10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 0-6233

1st Source Corporation

(Exact name of registrant as specified in its charter)

Indiana	35-1068133
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 North Michigan Street
South Bend,	IN	46601
(Address of principal executive offices)		(Zip Code)

(574) 235-2000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes  o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  x Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		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 Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  x No

Number of shares of common stock outstanding as of April 14, 2023 — 24,695,552 shares

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition — March 31, 2023 and December31, 2022	3
	Consolidated Statements of Income — three months ended March 31, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income (Loss) — three months ended March 31, 2023 and 2022	5
	Consolidated Statements of Shareholders’ Equity — three months ended March 31, 2023 and 2022	5
	Consolidated Statements of Cash Flows — three months ended March 31, 2023 and 2022	6
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
SIGNATURES		43
EXHIBITS
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	Exhibit 32.2

2

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited - Dollars in thousands)

	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	66,866	$	84,703
Federal funds sold and interest bearing deposits with other banks	27,171		38,094
Investment securities available-for-sale	1,713,480		1,775,128
Other investments	25,293		25,293
Mortgages held for sale	2,068		3,914
Loans and leases, net of unearned discount:
Commercial and agricultural	795,429		812,031
Solar	375,330		381,163
Auto and light truck	875,564		808,117
Medium and heavy duty truck	326,588		313,862
Aircraft	1,056,829		1,077,722
Construction equipment	991,412		938,503
Commercial real estate	954,221		943,745
Residential real estate and home equity	594,618		584,737
Consumer	146,725		151,282
Total loans and leases	6,116,716		6,011,162
Allowance for loan and lease losses	(142,511)		(139,268)
Net loans and leases	5,974,205		5,871,894
Equipment owned under operating leases, net	30,083		31,700
Net premises and equipment	44,034		44,773
Goodwill and intangible assets	83,901		83,907
Accrued income and other assets	362,702		380,010
Total assets	$	8,329,803	$	8,339,416
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,815,123	$	1,998,151
Interest-bearing deposits:
Interest-bearing demand	2,403,818		2,591,464
Savings	1,171,418		1,198,191
Time	1,411,105		1,140,459
Total interest-bearing deposits	4,986,341		4,930,114
Total deposits	6,801,464		6,928,265
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	73,396		141,432
Other short-term borrowings	229,640		74,097
Total short-term borrowings	303,036		215,529
Long-term debt and mandatorily redeemable securities	46,714		46,555
Subordinated notes	58,764		58,764
Accrued expenses and other liabilities	151,381		166,537
Total liabilities	7,361,359		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 at March 31, 2023 and December 31, 2022	436,538		436,538
Retained earnings	719,495		694,862
Cost of common stock in treasury (3,510,122 shares at March 31, 2023 and 3,543,388 shares at December 31, 2022)	(119,409)		(119,642)
Accumulated other comprehensive loss	(127,465)		(147,690)
Total shareholders’ equity	909,159		864,068
Noncontrolling interests	59,285		$	59,698
Total equity	968,444		923,766
Total liabilities and equity	$	8,329,803	$	8,339,416

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

3

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in thousands, except per share amounts)

	Three Months Ended March 31,
	2023		2022
Interest income:
Loans and leases	$	86,689	$	55,208
Investment securities, taxable	6,648		6,344
Investment securities, tax-exempt	482		134
Other	637		363
Total interest income	94,456		62,049
Interest expense:
Deposits	21,263		2,376
Short-term borrowings	1,393		24
Subordinated notes	1,020		823
Long-term debt and mandatorily redeemable securities	1,215		(792)
Total interest expense	24,891		2,431
Net interest income	69,565		59,618
Provision for credit losses	3,049		2,233
Net interest income after provision for credit losses	66,516		57,385
Noninterest income:
Trust and wealth advisory	5,679		5,914
Service charges on deposit accounts	3,003		2,792
Debit card	4,507		4,194
Mortgage banking	802		1,377
Insurance commissions	2,029		1,905
Equipment rental	2,503		3,662
Losses on investment securities available-for-sale	(44)		—
Other	4,844		3,301
Total noninterest income	23,323		23,145
Noninterest expense:
Salaries and employee benefits	28,597		25,467
Net occupancy	2,622		2,811
Furniture and equipment	1,307		1,295
Data processing	6,157		5,208
Depreciation – leased equipment	2,022		3,015
Professional fees	682		1,608
FDIC and other insurance	1,360		850
Business development and marketing	1,972		1,268
Other	4,702		3,814
Total noninterest expense	49,421		45,336
Income before income taxes	40,418		35,194
Income tax expense	9,287		7,793
Net income	31,131		27,401
Net (income) loss attributable to noncontrolling interests	(7)		(11)
Net income available to common shareholders	$	31,124	$	27,390
Per common share:
Basic net income per common share	$	1.25	$	1.10
Diluted net income per common share	$	1.25	$	1.10
Cash dividends	$	0.32	$	0.31
Basic weighted average common shares outstanding	24,687,087		24,743,790
Diluted weighted average common shares outstanding	24,687,087		24,743,790

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

4

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - Dollars in thousands)

	Three Months Ended March 31,
	2023		2022
Net income	$	31,131	$	27,401
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of available-for-sale securities	26,476		(93,094)
Reclassification adjustment for realized losses included in net income	44		—
Income tax effect	(6,295)		22,418
Other comprehensive income (loss), net of tax	20,225		(70,676)
Comprehensive income (loss)	$	51,356	$	(43,275)
Comprehensive (income) loss attributable to noncontrolling interests	(7)		(11)
Comprehensive income (loss) available to common shareholders	$	51,349	$	(43,286)

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

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - Dollars in thousands, except per share amounts)

	Three Months Ended
	Preferred Stock		Common Stock		Retained Earnings		Cost of Common Stock in Treasury		Accumulated Other Comprehensive Income (Loss), Net		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
Balance at January 1, 2022	$	—	$	436,538	$	603,787	$	(114,209)	$	(9,861)	$	916,255	$	53,209	$	969,464
Net income	—		—		27,390		—		—		27,390		11		27,401
Other comprehensive loss	—		—		—		—		(70,676)		(70,676)		—		(70,676)
Issuance of 38,442 common shares under stock based compensation awards	—		—		1,024		730		—		1,754		—		1,754
Cost of 45,419 shares of common stock acquired for treasury	—		—		—		(2,175)		—		(2,175)		—		(2,175)
Common stock dividend ($0.31 per share)	—		—		(7,698)		—		—		(7,698)		—		(7,698)
Contributions from noncontrolling interests	—		—		—		—		—		—		1,627		1,627
Distributions to noncontrolling interests	—		—		—		—		—		—		(227)		(227)
Balance at March 31, 2022	$	—	$	436,538	$	624,503	$	(115,654)	$	(80,537)	$	864,850	$	54,620	919,470
Balance at January 1, 2023	$	—	$	436,538	$	694,862	$	(119,642)	$	(147,690)	$	864,068	$	59,698	$	923,766
Net income	—		—		31,124		—		—		31,124		7		31,131
Other comprehensive income	—		—		—		—		20,225		20,225		—		20,225
Issuance of 49,625 common shares under stock based compensation awards	—		—		1,426		999		—		2,425		—		2,425
Cost of 16,359 shares of common stock acquired for treasury	—		—		—		(766)		—		(766)		—		(766)
Common stock dividend ($0.32 per share)	—		—		(7,917)		—		—		(7,917)		—		(7,917)
Distributions to noncontrolling interests	—		—		—		—		—		—		(420)		(420)
Balance at March 31, 2023	$	—	$	436,538	$	719,495	$	(119,409)	$	(127,465)	$	909,159	$	59,285	$	968,444

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

5

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Dollars in thousands)

