million during the first quarter and $2.32 million during the third quarter.

South Bend, IN — 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record net income of $124.93 million for 2023, an increase of 3.67% compared to $120.51 million earned in 2022. Fourth quarter net income was $28.43 million, a decrease of 8.49% compared to $31.07 million earned in the fourth quarter of 2022 after losses due to repositioning the Company’s investment securities portfolio and a contribution to the 1st Source Foundation. Diluted net income per common share for the year was a record $5.03, up 3.93% from the $4.84 earned a year earlier. Diluted net income per common share for the fourth quarter was $1.15, down 8.00% from the $1.25 earned in the fourth quarter of the previous year.

At its January 2024 meeting, the Board of Directors approved a cash dividend of $0.34 per common share, up 6.25% from the $0.32 per common share declared a year ago. The cash dividend is payable to shareholders of record on February 5, 2024 and will be paid on February 15, 2024.

– 1 –

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to announce record net income for the third year in a row and we reached our 36th consecutive year of dividend growth. We were able to grow average loans and leases by $637.16 million or 11.45% from 2022. Our tax-equivalent net interest margin expanded during 2023 to 3.51% from 3.45% in 2022. During the fourth quarter, we also experienced margin expansion of six basis points after experiencing slight compression during the third quarter. New loans at higher rates, variable rate loan repricing and management of deposit rates contributed to the improvement. Our credit quality remained very strong as we had net recoveries to average loans and leases of 0.04% in 2023 compared to net charge-offs to average loans and leases of only 0.03% in 2022. I am extremely proud my colleagues were able to achieve such positive results during the unique challenges of 2023.

“In addition, we were most pleased to learn that 1st Source Bank received the Gold Level Award in the Community Lender category from the U.S. Small Business Administration (SBA) for the 11th consecutive year. The award, which focused on community banks headquartered in Indiana with less than $10 billion in assets, recognizes 1st Source Bank for delivering the greatest number of SBA loans in the State of Indiana in 2023. Since the inception of the award, it has been an honor to see the great work done by our SBA team and it is a testament to 1st Source Bank’s commitment to serving local small businesses in all our markets.

“In alignment with that commitment and our strategic initiative to grow 1st Source’s commercial banking footprint, we opened a loan production office in Lake County, Indiana in early January 2024. It is currently open by appointment only and serves the community with small business loans and other commercial credit needs. We are thrilled to expand into Lake County to help businesses in the area grow. Also, in line with our growth initiative, we have been moving forward with our efforts in Indianapolis. We opened a loan production office in the second quarter of 2023, and we have been continuing to build our presence in this market.

“Finally, in an ongoing effort to help our clients and to continue investment in our traditional markets, we are happy to announce that our new Niles Banking Center located at 1401 S. 11th St. in Niles, Michigan is now open to serve our clients. Recognizing the need for a new space as well as a drive-thru in Niles, the location opened successfully on December 21, 2023, and we are welcoming clients to come and experience enhanced levels of convenience and service,” Mr. Murphy concluded.

FULL YEAR AND FOURTH QUARTER 2023 FINANCIAL RESULTS

Loans

Annual average loans and leases of $6.20 billion increased $637.16 million, up 11.45% loans from the full year 2022. Quarterly average loans and leases of $6.39 billion increased $547.27 million, up 9.37% loans in the fourth quarter of 2023 from the year ago quarter and have increased $141.98 million, up 2.27% from the third quarter. Strong growth primarily within our Auto and Light Truck and Construction Equipment portfolios and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year.

– 2 –

Deposits

Annual average deposits for 2023 were $6.96 billion, an increase of $245.87 million, up 3.66% from 2022. Quarterly average deposits of $7.07 billion grew $310.20 million, up 4.59% for the quarter ended December 31, 2023 compared to the year ago quarter and have increased $118.56 million, up 1.71% compared to the third quarter. Deposit growth over the last year came from increased time deposits, public funds, and brokered deposits. The deposit mix change from 2022 continued through 2023 with clients moving their funds from non-maturity accounts to higher yielding certificates of deposit and money market accounts due to the interest rate environment.