	Three Months Ended March 31,
	2023		2022
Operating activities:
Net income	$	31,131	$	27,401
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	3,049		2,233
Depreciation of premises and equipment	1,146		1,177
Depreciation of equipment owned and leased to others	2,022		3,015
Stock-based compensation	1,121		732
Amortization of investment securities premiums and accretion of discounts, net	855		967
Amortization of mortgage servicing rights	221		381
Amortization of right of use assets	778		785
Deferred income taxes	(993)		80
Losses on investment securities available-for-sale	44		—
Originations of loans held for sale, net of principal collected	(8,862)		(32,314)
Proceeds from the sales of loans held for sale	10,934		41,456
Net gain on sale of loans held for sale	(226)		(615)
Net gain on sale of other real estate and repossessions	(39)		(47)
Change in interest receivable	(125)		(530)
Change in interest payable	7,599		199
Change in other assets	(5,422)		9,099
Change in other liabilities	3,987		(10,882)
Other	(367)		(1,334)
Net change in operating activities	46,853		41,803
Investing activities:
Proceeds from sales of investment securities available-for-sale	64,928		—
Proceeds from maturities and paydowns of investment securities available-for-sale	25,341		57,392
Purchases of investment securities available-for-sale	(3,000)		(145,843)
Net change in partnership investments	(5,274)		(2,128)
Net change in other investments	—		1,651
Loans sold or participated to others	16,026		7,987
Proceeds from principal payments on direct finance leases	13,043		9,377
Net change in loans and leases	(134,913)		(66,069)
Net change in equipment owned under operating leases	(405)		3,626
Purchases of premises and equipment	(408)		(113)
Proceeds from disposal of premises and equipment	2		14
Proceeds from sales of other real estate and repossessions	391		1,983
Net change in investing activities	(24,269)		(132,123)
Financing activities:
Net change in demand deposits and savings accounts	(397,447)		26,143
Net change in time deposits	270,646		(32,116)
Net change in short-term borrowings	87,507		(869)
Payments on long-term debt	(2,727)		(2,440)
Acquisition of treasury stock	(766)		(2,175)
Net (distributions to) contributions from noncontrolling interests	(420)		1,400
Cash dividends paid on common stock	(8,137)		(7,918)
Net change in financing activities	(51,344)		(17,975)
Net change in cash and cash equivalents	(28,760)		(108,295)
Cash and cash equivalents, beginning of year	122,797		525,187
Cash and cash equivalents, end of period	$	94,037	$	416,892
Supplemental Information:
Non-cash transactions:
Loans transferred to other real estate and repossessed assets	$	484	$	1,150
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan	1,753		683
Right of use assets obtained in exchange for lease obligations	2,495		116

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

6

1ST SOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Accounting Policies

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

Basis of Presentation – The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K (2022 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Statement of Financial Condition at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation.

Use of Estimates in the Preparation of Financial Statements – Financial statements prepared in accordance with GAAP require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

Loans and Leases – Loans are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. Interest income is accrued as earned based on unpaid principal balances. Origination fees and direct loan and lease origination costs are deferred, and the net amount amortized to interest income over the estimated life of the related loan or lease. Loan commitment fees are deferred and amortized into other income over the commitment period.

Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, net of unamortized deferred lease origination fees and costs and unearned income. Only those costs incurred as a direct result of closing a lease transaction are capitalized and all other initial direct costs are expensed immediately. Interest income on direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.

Accrued interest is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses. The accrual of interest on loans and leases is discontinued when a loan or lease becomes contractually delinquent for 90 days, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential mortgage loans and consumer loans that are well secured and in the process of collection. Residential mortgage loans are placed on nonaccrual at the time the loan is placed in foreclosure. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan and lease losses. However, in some cases, the Company may elect to continue the accrual of interest when the net realizable value of collateral is sufficient to cover the principal and accrued interest. When a loan or lease is classified as nonaccrual and the future collectability of the recorded loan or lease balance is doubtful, collections on interest and principal are applied as a reduction to principal outstanding. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, which is typically evidenced by a sustained repayment performance of at least six months.

Occasionally, the Company modifies loans and leases to borrowers in financial distress (typically denoted by internal credit quality graded “substandard” or worse) by providing term extensions, other-than-insignificant payment delays, or interest rate reductions. In some cases, a combination of modifications are made to the same loan or lease. These modifications typically result from the Company’s loss mitigation activities. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for loan and lease losses estimate or a charge-off to the allowance for loan and lease losses.

8

Note 2 — Recent Accounting Pronouncements

Investments-Equity Method and Joint Ventures: In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards (ASU) No. 2023-02 “Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company is assessing ASU 2023-02 and its impact on its accounting and disclosures.

Fair Value Measurements: In June 2022, the FASB issued ASU No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company has assessed ASU 2022-03 and does not expect it to have a material impact on its accounting and disclosures.

Reference Rate Reform: In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In December of 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company continues to implement its transition plan towards cessation of LIBOR and the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the LIBOR transition relief allowed under ASU 2020-04, ASU 2021-01 and ASU 2022-06, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures.

Note 3 — Investment Securities Available-For-Sale

The following table shows investment securities available-for-sale.

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2023
U.S. Treasury and Federal agencies securities	$	1,052,191	$	—	$	(76,970)	$	975,221
U.S. States and political subdivisions securities	114,237		412		(6,774)		107,875
Mortgage-backed securities — Federal agencies	702,499		35		(83,922)		618,612
Corporate debt securities	11,476		—		(281)		11,195
Foreign government and other securities	600		—		(23)		577
Total debt securities available-for-sale	$	1,881,003	$	447	$	(167,970)	$	1,713,480
December 31, 2022
U.S. Treasury and Federal agencies securities	$	1,090,743	$	—	$	(92,145)	$	998,598
U.S. States and political subdivisions securities	130,670		591		(8,499)		122,762
Mortgage-backed securities — Federal agencies	730,672		60		(93,674)		637,058
Corporate debt securities	16,486		—		(355)		16,131
Foreign government and other securities	600		—		(21)		579
Total debt securities available-for-sale	$	1,969,171	$	651	$	(194,694)	$	1,775,128

Amortized cost excludes accrued interest receivable which is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At March 31, 2023 and December 31, 2022, accrued interest receivable on investment securities available-for-sale was $4.88 million and $5.98 million, respectively.

At March 31, 2023 and December 31, 2022, the residential mortgage-backed securities held by the Company consisted primarily of GNMA, FNMA and FHLMC pass-through certificates which are guaranteed by those respective agencies of the United States government (Government Sponsored Enterprise, GSEs).

9

The following table shows the contractual maturities of investments in debt securities available-for-sale at March 31, 2023. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	96,181	$	94,493
Due after one year through five years	1,040,653		960,875
Due after five years through ten years	17,843		15,396
Due after ten years	23,827		24,104
Mortgage-backed securities	702,499		618,612
Total debt securities available-for-sale	$	1,881,003	$	1,713,480

The following table summarizes gross unrealized losses and fair value by investment category and age. At March 31, 2023, the Company’s available-for-sale securities portfolio consisted of 717 securities, 650 of which were in an unrealized loss position.

	Less than 12 Months				12 months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2023
U.S. Treasury and Federal agencies securities	$	14,465	$	(292)	$	960,756	$	(76,678)	$	975,221	$	(76,970)
U.S. States and political subdivisions securities	19,458		(331)		63,258		(6,443)		82,716		(6,774)
Mortgage-backed securities - Federal agencies	90,318		(2,945)		524,803		(80,977)		615,121		(83,922)
Corporate debt securities	3,317		(10)		7,878		(271)		11,195		(281)
Foreign government and other securities	—		—		577		(23)		577		(23)
Total debt securities available-for-sale	$	127,558	$	(3,578)	$	1,557,272	$	(164,392)	$	1,684,830	$	(167,970)
December 31, 2022
U.S. Treasury and Federal agencies securities	$	164,481	$	(6,299)	$	834,117	$	(85,846)	$	998,598	$	(92,145)
U.S. States and political subdivisions securities	57,592		(2,126)		38,834		(6,373)		96,426		(8,499)
Mortgage-backed securities - Federal agencies	198,469		(13,482)		426,989		(80,192)		625,458		(93,674)
Corporate debt securities	16,132		(355)		—		—		16,132		(355)
Foreign government and other securities	484		(16)		95		(5)		579		(21)
Total debt securities available-for-sale	$	437,158	$	(22,278)	$	1,300,035	$	(172,416)	$	1,737,193	$	(194,694)

The Company does not consider available-for-sale securities with unrealized losses at March 31, 2023 to be experiencing credit losses and recognized no resulting allowance for credit losses. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. The unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

The following table shows the gross realized gains and losses from the available-for-sale debt securities portfolio. Realized gains and losses of all securities are computed using the specific identification cost basis.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Gross realized gains	$	1,286	$	—
Gross realized losses	(1,330)		—
Net realized losses	$	(44)	$	—

At March 31, 2023 and December 31, 2022, investment securities available-for-sale with carrying values of $284.67 million and $282.87 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.

10

Note 4 — Loan and Lease Financings

The Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.

All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.

Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment.

Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three to seven years. These loans are typically further supported by personal guarantees. Commercial exposure is to a wide range of industries and services. Risks in this sector are also varied and are most impacted by general economic conditions. Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including SBA and FSA.

Solar – loans are for the purpose of financing solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the region east of the Rocky Mountains.

Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio predominantly consists of loans to borrowers in the auto rental and commercial auto leasing industries. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan amortizations are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three to seven years and match the underlying leases. Risks in both these segments include economic risks and collateral risks, principally used vehicle values.

Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three to four years of debt amortization to reach an equity position in the collateral.

Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten to fifteen years, and are generally guaranteed by individuals. The most significant risk in the Aircraft portfolio is collateral risk - volatility in underlying values and maintenance concerns. The portfolio is subject to national and global economic risks.

11

Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on the U.S. economy and the global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects.

Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate has been primarily to the less risky owner-occupied segment. The non-owner-occupied segment accounts for less than half of the commercial real estate portfolio and includes hotels, apartment complexes and warehousing facilities. There is limited exposure to construction loans. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio stem from geographical concentration in northern Indiana and southwest Michigan and general economic conditions.