Net Interest Income and Net Interest Margin

For the twelve months of 2023, tax-equivalent net interest income was $279.39 million, an increase of $15.29 million, up 5.79% compared to the full year 2022. Fourth quarter 2023 tax-equivalent net interest income of $71.50 million decreased $0.17 million, down 0.24% from the fourth quarter a year ago and increased $2.09 million, or 3.01% from the third quarter.

Net interest margin for the year ending December 31, 2023 was 3.50%, an increase of six basis points from the 3.44% for the year ending December 31, 2022. Net interest margin on a tax-equivalent basis for the year ending December 31, 2023 was 3.51%, an increase of six basis points from the 3.45% for the year ending December 31, 2022. Net interest recoveries positively contributed two basis points to the tax-equivalent net interest margin compared to a positive three basis point impact during 2022.

Fourth quarter 2023 net interest margin was 3.51%, a decrease of 17 basis points from the 3.68% for the same period in 2022 and an increase of six basis points from the prior quarter. Fourth quarter 2023 net interest margin on a fully tax-equivalent basis was 3.51%, a decrease of 18 basis points from the 3.69% for the same period in 2022 and an increase of five basis points from the 3.46% in the prior quarter. Net interest recoveries had a positive four basis point impact on the fourth quarter net interest margin compared to a one basis point impact during the fourth quarter of 2022.

Noninterest Income

Noninterest income for the twelve months ended December 31, 2023 was $90.62 million, down $0.64 million or 0.70% compared to the twelve months ended December 31, 2022. Fourth quarter 2023 noninterest income of $20.08 million decreased $3.20 million, or 13.76% from the fourth quarter a year ago and decreased $4.38 million or 17.91% from the third quarter.

Noninterest income during the twelve months ended December 31, 2023 was lower compared to a year ago mainly from lower equipment rental income due to a decrease in the size of the equipment rental portfolio as demand for operating leases continues to decline. Also contributing to lower income was realized losses of $2.88 million from repositioning the available-for-sale investment securities portfolio during the fourth quarter. Noninterest income in 2023 was also impacted by reduced mortgage banking origination volumes resulting in lower income from loans sold into the secondary market. These decreases were offset by partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, a rise in interest rate swap fees, and higher deposit account fees.

– 3 –

The decrease in noninterest income from the third quarter was mainly due to the losses on the sale of available-for-sale securities of $2.88 million as explained above and lower partnership investment gains mainly from the sale of renewable energy tax equity investments of $2.32 million during the third quarter. These were offset by increased trust and wealth advisory income primarily from the positive market performance during the quarter.

Noninterest Expense

Noninterest expense for the twelve months ended December 31, 2023 was $201.72 million, an increase of $17.03 million, or 9.22% compared to the same period a year ago. Fourth quarter 2023 noninterest expense of $52.97 million rose $4.60 million, or 9.50% from the fourth quarter a year ago and increased $2.81 million or 5.59% from the prior quarter.

The increase in noninterest expense for 2023 from 2022 was primarily due to higher base salaries as a result of normal merit increases, the impact of wage inflation and an increase in the number of employees filling prior open positions, lower turn-over and a rise in group insurance claims. There was also increased software maintenance costs related to technology projects, higher FDIC insurance premiums due to a two basis point increase in assessment rates during the first quarter of 2023, an increase in the provision for unfunded loan commitments and a $1 million charitable contribution. These increases were offset by lower leased equipment depreciation and a decrease in professional consulting fees.

The increase in noninterest expense from the third quarter was mainly due to the earlier mentioned $1 million charitable contribution, higher legal fees and increased computer equipment replacement expense. These increases were offset by a lower provision for unfunded loan commitments and reduced leased equipment depreciation.

Credit

The allowance for loan and lease losses as of December 31, 2023 was 2.26% of total loans and leases compared to 2.27% at September 30, 2023 and 2.32% at December 31, 2022.