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

Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten.

12

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of March 31, 2023 and gross charge-offs for the three months ended March 31, 2023.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	45,821	$	149,606	$	99,146	$	62,310	$	29,946	$	27,265	$	346,317	$	—	$	760,411
Grades 7-12	500		3,464		6,231		184		1,407		2,207		21,025		—		35,018
Total commercial and agricultural	46,321		153,070		105,377		62,494		31,353		29,472		367,342		—		795,429
Current period gross charge-offs	—		411		—		13		—		—		140		—		564
Solar
Grades 1-6	3,777		108,743		106,603		34,112		72,254		38,906		—		—		364,395
Grades 7-12	—		—		—		1,086		5,634		4,215		—		—		10,935
Total solar	3,777		108,743		106,603		35,198		77,888		43,121		—		—		375,330
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	190,009		455,563		127,423		47,856		26,206		11,049		—		—		858,106
Grades 7-12	888		5,487		1,540		4,940		2,264		2,339		—		—		17,458
Total auto and light truck	190,897		461,050		128,963		52,796		28,470		13,388		—		—		875,564
Current period gross charge-offs	—		—		25		5		19		63		—		—		112
Medium and heavy duty truck
Grades 1-6	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Grades 7-12	—		—		—		—		—		—		—		—		—
Total medium and heavy duty truck	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	26,669		425,103		255,143		201,937		53,072		61,214		5,865		—		1,029,003
Grades 7-12	2,502		11,362		7,059		5,896		—		1,007		—		—		27,826
Total aircraft	29,171		436,465		262,202		207,833		53,072		62,221		5,865		—		1,056,829
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Construction equipment
Grades 1-6	142,305		442,999		188,726		95,472		51,591		15,529		18,496		2,912		958,030
Grades 7-12	—		19,676		4,986		1,514		1,618		84		136		5,368		33,382
Total construction equipment	142,305		462,675		193,712		96,986		53,209		15,613		18,632		8,280		991,412
Current period gross charge-offs	—		—		1		—		—		—		—		—		1
Commercial real estate
Grades 1-6	51,163		256,208		162,337		117,541		95,078		254,145		336		—		936,808
Grades 7-12	38		1,969		1,695		7,630		5,057		1,024		—		—		17,413
Total commercial real estate	51,201		258,177		164,032		125,171		100,135		255,169		336		—		954,221
Current period gross charge-offs	—		39		—		—		—		—		—		—		39
Residential real estate and home equity
Performing	20,510		113,006		99,425		95,591		32,888		83,659		144,185		3,946		593,210
Nonperforming	—		—		—		—		414		729		190		75		1,408
Total residential real estate and home equity	20,510		113,006		99,425		95,591		33,302		84,388		144,375		4,021		594,618
Current period gross charge-offs	—		—		—		—		—		—		1		—		1
Consumer
Performing	15,137		67,476		30,376		10,658		5,797		2,578		14,471		—		146,493
Nonperforming	—		75		43		46		51		17		—		—		232
Total consumer	15,137		67,551		30,419		10,704		5,848		2,595		14,471		—		146,725
Current period gross charge-offs	$	112	$	174	$	30	$	1	$	4	$	—	$	3	$	—	$	324

13

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

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	159,317	$	107,232	$	71,365	$	35,874	$	17,192	$	13,860	$	370,553	$	—	$	775,393
Grades 7-12	4,491		5,934		60		2,094		1,644		1,040		21,375		—		36,638
Total commercial and agricultural	163,808		113,166		71,425		37,968		18,836		14,900		391,928		—		812,031
Solar
Grades 1-6	109,393		113,276		35,660		72,652		18,518		20,654		—		—		370,153
Grades 7-12	—		—		1,091		5,678		701		3,540		—		—		11,010
Total solar	109,393		113,276		36,751		78,330		19,219		24,194		—		—		381,163
Auto and light truck
Grades 1-6	521,399		155,508		62,063		32,975		10,946		3,476		—		—		786,367
Grades 7-12	5,972		3,366		5,836		2,836		1,792		1,948		—		—		21,750
Total auto and light truck	527,371		158,874		67,899		35,811		12,738		5,424		—		—		808,117
Medium and heavy duty truck
Grades 1-6	158,296		66,533		43,711		31,980		10,053		3,274		—		—		313,847
Grades 7-12	—		—		—		—		—		15		—		—		15
Total medium and heavy duty truck	158,296		66,533		43,711		31,980		10,053		3,289		—		—		313,862
Aircraft
Grades 1-6	438,481		273,726		213,661		57,379		31,085		35,012		3,687		—		1,053,031
Grades 7-12	12,962		4,253		6,190		—		—		1,286		—		—		24,691
Total aircraft	451,443		277,979		219,851		57,379		31,085		36,298		3,687		—		1,077,722
Construction equipment
Grades 1-6	475,854		213,349		106,409		59,204		17,834		4,593		23,310		2,754		903,307
Grades 7-12	20,709		7,757		2,483		1,878		313		32		583		1,441		35,196
Total construction equipment	496,563		221,106		108,892		61,082		18,147		4,625		23,893		4,195		938,503
Commercial real estate
Grades 1-6	271,526		164,173		121,685		97,470		102,271		168,391		251		—		925,767
Grades 7-12	1,532		1,716		7,824		5,789		47		1,070		—		—		17,978
Total commercial real estate	273,058		165,889		129,509		103,259		102,318		169,461		251		—		943,745
Residential real estate and home equity
Performing	115,154		100,690		97,205		34,498		6,864		81,653		142,724		4,115		582,903
Nonperforming	—		131		693		—		—		725		180		105		1,834
Total residential real estate and home equity	115,154		100,821		97,898		34,498		6,864		82,378		142,904		4,220		584,737
Consumer
Performing	74,258		34,619		12,924		7,375		2,977		692		18,098		—		150,943
Nonperforming	148		65		49		53		12		12		—		—		339
Total consumer	74,406		34,684		12,973		7,428		2,989		704		18,098		—		151,282

14

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing  Loans		Nonaccrual		Total Financing Receivables
March 31, 2023
Commercial and agricultural	$	793,509	$	836	$	—	$	—	$	794,345	$	1,084	$	795,429
Solar	375,330		—		—		—		375,330		—		375,330
Auto and light truck	865,316		32		—		—		865,348		10,216		875,564
Medium and heavy duty truck	326,588		—		—		—		326,588		—		326,588
Aircraft	1,055,282		—		1,007		—		1,056,289		540		1,056,829
Construction equipment	989,525		340		—		—		989,865		1,547		991,412
Commercial real estate	951,111		51		—		—		951,162		3,059		954,221
Residential real estate and home equity	592,464		623		123		24		593,234		1,384		594,618
Consumer	146,035		390		68		—		146,493		232		146,725
Total	$	6,095,160	$	2,272	$	1,198	$	24	$	6,098,654	$	18,062	$	6,116,716
December 31, 2022
Commercial and agricultural	$	810,223	$	944	$	—	$	—	$	811,167	$	864	$	812,031
Solar	381,163		—		—		—		381,163		—		381,163
Auto and light truck	793,610		353		1		—		793,964		14,153		808,117
Medium and heavy duty truck	313,845		—		2		—		313,847		15		313,862
Aircraft	1,075,865		223		1,063		—		1,077,151		571		1,077,722
Construction equipment	932,603		431		—		—		933,034		5,469		938,503
Commercial real estate	940,516		—		—		—		940,516		3,229		943,745
Residential real estate and home equity	582,053		562		288		49		582,952		1,785		584,737
Consumer	150,328		416		199		5		150,948		334		151,282
Total	$	5,980,206	$	2,929	$	1,553	$	54	$	5,984,742	$	26,420	$	6,011,162

Accrued interest receivable on loans and leases at March 31, 2023 and December 31, 2022 was $19.82 million and $18.75 million, respectively.

Loan Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans and leases at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		% of Total Segment Financing Receivables
Commercial and agricultural	$	—	$	752	$	—	$	—	0.09	%
Construction equipment	—		3,912		—		—		0.39
Commercial real estate	—		—		511		—		0.05
Total	$	—	$	4,664	$	511	$	—	0.08	%

There were no commitments to lend additional amounts to the borrowers included in the previous table.

15

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three months ended March 31, 2023.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
Commercial and agricultural	$	752	$	—	$	—	$	—	$	—
Construction equipment	3,912		—		—		—		—
Commercial real estate	511		—		—		—		—
Total	$	5,175	$	—	$	—	$	—	$	—

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

	Weighted- Average Interest Rate Reduction		Weighted- Average Term Extension (in months)
Commercial and agricultural	—	%	3
Construction equipment	—	%	5
Commercial real estate	3.00	%	—
Total	3.00	%	4

There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

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

There were no loan and lease modifications classified as a TDR during the three months ended March 31, 2022. The classification between nonperforming and performing is determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months ended March 31, 2022 that resulted in an interest rate below market rate.