Net recoveries that have been recorded for the full year of 2023 were $2.42 million compared to net charge-offs of $1.47 million in 2022. This resulted in net recoveries to average loans and leases of 0.04% for 2023 compared to a net charge off ratio of 0.03% for 2022. Net recoveries in the fourth quarter of 2023 were $1.57 million compared with net charge-offs of $1.81 million in the same quarter a year ago and $0.33 million of net charge-offs in the previous quarter.

The provision for credit losses was $5.87 million for the twelve months ended December 31, 2023 and included $1.91 million for the fourth quarter of 2023, a decrease of $7.38 million and $3.43 million, respectively, compared with the same periods in 2022. The decrease in the provision expense was mainly due to net recoveries. The ratio of nonperforming assets to loans and leases was 0.37% as of December 31, 2023, compared to 0.27% on September 30, 2023 and 0.45% on December 31, 2022.

– 4 –

Capital

As of December 31, 2023, the common equity-to-assets ratio was 11.34%, compared to 10.84% at September 30, 2023 and 10.36% a year ago. The tangible common equity-to-tangible assets ratio was 10.48% at December 31, 2023 compared to 9.96% at September 30, 2023 and 9.45% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.22% at December 31, 2023 compared to 13.31% at September 30, 2023 and 13.19% a year ago.

During 2023, 310,522 shares were repurchased for treasury reducing common shareholders’ equity by $12.47 million. No shares were repurchased during the fourth quarter 2023.

ABOUT 1ST SOURCE CORPORATION

1st Source common stock is traded on the NASDAQ Global Select Market under “SRCE” and appears in the National Market System tables in many daily newspapers under the code name “1st Src.” Since 1863, 1st Source has been committed to the success of its clients, individuals, businesses and the communities it serves. For more information, visit www.1stsource.com.

1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 78 banking centers, 18 1st Source Bank Specialty Finance Group locations nationwide, nine Wealth Advisory Services locations, 10 1st Source Insurance offices, and three loan production offices.

FORWARD LOOKING STATEMENTS

Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “contemplate,” “seek,” “plan,” “possible,” “assume,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

– 5 –

1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which filings are available from the SEC. 1st Source undertakes no obligation to publicly update or revise any forward-looking statements.

NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses and lease depreciation), measures how much it costs to produce one dollar of revenue. Securities gains or losses and lease depreciation are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity-to-tangible assets ratio and tangible book value per common share as useful measurements of the Company’s equity.

See the table marked “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of certain non-GAAP financial measures used by the Company with their most closely related GAAP measures.

# # #

(charts attached)

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1st SOURCE CORPORATION
4th QUARTER 2023 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2023			2023			2022			2023			2022
AVERAGE BALANCES
Assets	$	8,553,500		$	8,417,391		$	8,171,095		$	8,414,797		$	8,073,111
Earning assets	8,071,861			7,963,537			7,707,769			7,956,604			7,661,168
Investments	1,596,602			1,645,906			1,795,200			1,676,650			1,845,351
Loans and leases	6,387,858			6,245,883			5,840,593			6,203,857			5,566,701
Deposits	7,068,668			6,950,105			6,758,465			6,957,244			6,711,376
Interest bearing liabilities	5,678,546			5,566,874			5,086,446			5,522,793			5,002,168
Common shareholders’ equity	949,939			940,544			846,449			926,935			872,721
Total equity	1,013,114			999,552			906,613			987,196			929,321
INCOME STATEMENT DATA
Net interest income	$	71,330		$	69,236		$	71,455		$	278,647		$	263,469
Net interest income - FTE(1)	71,496			69,406			71,670			279,388			264,097
Provision for credit losses	1,911			859			5,342			5,866			13,245
Noninterest income	20,076			24,455			23,280			90,623			91,262
Noninterest expense	52,972			50,166			48,377			201,724			184,699
Net income	28,417			32,939			31,056			124,934			120,532
Net income available to common shareholders	28,429			32,939			31,068			124,927			120,509
PER SHARE DATA
Basic net income per common share	$	1.15		$	1.32		$	1.25		$	5.03		$	4.84
Diluted net income per common share	1.15			1.32			1.25			5.03			4.84
Common cash dividends declared	0.34			0.32			0.32			1.30			1.26
Book value per common share(2)	40.50			37.83			35.04			40.50			35.04
Tangible book value per common share(1)	37.06			34.40			31.63			37.06			31.63
Market value - High	56.59			49.36			59.94			56.59			59.94
Market value - Low	41.30			40.96			46.40			38.77			42.29
Basic weighted average common shares outstanding	24,430,477			24,660,508			24,658,294			24,615,546			24,687,324
Diluted weighted average common shares outstanding	24,430,477			24,660,508			24,658,294			24,615,546			24,687,324
KEY RATIOS
Return on average assets	1.32		%	1.55		%	1.51		%	1.48		%	1.49		%
Return on average common shareholders’ equity	11.87			13.89			14.56			13.48			13.81



Average common shareholders’ equity to average assets	11.11			11.17			10.36			11.02			10.81
End of period tangible common equity to tangible assets(1)	10.48			9.96			9.45			10.48			9.45




Risk-based capital - Common Equity Tier 1(3)	13.22			13.31			13.19			13.22			13.19
Risk-based capital - Tier 1(3)	14.99			14.86			14.84			14.99			14.84
Risk-based capital - Total(3)	16.25			16.12			16.10			16.25			16.10
Net interest margin	3.51			3.45			3.68			3.50			3.44
Net interest margin - FTE(1)	3.51			3.46			3.69			3.51			3.45
Efficiency ratio: expense to revenue	57.95			53.54			51.07			54.63			52.07
Efficiency ratio: expense to revenue - adjusted(1)	56.40			54.24			51.05			54.21			51.13
Net (recoveries) charge offs to average loans and leases	(0.10)			0.02			0.12			(0.04)			0.03
Loan and lease loss allowance to loans and leases	2.26			2.27			2.32			2.26			2.32
Nonperforming assets to loans and leases	0.37			0.27			0.45			0.37			0.45



	December 31,			September 30,			June 30,			March 31,			December 31,
	2023			2023			2023			2023			2022
END OF PERIOD BALANCES
Assets	$	8,727,958		$	8,525,058		$	8,414,818		$	8,329,803		$	8,339,416
Loans and leases	6,518,505			6,353,648			6,215,343			6,116,716			6,011,162
Deposits	7,038,581			6,967,492			6,976,518			6,801,464			6,928,265
Allowance for loan and lease losses	147,552			144,074			143,542			142,511			139,268
Goodwill and intangible assets	83,916			83,921			83,897			83,901			83,907
Common shareholders’ equity	989,568			924,250			921,020			909,159			864,068
Total equity	1,068,263			982,997			980,087			968,444			923,766
ASSET QUALITY
Loans and leases past due 90 days or more	$	149		$	154		$	56		$	24		$	54
Nonaccrual loans and leases	23,381			16,617			20,481			18,062			26,420
Other real estate	—			117			193			117			104
Repossessions	705			233			47			445			327
Equipment owned under operating leases	—			—			—			—			22
Total nonperforming assets	$	24,235		$	17,121		$	20,777		$	18,648		$	26,927

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.

(3) Calculated as the sum of available-for-sale securities and loan and leases that mature in over 5 years as a percent of total assets.