There were no TDRs which had a payment default within the twelve months following modification during the three months ended March 31, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

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

(Dollars in thousands)	December 31, 2022
Performing TDRs	$	—
Nonperforming TDRs	3,640
Total TDRs	$	3,640

16

Note 5 — Allowance for Credit Losses

Allowance for Loan and Lease Losses

The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326. The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.

The Company categorizes its loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either: 1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended March 31, 2023 and 2022.

(Dollars in thousands)	Commercial and agricultural		Solar		Auto and light truck		Medium and heavy duty truck		Aircraft		Construction equipment		Commercial real estate		Residential real estate and home equity		Consumer		Total
March 31, 2023
Balance, beginning of period	$	14,635	$	7,217	$	18,634	$	7,566	$	41,093	$	24,039	$	17,431	$	6,478	$	2,175	$	139,268
Charge-offs	564		—		112		—		—		1		39		1		324		1,041
Recoveries	172		—		541		—		226		—		3		233		60		1,235
Net charge-offs (recoveries)	392		—		(429)		—		(226)		1		36		(232)		264		(194)
Provision (recovery of provision)	1,844		(929)		(505)		263		(1,186)		1,541		1,905		(89)		205		3,049
Balance, end of period	$	16,087	$	6,288	$	18,558	$	7,829	$	40,133	$	25,579	$	19,300	$	6,621	$	2,116	$	142,511
March 31, 2022
Balance, beginning of period	$	15,409	$	6,585	$	19,624	$	6,015	$	33,628	$	19,673	$	19,691	$	5,084	$	1,783	$	127,492
Charge-offs	—		—		—		—		—		48		—		4		165		217
Recoveries	4		—		65		—		316		—		—		1		65		451
Net charge-offs (recoveries)	(4)		—		(65)		—		(316)		48		—		3		100		(234)
Provision (recovery of provision)	185		(168)		(168)		34		2,024		416		(445)		137		218		2,233
Balance, end of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959

The allowance for credit losses increased during the quarter in response to loan growth along with an increase to the forecast adjustment. Broader market liquidity concerns and tightening credit conditions have added additional uncertainty and increased downside risks in the forecast period. Ongoing risks include a weakened domestic GDP outlook, persistent inflation, higher interest rates, and continued geopolitical uncertainty. Credit quality metrics remain relatively stable as evidenced by a modest decline in total special attention credit outstandings during the quarter and continued low delinquency rates. Charge-off activity during the quarter was offset with an uptick in recoveries leading to a net recovery position for the period. Total special attention balances were down slightly, but downgrades within the special attention pool during the quarter indicate some additional credit risk within the problem loan pool.

Commercial and agricultural – the increase in the allowance during the quarter was principally due to a change in mix within the commercial special attention pool towards higher risk rated loans which carry higher loss ratios along with the impact of the forecast adjustment.

Solar – the allowance decreased due to a decline in outstanding loan balances during the quarter. Credit quality is stable.

Auto and light truck – the allowance reported minimal change as continued growth in the auto rental and leasing sectors was offset by a decline in loan outstandings in higher risk sectors of the portfolio.

Medium and heavy duty truck – the allowance increased due to higher loan outstandings during the quarter. Credit quality metrics continue to be strong for this portfolio. Energy price volatility and driver availability remain a challenge.

Aircraft – the allowance decreased due to lower loan outstandings in both the domestic and foreign sectors. The portfolio is currently bolstered by strong collateral values somewhat offset by continuing economic concerns related primarily to Latin American-based foreign loans. The Company has historically carried a higher allowance in this portfolio due to risk volatility.

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Construction equipment – the allowance increased primarily due to strong loan growth in the portfolio.

Commercial real estate – the allowance increased during the quarter due to loan growth along with the impact of the forecast adjustment.

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

Consumer – the allowance decreased slightly due to lower loan outstandings during the period.

Economic Outlook

As of March 31, 2023, the most significant economic factors impacting the Company’s loan portfolios are a weakened domestic growth outlook, exacerbated by persistent inflation, higher interest rates and the protracted war in Ukraine and resultant increased geopolitical uncertainty. Recent market liquidity events have added uncertainty and the Company is concerned about the impact of tighter credit conditions on the economy and the effect that may have on future economic growth. The forecast considers global and domestic economic impacts from these factors as well as other key economic factors such as change in gross domestic product and unemployment which may impact the Company’s clients. The Company’s assumption was that economic growth will slow markedly in 2023 and 2024 and inflation will remain well above the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years.

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

Liability for Credit Losses on Unfunded Loan Commitments

The liability for credit losses inherent in unfunded loan commitments is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition. The following table shows the changes in the liability for credit losses on unfunded loan commitments.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Balance, beginning of period	$	5,616	$	4,196
Provision	1,035		728
Balance, end of period	$	6,651	$	4,924

Note 6 — Lease Investments

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Solar, Auto and Light Truck, Medium and Heavy Duty Truck, Aircraft, and Construction Equipment on the Consolidated Statements of Financial Condition. The Company also finances various types of construction equipment, medium and heavy duty trucks, automobiles and other equipment under leases classified as operating leases, which are included in Equipment Owned Under Operating Leases, net, on the Consolidated Statements of Financial Condition.

The following table shows interest income recognized from direct finance lease payments and operating lease equipment rental income and related depreciation expense.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Direct finance leases:
Interest income on lease receivable	$	3,121	$	1,781
Operating leases:
Income related to lease payments	$	2,503	$	3,662
Depreciation expense	2,022		3,015

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three months ended March 31, 2023 and 2022 was $0.22 million and $0.20 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three months ended March 31, 2023 and 2022 was $0.22 million and $0.20 million, respectively.

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Note 7 — Mortgage Servicing Rights

The Company recognizes the rights to service residential mortgage loans for others as separate assets, whether the servicing rights are acquired through a separate purchase or through the sale of originated loans with servicing rights retained. The Company allocates a portion of the total proceeds of a mortgage loan to servicing rights based on the relative fair value. The unpaid principal balance of residential mortgage loans serviced for third parties was $838.24 million and $848.96 million at March 31, 2023 and December 31, 2022, respectively.

Mortgage servicing rights (MSRs) are evaluated for impairment at each reporting date. For purposes of impairment measurement, MSRs are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type. If temporary impairment exists within a tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced through a recovery of income.

The following table shows changes in the carrying value of MSRs and the associated valuation allowance.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Mortgage servicing rights:
Balance at beginning of period	$	4,137	$	4,671
Additions	91		335
Amortization	(221)		(381)
Carrying value before valuation allowance at end of period	4,007		4,625
Valuation allowance:
Balance at beginning of period	—		—
Impairment recoveries	—		—
Balance at end of period	$	—	$	—
Net carrying value of mortgage servicing rights at end of period	$	4,007	$	4,625
Fair value of mortgage servicing rights at end of period	$	8,053	$	6,363

At March 31, 2023 and 2022, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $4.05 million and $1.74 million, respectively. This difference represents increases in the fair value of certain MSRs that could not be recorded above cost basis.

Mortgage loan contractual servicing fees, including late fees and ancillary income, were $0.66 million and $0.72 million for the three months ended March 31, 2023 and 2022, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking on the Consolidated Statements of Income.

Note 8 — Commitments and Financial Instruments with Off-Balance-Sheet Risk

Financial Instruments with Off-Balance-Sheet Risk — 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

The following table shows financial instruments whose contract amounts represent credit risk.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Amounts of commitments:
Loan commitments to extend credit	$	1,303,869	$	1,234,866
Standby letters of credit	$	17,782	$	18,055
Commercial and similar letters of credit	$	1,960	$	2,368

The exposure to credit loss in the event of nonperformance by the other party to the financial instruments for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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The Company grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments that guarantee the performance of a client to a third party. The credit risk involved in and collateral obtained when issuing standby letters of credit is essentially the same as that involved in extending loan commitments to clients. Standby letters of credit generally have terms ranging from two months to one year.

Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. Commercial letters of credit generally have terms ranging from two months to six months.

Note 9 — Derivative Financial Instruments

Commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments. See Note 8 for further information.

The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Statements of Financial Condition and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations.

The following table shows the amounts of non-hedging derivative financial instruments.

			Asset derivatives			Liability derivatives
(Dollars in thousands)	Notional or contractual amount		Statement of Financial Condition classification	Fair value		Statement of Financial Condition classification	Fair value
March 31, 2023
Interest rate swap contracts	$	866,390	Other assets	$	19,724	Other liabilities	$	20,094
Loan commitments	3,495		Mortgages held for sale	92		N/A	—
Forward contracts - mortgage loan	4,000		N/A	—		Mortgages held for sale	16
Total	$	873,885		$	19,816		$	20,110
December 31, 2022
Interest rate swap contracts	$	881,600	Other assets	$	24,838	Other liabilities	$	25,307
Loan commitments	2,638		Mortgages held for sale	67		N/A	—
Forward contracts - mortgage loan	3,750		Mortgages held for sale	24		N/A	—
Total	$	887,988		$	24,929		$	25,307

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The following table shows the amounts included in the Consolidated Statements of Income for non-hedging derivative financial instruments.