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1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
	December 31,		September 30,		June 30,		December 31,
	2023		2023		2023		2022
ASSETS
Cash and due from banks	$	77,474	$	75,729	$	86,742	$	84,703
Federal funds sold and interest bearing deposits with other banks	52,194		35,406		25,933		38,094
Investment securities available-for-sale	1,622,600		1,605,242		1,661,405		1,775,128
Other investments	25,075		25,075		25,320		25,293
Mortgages held for sale	1,442		3,118		2,321		3,914
Loans and leases, net of unearned discount:
Commercial and agricultural	766,223		763,051		797,188		812,031
Renewable energy	399,708		364,949		376,905		381,163
Auto and light truck	966,912		901,484		901,054		808,117
Medium and heavy duty truck	311,947		323,202		319,634		313,862
Aircraft	1,078,172		1,079,581		1,060,340		1,077,722
Construction equipment	1,084,752		1,062,097		1,012,969		938,503
Commercial real estate	1,129,861		1,088,199		985,323		943,745
Residential real estate and home equity	637,973		627,515		617,495		584,737
Consumer	142,957		143,570		144,435		151,282
Total loans and leases	6,518,505		6,353,648		6,215,343		6,011,162
Allowance for loan and lease losses	(147,552)		(144,074)		(143,542)		(139,268)
Net loans and leases	6,370,953		6,209,574		6,071,801		5,871,894
Equipment owned under operating leases, net	20,366		24,096		26,582		31,700
Net premises and equipment	46,159		43,951		44,089		44,773
Goodwill and intangible assets	83,916		83,921		83,897		83,907
Accrued income and other assets	427,779		418,946		386,728		380,010
Total assets	$	8,727,958	$	8,525,058	$	8,414,818	$	8,339,416

LIABILITIES
Deposits:
Noninterest bearing demand	$	1,655,728	$	1,680,725	$	1,721,947	$	1,998,151
Interest-bearing deposits:
Interest-bearing demand	2,430,833		2,416,864		2,528,231		2,591,464
Savings	1,213,334		1,180,837		1,163,166		1,198,191
Time	1,738,686		1,689,066		1,563,174		1,140,459
Total interest-bearing deposits	5,382,853		5,286,767		5,254,571		4,930,114
Total deposits	7,038,581		6,967,492		6,976,518		6,928,265
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	55,809		48,335		69,308		141,432
Other short-term borrowings	256,550		223,757		118,377		74,097
Total short-term borrowings	312,359		272,092		187,685		215,529
Long-term debt and mandatorily redeemable securities	47,911		46,533		46,649		46,555
Subordinated notes	58,764		58,764		58,764		58,764
Accrued expenses and other liabilities	202,080		197,180		165,115		166,537
Total liabilities	7,659,695		7,542,061		7,434,731		7,415,650

SHAREHOLDERS’ EQUITY
Preferred stock; no par value Authorized 10,000,000 shares; none issued or outstanding	—		—		—		—
Common stock; no par value Authorized 40,000,000 shares; issued 28,205,674 shares at December 31, 2023, September 30, 2023, June 30, 2023, and December 31, 2022, respectively	436,538		436,538		436,538		436,538
Retained earnings	789,842		769,603		744,442		694,862
Cost of common stock in treasury (3,771,070, 3,776,591, 3,523,113, and 3,543,388 shares at December 31, 2023, September 30, 2023, June 30, 2023, and December 31, 2022, respectively)	(130,489)		(130,579)		(120,410)		(119,642)
Accumulated other comprehensive loss	(106,323)		(151,312)		(139,550)		(147,690)
Total shareholders’ equity	989,568		924,250		921,020		864,068
Noncontrolling interests	78,695		58,747		59,067		59,698
Total equity	1,068,263		982,997		980,087		923,766
Total liabilities and equity	$	8,727,958	$	8,525,058	$	8,414,818	$	8,339,416