		Gain (loss)
		Three Months Ended March 31,
(Dollars in thousands)	Statement of Income classification	2023		2022
Interest rate swap contracts	Other expense	$	99	$	237
Interest rate swap contracts	Other income	195		—
Loan commitments	Mortgage banking	25		(165)
Forward contracts - mortgage loan	Mortgage banking	(40)		211
Total		$	279	$	283

The following table shows the offsetting of financial assets and derivative assets.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
March 31, 2023
Interest rate swaps	$	19,724	$	—	$	19,724	$	—	$	20,155	$	(431)
December 31, 2022
Interest rate swaps	$	24,838	$	—	$	24,838	$	—	$	25,295	$	(457)

The following table shows the offsetting of financial liabilities and derivative liabilities.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2023
Interest rate swaps	$	20,094	$	—	$	20,094	$	—	$	—	$	20,094
Repurchase agreements	73,396		—		73,396		73,396		—		—
Total	$	93,490	$	—	$	93,490	$	73,396	$	—	$	20,094
December 31, 2022
Interest rate swaps	$	25,307	$	—	$	25,307	$	—	$	—	$	25,307
Repurchase agreements	141,432		—		141,432		141,432		—		—
Total	$	166,739	$	—	$	166,739	$	141,432	$	—	$	25,307

If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against obligations owing in respect of any other transactions. At March 31, 2023 and December 31, 2022, repurchase agreements had a remaining contractual maturity of $70.71 million and $138.08 million in overnight and $2.69 million and $3.35 million in up to 30 days, respectively and were collateralized by U.S. Treasury and Federal agencies securities.

Note 10 — Variable Interest Entities

A variable interest entity (VIE) is a partnership, limited liability company, trust or other legal entity that meets any one of the following criteria:

•The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party.

•The entity’s investors lack the power to direct the activities that most significantly affect the entity’s economic performance.

•The entity’s at-risk holders do not have the obligation to absorb the losses or the right to receive residual returns.

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•The voting rights of some investors are not proportional to their economic interests in the entity, and substantially all of the entity’s activities involve, or are conducted on behalf of, investors with disproportionately few voting rights.

The Company is involved in various entities that are considered to be VIEs. The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. Tax credits from affordable housing investments and community development investments are recognized as a reduction of tax expense. Investments in renewable energy sources qualify for investment tax credits which are recognized as a reduction to the related investment asset. The Company recognized federal income tax credits related to its affordable housing and community development tax-advantaged investments in tax expense of $0.66 million and $0.50 million for the three months ended March 31, 2023 and 2022, respectively. The Company also recognized $17.49 million and $0.00 million of investment tax credits for the three months ended March 31, 2023 and 2022, respectively.

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. As a limited partner in these operating partnerships, the Company is allocated credits and deductions associated with the underlying properties. The Company has determined that it is not the primary beneficiary of these investments because the general partners have the power to direct activities that most significantly influence the economic performance of their respective partnerships.

The Company’s investments in these unconsolidated VIEs are carried in Other Assets on the Consolidated Statements of Financial Condition. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in Other Liabilities on the Consolidated Statements of Financial Condition. The Company’s maximum exposure to loss from these unconsolidated VIEs includes the investment recorded on the Company’s Consolidated Statements of Financial Condition, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business, housing projects and renewable energy projects completely fail and do not meet certain taxing authority compliance requirements resulting in recapture of the related tax credits.

The following table provides a summary of investments in affordable housing, community development and renewable energy VIEs that the Company has not consolidated.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Investment carrying amount	$	53,691	$	70,887
Unfunded capital and other commitments	62,097		64,520
Maximum exposure to loss	45,302		45,020

The Company is required to consolidate VIEs in which it has concluded it has significant involvement in and the ability to direct the activities that impact the entity’s economic performance. The Company is the managing general partner of entities to which it shares interest in tax-advantaged investments with third parties. At March 31, 2023 and December 31, 2022, approximately $65.79 million and $66.26 million, respectively, of the Company’s assets and $0.00 million and $0.00 million, respectively, of its liabilities included on the Consolidated Statements of Financial Condition were related to tax-advantaged investment VIEs which the Company has consolidated, respectively. The assets of the consolidated VIEs are reported in Other Assets, the liabilities are reported in Other Liabilities and the non-controlling interest is reported in Equity on the Consolidated Statements of Financial Condition. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIE do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIE is generally limited to the carrying value of its variable interest plus any related tax credits previously recognized.

Additionally, the Company sponsors one trust, 1st Source Master Trust (Capital Trust) of which 100% of the common equity is owned by the Company. The Capital Trust was formed in 2007 for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the capital securities) to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debenture securities of the Company (the subordinated notes). The subordinated notes held by the Capital Trust are the sole assets of the Capital Trust. The Capital Trust qualifies as a variable interest entity for which the Company is not the primary beneficiary and is therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes on the Consolidated Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense on the Consolidated Statements of Income. The common shares issued by the Capital Trust are included in Other Assets on the Consolidated Statements of Financial Condition.

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Distributions on the capital securities issued by the Capital Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Capital Trust on the subordinated notes held by the Capital Trust. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated notes. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the Capital Trust qualify as Tier 1 capital under Federal Reserve Board guidelines.

The following table shows subordinated notes at March 31, 2023.

(Dollars in thousands)	Amount of Subordinated Notes		Interest Rate		Maturity Date
June 2007 issuance (1)	$	41,238	7.22	%	6/15/2037
August 2007 issuance (2)	17,526		6.35	%	9/15/2037
Total	$	58,764

(1) Fixed rate through life of debt.

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

Note 11 — Earnings Per Share

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards. Non-vested restricted stock awards are considered participating securities to the extent the holders of these securities receive non-forfeitable dividends at the same rate as holders of common stock. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Stock options, where the exercise price was greater than the average market price of the common shares, were excluded from the computation of diluted earnings per common share because the result would have been antidilutive. There were no stock options outstanding as of March 31, 2023 and 2022. The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share.

	Three Months Ended March 31,
(Dollars in thousands - except per share amounts)	2023		2022
Distributed earnings allocated to common stock	$	7,892	$	7,672
Undistributed earnings allocated to common stock	22,977		19,516
Net earnings allocated to common stock	30,869		27,188
Net earnings allocated to participating securities	255		202
Net income allocated to common stock and participating securities	$	31,124	$	27,390
Weighted average shares outstanding for basic earnings per common share	24,687,087		24,743,790
Dilutive effect of stock compensation	—		—
Weighted average shares outstanding for diluted earnings per common share	24,687,087		24,743,790
Basic earnings per common share	$	1.25	$	1.10
Diluted earnings per common share	$	1.25	$	1.10

Note 12 — Stock Based Compensation

As of March 31, 2023, the Company had four active stock-based employee compensation plans, which are more fully described in Note 16 of the Consolidated Financial Statements in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2022. These plans include three executive stock award plans, the Executive Incentive Plan (EIP), the Restricted Stock Award Plan (RSAP), the Strategic Deployment Incentive Plan (SDP); and the Employee Stock Purchase Plan (ESPP). The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011 but the Company had not made any grants through March 31, 2023.

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Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value. For all awards except stock option awards, the grant date fair value is either the fair market value per share or book value per share (corresponding to the type of stock awarded) as of the grant date. For stock option awards, the grant date fair value is estimated using the Black-Scholes option pricing model. For all awards, the Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, for which the Company uses the related vesting term.

Total fair value of options vested and expensed was zero for the three months ended March 31, 2023 and 2022. As of March 31, 2023 and 2022 there were no outstanding stock options. There were no stock options exercised during the three months ended March 31, 2023 and 2022. All shares issued in connection with stock option exercises are issued from available treasury stock.

As of March 31, 2023, there was $12.66 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 3.72 years.

Note 13 — Accumulated Other Comprehensive Loss

The following table presents reclassifications out of accumulated other comprehensive income (loss) related to unrealized gains and losses on available-for-sale securities.

	Three Months Ended March 31,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2023		2022
Realized losses included in net income	$	(44)	$	—	Losses on investment securities available-for-sale
	(44)		—		Income before income taxes
Tax effect	10		—		Income tax expense
Net of tax	$	(34)	$	—	Net income

Note 14 — Income Taxes

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was zero at March 31, 2023 and December 31, 2022. Interest and penalties are recognized through the income tax provision. For the three months ended March 31, 2023 and 2022, the Company recognized no interest or penalties. There were no accrued interest and penalties at March 31, 2023 and December 31, 2022.

Tax years that remain open and subject to audit include the federal 2019-2022 years and the Indiana 2019-2022 years. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.

Note 15 — Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are also utilized to determine the initial value of certain assets and liabilities, to perform impairment assessments, and for disclosure purposes. The Company uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market prices, various valuation techniques are utilized to measure fair value. When possible, observable market data for identical or similar financial instruments is used in the valuation. When market data is not available, fair value is determined using valuation models that incorporate management’s estimates of the assumptions a market participant would use in pricing the asset or liability.

Fair value measurements are classified within one of three levels based on the observability of the inputs used to determine fair value, as follows:

•Level 1 — The valuation is based on quoted prices in active markets for identical instruments.

•Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•Level 3 — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company elected fair value accounting for mortgages held for sale and for its best-efforts forward sales commitments. The Company economically hedges its mortgages held for sale at the time the interest rate locks are issued to the customers. The Company believes the election for mortgages held for sale will reduce certain timing differences and better match changes in the value of these assets with changes in the value of derivatives or best-best efforts forward sales commitments. At March 31, 2023 and December 31, 2022, all mortgages held for sale were carried at fair value.

The following table shows the differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount the Company is contractually entitled to receive at maturity.

(Dollars in thousands)	Fair value  carrying amount		Aggregate unpaid principal		Excess of fair value carrying amount over (under) unpaid principal
March 31, 2023
Mortgages held for sale reported at fair value	$	2,068	$	1,944	$	124	(1)
December 31, 2022
Mortgages held for sale reported at fair value	$	3,914	$	3,766	$	148	(1)

(1)The excess of fair value carrying amount over (under) unpaid principal is included in mortgage banking income and includes changes in fair value at and subsequent to funding and gains and losses on the related loan commitment prior to funding.

Financial Instruments on Recurring Basis:

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis:

Investment securities available-for-sale are valued primarily by a third party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies and assumptions, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market levels. In general, the Company’s investment securities do not possess a complex structure that could introduce greater valuation risk. The portfolio mainly consists of traditional investments including U.S. Treasury and Federal agencies securities, Federal agency mortgage pass-through securities, and general obligation and revenue municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to prices obtained from other third party sources for a material portion of the portfolio.

The valuation policy and procedures for Level 3 fair value measurements of available-for-sale debt securities are decided through collaboration between management of the Corporate Accounting and Funds Management departments. The changes in fair value measurement for Level 3 securities are analyzed on a periodic basis under a collaborative framework with the aforementioned departments. The methodology and variables used for input are derived from the combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

Both the market and income valuation approaches are implemented using the following types of inputs:

•U.S. treasuries are priced using the market approach and utilizing live data feeds from active market exchanges for identical securities.

•Government-sponsored agency debt securities and corporate bonds are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.

•Other government-sponsored agency securities, mortgage-backed securities and some of the actively traded REMICs and CMOs, are primarily priced using available market information including benchmark yields, prepayment speeds, spreads and volatility of similar securities.

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•State and political subdivisions are largely grouped by characteristics, i.e., geographical data and source of revenue in trade dissemination systems. Since some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. Local direct placement municipal securities, with very little market activity, are priced using an appropriate market yield curve, which includes a credit spread assumption.

Mortgages held for sale and the related loan commitments and forward contracts (hedges) are valued by a third party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market values. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to the prices obtained from other third party sources.

Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters. This valuation process considers various factors including interest rate yield curves, time value and volatility factors. Validation of third party agent valuations is accomplished by comparing those values to the Company’s swap counterparty valuations. Management believes an adjustment is required to “mid-market” valuations for derivatives tied to its performing loan portfolio to recognize the imprecision and related exposure inherent in the process of estimating expected credit losses as well as velocity of deterioration evident with systemic risks embedded in these portfolios. Any change in the mid-market derivative valuation adjustment will be recognized immediately through the Consolidated Statements of Income.

The following table shows the balance of assets and liabilities measured at fair value on a recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	548,587	$	426,634	$	—	$	975,221
U.S. States and political subdivisions securities	—		103,554		4,321		107,875
Mortgage-backed securities — Federal agencies	—		618,612		—		618,612
Corporate debt securities	—		11,195		—		11,195
Foreign government and other securities	—		577		—		577
Total debt securities available-for-sale	548,587		1,160,572		4,321		1,713,480
Mortgages held for sale	—		2,068		—		2,068
Accrued income and other assets (interest rate swap agreements)	—		19,724		—		19,724
Total	$	548,587	$	1,182,364	$	4,321	$	1,735,272
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	20,094	$	—	$	20,094
Total	$	—	$	20,094	$	—	$	20,094
December 31, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	573,679	$	424,919	$	—	$	998,598
U.S. States and political subdivisions securities	—		121,298		1,464		122,762
Mortgage-backed securities — Federal agencies	—		637,058		—		637,058
Corporate debt securities	—		16,131		—		16,131
Foreign government and other securities	—		579		—		579
Total debt securities available-for-sale	573,679		1,199,985		1,464		1,775,128
Mortgages held for sale	—		3,914		—		3,914
Accrued income and other assets (interest rate swap agreements)	—		24,838		—		24,838
Total	$	573,679	$	1,228,737	$	1,464	$	1,803,880
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	25,307	$	—	$	25,307
Total	$	—	$	25,307	$	—	$	25,307

26

The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the quarter ended March 31, 2023 and 2022.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance January 1, 2023	$	1,464
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	32
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(175)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2023	$	4,321
Beginning balance January 1, 2022	$	1,849
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(155)
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(165)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2022	$	4,529

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023 or 2022.

The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring basis.

(Dollars in thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Debt securities available-for sale
Direct placement municipal securities	$	4,321	Discounted cash flows	Credit spread assumption	3.49% - 4.59%	3.68	%
December 31, 2022
Debt securities available-for sale
Direct placement municipal securities	$	1,464	Discounted cash flows	Credit spread assumption	0.22% - 4.09%	3.49	%

Financial Instruments on Non-recurring Basis:

The Company may be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets.

27

The Credit Policy Committee (CPC), a management committee, is responsible for overseeing the valuation processes and procedures for Level 3 measurements of impaired loans, other real estate and repossessions. The CPC reviews these assets on a quarterly basis to determine the accuracy of the observable inputs, generally third party appraisals, auction values, values derived from trade publications and data submitted by the borrower, and the appropriateness of the unobservable inputs, generally discounts due to current market conditions and collection issues. The CPC establishes discounts based on asset type and valuation source; deviations from the standard are documented. The discounts are reviewed periodically, annually at a minimum, to determine they remain appropriate. Consideration is given to current trends in market values for the asset categories and gains and losses on sales of similar assets. The Loan and Funds Management Committee of the Board of Directors is responsible for overseeing the CPC.

Discounts vary depending on the nature of the assets and the source of value. Aircraft are generally valued using quarterly trade publications adjusted for engine time, condition, maintenance programs, discounted by 10%. Likewise, autos are valued using current auction values, discounted by 10%; medium and heavy duty trucks are valued using trade publications and auction values, discounted by 15%. Construction equipment is generally valued using trade publications and auction values, discounted by 20%. Real estate is valued based on appraisals or evaluations, discounted by 20% with higher discounts for property in poor condition or property with characteristics which may make it more difficult to market. Commercial loans subject to borrowing base certificates are generally discounted by 20% for receivables and 40% - 75% for inventory with higher discounts when monthly borrowing base certificates are not required or received.

Collateral-dependent impaired loans and related write-downs are based on the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are reviewed quarterly and estimated using customized discounting criteria, appraisals and dealer and trade magazine quotes which are used in a market valuation approach. In accordance with fair value measurements, only impaired loans for which an allowance for loan loss has been established based on the fair value of collateral require classification in the fair value hierarchy. As a result, only a portion of the Company’s impaired loans are classified in the fair value hierarchy.

The Company has established MSRs valuation policies and procedures based on industry standards and to ensure valuation methodologies are consistent and verifiable. MSRs and related adjustments to fair value result from application of lower of cost or fair value accounting. For purposes of impairment, MSRs are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type. The fair value of each tranche of the servicing portfolio is estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors. Prepayment rates and discount rates are derived through a third party pricing agent. Changes in the most significant inputs, including prepayment rates and discount rates, are compared to the changes in the fair value measurements and appropriate resolution is made. A fair value analysis is also obtained from an independent third party agent and compared to the internal valuation for reasonableness. MSRs do not trade in an active, open market with readily observable prices and though sales of MSRs do occur, precise terms and conditions typically are not readily available and the characteristics of the Company’s servicing portfolio may differ from those of any servicing portfolios that do trade.

Other real estate is based on the fair value of the underlying collateral less expected selling costs. Collateral values are estimated primarily using appraisals and reflect a market value approach. Fair values are reviewed quarterly, and new appraisals are obtained annually. Repossessions are similarly valued.

For assets measured at fair value on a nonrecurring basis the following represents impairment charges (recoveries) recognized on these assets during the quarter ended March 31, 2023: collateral-dependent impaired loans - $0.00 million; mortgage servicing rights - $0.00 million; repossessions - $0.00 million; and other real estate - $0.00 million.