– 8 –


1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
	Three Months Ended						Twelve Months Ended
	December 31,		September 30,		December 31,		December 31,		December 31,
	2023		2023		2022		2023		2022
Interest income:
Loans and leases	$	107,103	$	100,206	$	79,244	$	387,298	$	263,894
Investment securities, taxable	5,989		5,918		6,970		24,501		26,294
Investment securities, tax-exempt	314		319		419		1,445		1,049
Other	1,165		883		627		3,663		2,579
Total interest income	114,571		107,326		87,260		416,907		293,816
Interest expense:
Deposits	38,624		34,405		12,746		123,162		25,231
Short-term borrowings	1,878		2,136		1,070		7,032		1,497
Subordinated notes	1,066		1,060		972		4,174		3,550
Long-term debt and mandatorily redeemable securities	1,673		489		1,017		3,892		69
Total interest expense	43,241		38,090		15,805		138,260		30,347
Net interest income	71,330		69,236		71,455		278,647		263,469
Provision for credit losses	1,911		859		5,342		5,866		13,245
Net interest income after provision for credit losses	69,419		68,377		66,113		272,781		250,224
Noninterest income:
Trust and wealth advisory	5,912		5,648		5,608		23,706		23,107
Service charges on deposit accounts	3,331		3,297		3,172		12,749		12,146
Debit card	4,395		4,377		4,669		17,980		18,052
Mortgage banking	772		971		819		3,471		4,122
Insurance commissions	1,527		1,714		1,535		6,911		6,703
Equipment rental	1,907		2,101		2,556		8,837		12,274
Losses on investment securities available-for-sale	(2,882)		—		(184)		(2,926)		(184)
Other	5,114		6,347		5,105		19,895		15,042
Total noninterest income	20,076		24,455		23,280		90,623		91,262
Noninterest expense:
Salaries and employee benefits	29,913		28,866		27,695		115,612		105,110
Net occupancy	2,925		2,867		2,811		11,090		10,728
Furniture and equipment	1,715		1,217		1,397		5,653		5,448
Data processing	6,341		6,289		5,963		25,055		22,375
Depreciation — leased equipment	1,523		1,672		2,111		7,093		10,023
Professional fees	2,556		1,763		2,039		6,705		7,280

FDIC and other insurance	1,624		1,598		943		5,926		3,625
Business development and marketing	2,335		1,201		1,471		7,157		5,823

Other	4,040		4,693		3,947		17,433		14,287
Total noninterest expense	52,972		50,166		48,377		201,724		184,699
Income before income taxes	36,523		42,666		41,016		161,680		156,787
Income tax expense	8,106		9,727		9,960		36,746		36,255
Net income	28,417		32,939		31,056		124,934		120,532
Net loss (income) attributable to noncontrolling interests	12		—		12		(7)		(23)
Net income available to common shareholders	$	28,429	$	32,939	$	31,068	$	124,927	$	120,509
Per common share:
Basic net income per common share	$	1.15	$	1.32	$	1.25	$	5.03	$	4.84
Diluted net income per common share	$	1.15	$	1.32	$	1.25	$	5.03	$	4.84
Cash dividends	$	0.34	$	0.32	$	0.32	$	1.30	$	1.26
Basic weighted average common shares outstanding	24,430,477		24,660,508		24,658,294		24,615,546		24,687,324
Diluted weighted average common shares outstanding	24,430,477		24,660,508		24,658,294		24,615,546		24,687,324

– 9 –


1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
							Three Months Ended
	December 31, 2023						September 30, 2023						December 31, 2022
	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	$	1,559,351	$	5,989	1.52	%	$	1,605,912	$	5,918	1.46	%	$	1,742,567	$	6,970	1.59	%
Tax-exempt(1)	37,251		392		4.17	%	39,994		397		3.94	%	52,633		525		3.96	%
Mortgages held for sale	2,010		41		8.09	%	3,169		54		6.76	%	2,834		40		5.60	%
Loans and leases, net of unearned discount(1)	6,387,858		107,150		6.65	%	6,245,883		100,244		6.37	%	5,840,593		79,313		5.39	%
Other investments	85,391		1,165		5.41	%	68,579		883		5.11	%	69,142		627		3.60	%
Total earning assets(1)	8,071,861		114,737		5.64	%	7,963,537		107,496		5.36	%	7,707,769		87,475		4.50	%
Cash and due from banks	70,352						68,640						76,843
Allowance for loan and lease losses	(146,076)						(145,197)						(137,350)
Other assets	557,363						530,411						523,833
Total assets	$	8,553,500					$	8,417,391					$	8,171,095

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	5,383,925	$	38,624	2.85	%	$	5,247,332	$	34,405	2.60	%	$	4,718,303	$	12,746	1.07	%
Short-term borrowings:
Securties sold under agreements to repurchase	52,278		29		0.22	%	60,736		35		0.23	%	137,248		18		0.05	%
Other short-term borrowings	136,814		1,849		5.36	%	153,523		2,101		5.43	%	125,078		1,052		3.34	%