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The following table shows the carrying value of assets measured at fair value on a non-recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Collateral-dependent impaired loans	$	—	$	—	$	213	$	213
Accrued income and other assets (mortgage servicing rights)	—		—		4,007		4,007
Accrued income and other assets (repossessions)	—		—		445		445
Accrued income and other assets (other real estate)	—		—		117		117
Total	$	—	$	—	$	4,782	$	4,782
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	$	—	$	—
Accrued income and other assets (mortgage servicing rights)	—		—		4,137		4,137
Accrued income and other assets (repossessions)	—		—		327		327
Accrued income and other assets (other real estate)	—		—		104		104
Total	$	—	$	—	$	4,568	$	4,568

The following table below shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a non-recurring basis.

(Dollars in thousands)	Carrying Value		Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Collateral-dependent impaired loans	$	213	$	213	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	10% - 30%	27.6	%
Mortgage servicing rights	4,007		8,053		Discounted cash flows	Constant prepayment rate (CPR)	7.3% - 12.7%	7.9	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	445		487		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	5	%
Other real estate	117		117		Appraisals	Discount for lack of marketability	0% - 0%	0	%
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	0% - 0%	0.0	%
Mortgage servicing rights	4,137		8,007		Discounted cash flows	Constant prepayment rate (CPR)	7.6% - 9.6%	8.2	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	327		370		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	7	%
Other real estate	104		104		Appraisals	Discount for lack of marketability	0% - 0%	0	%

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

29

The following table shows the fair values of the Company’s financial instruments.

(Dollars in thousands)	Carrying or Contract Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2023
Assets:
Cash and due from banks	$	66,866	$	66,866	$	66,866	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	27,171		27,171		27,171		—		—
Investment securities, available-for-sale	1,713,480		1,713,480		548,587		1,160,572		4,321
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	2,068		2,068		—		2,068		—
Loans and leases, net of allowance for loan and lease losses	5,974,205		5,839,491		—		—		5,839,491
Mortgage servicing rights	4,007		8,053		—		—		8,053
Accrued interest receivable	24,872		24,872		—		24,872		—
Interest rate swaps	19,724		19,724		—		19,724		—
Liabilities:
Deposits	$	6,801,464	$	6,787,043	$	5,390,359	$	1,396,684	$	—
Short-term borrowings	303,036		303,036		71,856		231,180		—
Long-term debt and mandatorily redeemable securities	46,714		45,471		—		45,471		—
Subordinated notes	58,764		53,297		—		53,297		—
Accrued interest payable	13,598		13,598		—		13,598		—
Interest rate swaps	20,094		20,094		—		20,094		—
Off-balance-sheet instruments *	—		99		—		99		—
December 31, 2022
Assets:
Cash and due from banks	$	84,703	$	84,703	$	84,703	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	38,094		38,094		38,094		—		—
Investment securities, available-for-sale	1,775,128		1,775,128		573,679		1,199,985		1,464
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	3,914		3,914		—		3,914		—
Loans and leases, net of allowance for loan and lease losses	5,871,894		5,712,972		—		—		5,712,972
Mortgage servicing rights	4,137		8,007		—		—		8,007
Accrued interest receivable	24,747		24,747		—		24,747		—
Interest rate swaps	24,838		24,838		—		24,838		—
Liabilities:
Deposits	$	6,928,265	$	6,909,392	$	5,787,806	$	1,121,586	$	—
Short-term borrowings	215,529		215,529		139,079		76,450		—
Long-term debt and mandatorily redeemable securities	46,555		45,111		—		45,111		—
Subordinated notes	58,764		51,398		—		51,398		—
Accrued interest payable	5,999		5,999		—		5,999		—
Interest rate swaps	25,307		25,307		—		25,307		—
Off-balance-sheet instruments *	—		108		—		108		—

* Represents estimated cash outflows required to currently settle the obligations at current market rates.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. These estimates are subjective in nature and require considerable judgment to interpret market data. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange, nor are they intended to represent the fair value of the Company as a whole. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of the respective balance sheet date. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.

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Other significant assets, such as premises and equipment, other assets, and liabilities not defined as financial instruments, are not included in the above disclosures. Also, the fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis is presented to provide information concerning 1st Source Corporation and its subsidiaries’ (collectively referred to as “the Company”, “we”, and “our”) financial condition as of March 31, 2023, as compared to December 31, 2022, and the results of operations for the three months ended March 31, 2023 and 2022. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2022 Annual Report.

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,” “hope,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such 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. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors include, but are not limited to, changes in law, regulations or GAAP; our competitive position within the markets we serve; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen changes in loan prepayment assumptions; unforeseen downturns in or major events affecting the local, regional or national economies or the industries in which we have credit concentrations; potential impacts of the COVID-19 pandemic; and other matters discussed in our filings with the SEC, including our Annual Report on Form 10-K  for 2022, which filings are available from the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

FINANCIAL CONDITION

Our total assets at March 31, 2023 were $8.33 billion, a decrease of $9.61 million or 0.12% from December 31, 2022. Total investment securities available-for-sale were $1.71 billion, a decrease of $61.65 million or 3.47% from December 31, 2022. The largest contributor to the decrease in investment securities available-for-sale was securities sales during the first quarter to support liquidity and fund loan growth. Federal funds sold and interest bearing deposits with other banks were $27.17 million, a decrease of $10.92 million or 28.67% from December 31, 2022. The decrease in federal funds sold and interest bearing deposits with other banks was due to lower interest bearing deposits at other banks which were used to fund loan growth.

Total loans and leases were $6.12 billion, an increase of $105.55 million or 1.76% from December 31, 2022. The largest contributors to the increase in loans and leases was growth in the auto and light truck and construction equipment portfolios. Our foreign loan and lease balances, all denominated in U.S. dollars were $294.76 million and $297.46 million as of March 31, 2023 and December 31, 2022, respectively. Foreign loans and leases are in aircraft financing. Loan and lease balances to borrowers in Brazil and Mexico were $131.13 million and $135.23 million as of March 31, 2023, respectively, compared to $129.98 million and $136.68 million as of December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022 there was not a significant concentration in any other country.

Equipment owned under operating leases was $30.08 million, a decrease of $1.62 million, or 5.10% compared to December 31, 2022. The largest contributor to the decrease in equipment owned under operating leases was reduced leasing volume primarily due to a change in customer preferences and competitive pricing pressure for new business.

Total deposits were $6.80 billion, a decrease of $126.80 million or 1.83% from the end of 2022. Balances were modestly lower primarily due to expected first quarter seasonal outflows which aligned with movements experienced in pre-pandemic years, greater utilization of excess funds by our business customers, drawdown of stimulus monies in consumer accounts, and a heightened rate sensitivity in our entire customer base given the overall level of market yields. Rate competition for deposits increased during the quarter from various areas including traditional bank and credit union competitors, money market funds, bond markets, and other non-bank alternatives.

31

Our deposits are well-diversified with a stable profile which is largely representative of the local communities we serve in Northern Indiana and Southwestern Michigan. Our specialty finance niche, which operates among diverse industries nationally, only accounted for 3.46% of total deposits at March 31, 2023. For the full bank, we had approximately 225,500 total accounts with an average balance of $30,150. Uninsured deposits net of public fund deposits represented 29.14% of total deposits at March 31, 2023 compared to 30.07% at December 31, 2022. Uninsured deposits as a percentage of total deposits, including public funds, was 45.95% at March 31, 2023, compared to 47.67% at December 31, 2022.

Short-term borrowings were $303.04 million, an increase of $87.51 million or 40.60% from December 31, 2022 due primarily to increased short-term FHLB borrowings largely to support strong loan growth. Long-term debt and mandatorily redeemable securities were $46.71 million, an increase of $0.16 million or 0.34% from December 31, 2022 due primarily to an increase in mandatorily redeemable securities. Accrued expenses and other liabilities were $151.38 million, a decrease of $15.16 million or 9.10% from December 31, 2022 primarily due to annual incentive related payments to employees and the fair value of interest rate swap contracts with customers.

The following table shows accrued income and other assets.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Accrued income and other assets:
Bank owned life insurance cash surrender value	$	83,016	$	83,046
Operating lease right of use assets	22,633		20,916
Accrued interest receivable	24,872		24,747
Mortgage servicing rights	4,007		4,137
Other real estate	117		104
Repossessions	445		327
Partnership investments carrying amount	119,485		137,149
All other assets	108,127		109,584
Total accrued income and other assets	$	362,702	$	380,010

The largest contributor to the decrease in accrued income and other assets from December 31, 2022 was lower partnership investments carrying amounts due to tax equity credit reductions on renewable energy tax equity investments during the period.