Subordinated notes	58,764		1,066		7.20	%	58,764		1,060		7.16	%	58,764		972		6.56	%
Long-term debt and mandatorily redeemable securities	46,765		1,673		14.19	%	46,519		489		4.17	%	47,053		1,017		8.58	%
Total interest-bearing liabilities	5,678,546		43,241		3.02	%	5,566,874		38,090		2.71	%	5,086,446		15,805		1.23	%
Noninterest-bearing deposits	1,684,743						1,702,773						2,040,162
Other liabilities	177,097						148,192						137,874
Shareholders’ equity	949,939						940,544						846,449
Noncontrolling interests	63,175						59,008						60,164
Total liabilities and equity	$	8,553,500					$	8,417,391					$	8,171,095
Less: Fully tax-equivalent adjustments			(166)						(170)						(215)
Net interest income/margin (GAAP-derived)(1)			$	71,330	3.51	%			$	69,236	3.45	%			$	71,455	3.68	%
Fully tax-equivalent adjustments			166						170						215
Net interest income/margin - FTE(1)			$	71,496	3.51	%			$	69,406	3.46	%			$	71,670	3.69	%

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

– 10 –


1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
	Twelve Months Ended
	December 31, 2023						December 31, 2022
	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	%
Tax-exempt(1)	44,083		1,805		4.09	%	40,310		1,311		3.25	%
Mortgages held for sale	2,368		155		6.55	%	5,178		217		4.19	%
Loans and leases, net of unearned discount(1)	6,203,857		387,524		6.25	%	5,566,701		264,043		4.74	%
Other investments	73,729		3,663		4.97	%	243,938		2,579		1.06	%
Total earning assets(1)	7,956,604		417,648		5.25	%	7,661,168		294,444		3.84	%
Cash and due from banks	70,304						75,836
Allowance for loan and lease losses	(144,183)						(133,028)
Other assets	532,072						469,135
Total assets	$	8,414,797					$	8,073,111

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	5,204,095	$	123,162	2.37	%	$	4,673,494	$	25,231	0.54	%
Short-term borrowings:
Securities sold under agreements to repurchase	78,928		136		0.17	%	166,254		85		0.05	%
Other short-term borrowings	134,683		6,896		5.12	%	48,716		1,412		2.90	%

Subordinated notes	58,764		4,174		7.10	%	58,764		3,550		6.04	%
Long-term debt and mandatorily redeemable securities	46,323		3,892		8.40	%	54,940		69		0.13	%
Total interest-bearing liabilities	5,522,793		138,260		2.50	%	5,002,168		30,347		0.61	%
Noninterest-bearing deposits	1,753,149						2,037,882
Other liabilities	151,659						103,740
Shareholders’ equity	926,935						872,721
Noncontrolling interests	60,261						56,600
Total liabilities and equity	$	8,414,797					$	8,073,111
Less: Fully tax-equivalent adjustments			(741)						(628)
Net interest income/margin (GAAP-derived)(1)			$	278,647	3.50	%			$	263,469	3.44	%
Fully tax-equivalent adjustments			741						628
Net interest income/margin - FTE(1)			$	279,388	3.51	%			$	264,097	3.45	%

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

– 11 –


1st SOURCE CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited - Dollars in thousands, except per share data)

		Three Months Ended									Twelve Months Ended
		December 31,			September 30,			December 31,			December 31,			December 31,
		2023			2023			2022			2023			2022
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	114,571		$	107,326		$	87,260		$	416,907		$	293,816
	Fully tax-equivalent adjustments:
(B)	- Loans and leases	88			92			109			381			366
(C)	- Tax-exempt investment securities	78			78			106			360			262
(D)	Interest income - FTE (A+B+C)	114,737			107,496			87,475			417,648			294,444
(E)	Interest expense (GAAP)	43,241			38,090			15,805			138,260			30,347
(F)	Net interest income (GAAP) (A–E)	71,330			69,236			71,455			278,647			263,469
(G)	Net interest income - FTE (D–E)	71,496			69,406			71,670			279,388			264,097
(H)	Annualization factor	3.967			3.967			3.967			1.000			1.000
(I)	Total earning assets	$	8,071,861		$	7,963,637		$	7,707,769		$	7,956,604		$	7,661,168
	Net interest margin (GAAP-derived) (F*H)/I	3.51		%	3.45		%	3.68		%	3.50		%	3.44		%
	Net interest margin - FTE (G*H)/I	3.51		%	3.46		%	3.69		%	3.51		%	3.45		%

Calculation of Efficiency Ratio
(F)	Net interest income (GAAP)	$	71,330		$	69,236		$	71,455		$	278,647		$	263,469
(G)	Net interest income - FTE	71,496			69,406			71,670			279,388			264,097
(J)	Plus: noninterest income (GAAP)	20,076			24,455			23,280			90,623			91,262
(K)	Less: gains/losses on investment securities and partnership investments	1,173			(2,779)			(2,216)			(3,875)			(3,714)
(L)	Less: depreciation - leased equipment	(1,523)			(1,672)			(2,111)			(7,093)			(10,023)
(M)	Total net revenue (GAAP) (F+J)	91,406			93,691			94,735			369,270			354,731
(N)	Total net revenue - adjusted (G+J–K–L)	91,222			89,410			90,623			359,043			341,622
(O)	Noninterest expense (GAAP)	52,972			50,166			48,377			201,724			184,699
(L)	Less: depreciation - leased equipment	(1,523)			(1,672)			(2,111)			(7,093)			(10,023)

(P)	Noninterest expense - adjusted (O–L)	51,449			48,494			46,266			194,631			174,676
	Efficiency ratio (GAAP-derived) (O/M)	57.95		%	53.54		%	51.07		%	54.63		%	52.07		%
	Efficiency ratio - adjusted (P/N)	56.40		%	54.24		%	51.05		%	54.21		%	51.13		%

		End of Period
		December 31,			September 30,			December 31,
		2023			2023			2022
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)	Total common shareholders’ equity (GAAP)	$	989,568		$	924,250		$	864,068
(R)	Less: goodwill and intangible assets	(83,916)			(83,921)			(83,907)
(S)	Total tangible common shareholders’ equity (Q–R)	$	905,652		$	840,329		$	780,161
(T)	Total assets (GAAP)	8,727,958			8,525,058			8,339,416
(R)	Less: goodwill and intangible assets	(83,916)			(83,921)			(83,907)
(U)	Total tangible assets (T–R)	$	8,644,042		$	8,441,137		$	8,255,509
	Common equity-to-assets ratio (GAAP-derived) (Q/T)	11.34		%	10.84		%	10.36		%
	Tangible common equity-to-tangible assets ratio (S/U)	10.48		%	9.96		%	9.45		%

Calculation of Tangible Book Value per Common Share
(Q)	Total common shareholders’ equity (GAAP)	$	989,568		$	924,250		$	864,068
(V)	Actual common shares outstanding	24,434,604			24,429,083			24,662,286
	Book value per common share (GAAP-derived) (Q/V)*1000	$	40.50		$	37.83		$	35.04
	Tangible common book value per share (S/V)*1000	$	37.06		$	34.40		$	31.63

The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)

Please contact us at shareholder@1stsource.com

– 12 –

Document and Entity Information	Jan. 18, 2024
Document and Entity Information
Document Type	8-K
Document Period End Date	Jan. 18, 2024
Entity Registrant Name	1st Source Corp
Entity Incorporation, State or Country Code	IN
Entity File Number	0-6233
Entity Tax Identification Number	35-1068133
Entity Address, Address Line One	100 North Michigan Street
Entity Address, City or Town	South Bend
Entity Address, State or Province	IN
Entity Address, Postal Zip Code	46601
City Area Code	574
Local Phone Number	235-2000
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock - without par value
Trading Symbol	SRCE
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Amendment Flag	false
Entity Central Index Key	0000034782