CAPITAL

As of March 31, 2023, total shareholders’ equity was $909.16 million, up $45.09 million, or 5.22% from the $864.07 million at December 31, 2022. In addition to net income of $31.12 million, other significant changes in shareholders’ equity during the first three months of 2023 included $7.92 million of dividends paid and $0.77 million in common stock repurchased. The accumulated other comprehensive loss component of shareholders’ equity decreased to $127.47 million at March 31, 2023, compared to $147.69 million at December 31, 2022 due to changes in market conditions on our available-for-sale investment portfolio. Our shareholders’ equity-to-assets ratio was 10.91% as of March 31, 2023, compared to 10.36% at December 31, 2022. Book value per common share increased to $36.81 at March 31, 2023, from $35.04 at December 31, 2022 primarily due to a decrease in accumulated other comprehensive losses.

We declared and paid cash dividends per common share of $0.32 during the first quarter of 2023. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 25.40%. The dividend payout is continually reviewed by management and the Board of Directors subject to the Company’s capital and dividend policy.

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations.

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The actual capital amounts and ratios of 1st Source Corporation and 1st Source Bank as of March 31, 2023 remained at their historically strong and conservative levels and are presented in the table below.

	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets):
1st Source Corporation	$	1,162,713	16.41	%	$	566,710	8.00	%	$	743,807	10.50	%	$	708,387	10.00	%
1st Source Bank	1,080,913		15.26		566,491		8.00		743,520		10.50		708,114		10.00
Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	1,073,416		15.15		425,032		6.00		602,129		8.50		566,710		8.00
1st Source Bank	991,650		14.00		424,869		6.00		601,897		8.50		566,491		8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	957,131		13.51		318,774		4.50		495,871		7.00		460,452		6.50
1st Source Bank	932,365		13.17		318,651		4.50		495,680		7.00		460,274		6.50
Tier 1 Capital (to Average Assets):
1st Source Corporation	1,073,416		12.72		337,626		4.00		N/A		N/A		422,033		5.00
1st Source Bank	991,650		11.75		337,501		4.00		N/A		N/A		421,876		5.00

LIQUIDITY AND INTEREST RATE SENSITIVITY

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as our operating cash needs are met. Funds are available from a number of sources, including the securities portfolio, the core deposit base, access to the national brokered certificates of deposit market, national listing service certificates of deposit, Federal Home Loan Bank (FHLB) borrowings, Federal Reserve Bank (FRB) borrowings, and the capability to package loans for sale.

We maintain prudent strategies to support a strong liquidity position. The following table represents our expanded sources of liquidity as of March 31, 2023.

(Dollars in thousands)	Total Available		Utilized		Net Available
Internal Sources
Free securities	$	1,713,480	$	284,671	$	1,428,809
External Sources
FHLB advances(1)	631,811		245,896		385,915
FRB borrowings(2)	401,312		—		401,312
Fed funds purchased(3)	245,000		—		245,000
Brokered deposits(4)	833,491		468,956		364,535
Listing services deposits(4)	416,745		24,197		392,548
Total liquidity	$	4,241,839	$	1,023,720	$	3,218,119
% of Total deposits net brokered and listing services certificates of deposit					51.01		%
(1) Availability contingent on the FHLB activity-based stock ownership requirement
(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. FHLB and FRB capacities were secured borrowings backed by pledged collateral primarily from our loan and lease portfolios. Total net available liquidity was $3.22 billion at March 31, 2023, which accounted for 51.01% of total deposits net of brokered and listing services certificates of deposit.

Our loan to asset ratio was 73.43% at March 31, 2023 compared to 72.08% at December 31, 2022 and 67.32% at March 31, 2022. Cash and cash equivalents totaled $94.04 million at March 31, 2023 compared to $122.80 million at December 31, 2022 and $416.89 million at March 31, 2022. The decrease in cash and cash equivalents was primarily due to funding loan growth. At March 31, 2023, the Consolidated Statements of Financial Condition was rate sensitive by $359.30 million more liabilities than assets scheduled to reprice within one year, or approximately 0.90%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

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Under Indiana law governing the collateralization of public fund deposits, the Indiana Board of Depositories determines which financial institutions are required to pledge collateral based on the strength of their financial ratings. We have been informed that no collateral is required for our public fund deposits. However, the Board of Depositories could alter this requirement in the future and adversely impact our liquidity. Our potential liquidity exposure if we must pledge collateral is approximately $1.06 billion.

RESULTS OF OPERATIONS

Net income available to common shareholders for the three month period ended March 31, 2023 was $31.12 million compared to $27.39 million for the same period in 2022. Diluted net income per common share was $1.25 for the three month period ended March 31, 2023, compared to $1.10 earned for the same period in 2022. Return on average common shareholders’ equity was 14.18% for the three months ended March 31, 2023, compared to 12.20% in 2022. The return on total average assets was 1.52% for the three months ended March 31, 2023, compared to 1.39% in 2022.

Net income increased for the three months ended March 31, 2023 compared to the first three months of 2022. Net interest income and noninterest income increased offset by increases to the provision for credit losses and noninterest expense. Details of the changes in the various components of net income are discussed further below.

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NET INTEREST INCOME

The following tables provide an analysis of net interest income and illustrates the interest income earned and interest expense charged for each major component of interest earning assets and interest bearing liabilities. Yields/rates are computed on a tax-equivalent basis, using a 21% rate. Nonaccrual loans and leases are included in the average loan and lease balance outstanding.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL

							Three Months Ended
	March 31, 2023						December 31, 2022						March 31, 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	$	1,711,177	$	6,648	1.58	%	$	1,742,567	$	6,970	1.59	%	$	1,857,557	$	6,344	1.39	%
Tax exempt(1)	57,444		605		4.27	%	52,633		525		3.96	%	29,498		165		2.27	%
Mortgages held for sale	2,410		32		5.38	%	2,834		40		5.60	%	8,791		67		3.09	%
Loans and leases, net of unearned discount(1)	6,036,203		86,760		5.83	%	5,840,593		79,313		5.39	%	5,324,344		55,218		4.21	%
Other investments	57,361		637		4.50	%	69,142		627		3.60	%	400,058		363		0.37	%
Total earning assets(1)	7,864,595		94,682		4.88	%	7,707,769		87,475		4.50	%	7,620,248		62,157		3.31	%
Cash and due from banks	71,921						76,843						77,063
Allowance for loan and lease losses	(141,054)						(137,350)						(128,647)
Other assets	527,969						523,833						440,074
Total assets	$	8,323,431					$	8,171,095					$	8,008,738
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	4,988,093	$	21,263	1.73	%	$	4,718,303	$	12,746	1.07	%	$	4,587,242	$	2,376	0.21	%
Short-term borrowings:
Securities sold under agreements to repurchase	134,501		40		0.12	%	137,248		18		0.05	%	192,108		23		0.05	%
Other short-term borrowings	118,760		1,353		4.62	%	125,078		1,052		3.34	%	5,372		1		0.08	%
Subordinated notes	58,764		1,020		7.04	%	58,764		972		6.56	%	58,764		823		5.68	%
Long-term debt and mandatorily redeemable securities	45,380		1,215		10.86	%	47,053		1,017		8.58	%	69,967		(792)		(4.59)	%
Total interest-bearing liabilities	5,345,498		24,891		1.89	%	5,086,446		15,805		1.23	%	4,913,453		2,431		0.20	%
Noninterest-bearing deposits	1,880,913						2,040,162						2,029,627
Other liabilities	147,141						137,874						101,502
Shareholders’ equity	890,294						846,449						910,793
Noncontrolling interests	59,585						60,164						53,363
Total liabilities and equity	$	8,323,431					$	8,171,095					$	8,008,738
Less: Fully tax-equivalent adjustments			(226)						(215)						(108)
Net interest income/margin (GAAP-derived)(1)			$	69,565	3.59	%			$	71,455	3.68	%			$	59,618	3.17	%
Fully tax-equivalent adjustments			226						215						108
Net interest income/margin - FTE(1)			$	69,791	3.60	%			$	71,670	3.69	%			$	59,726	3.18	%
(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio.

Quarter Ended March 31, 2023 compared to the Quarter Ended March 31, 2022

The taxable-equivalent net interest income for the three months ended March 31, 2023 was $69.79 million, an increase of 16.85% over the same period in 2022. The net interest margin on a fully taxable-equivalent basis was 3.60% for the three months ended March 31, 2023, compared to 3.18% for the three months ended March 31, 2022.

During the three month period ended March 31, 2023, average earning assets increased $244.35 million, up 3.21% over the comparable period in 2022. Average interest-bearing liabilities increased $432.05 million or 8.79%. The yield on average earning assets increased 157 basis points to 4.88% from 3.31% primarily due to higher rates on loans and leases, 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. Total cost of average interest-bearing liabilities increased 169 basis points to 1.89% from 0.20% as a result of higher rates on interest-bearing deposits, short-term FHLB borrowings and mandatorily redeemable securities. The result to the net interest margin, or the ratio of net interest income to average earning assets, was an increase of 42 basis points.

35

The largest contributors to the improved yield on average earning assets for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was an increase in yields on net loans and leases and taxable investment securities. The yield on net loans and leases grew 162 basis points primarily from rising interest rates. Average net loans and leases increased $711.86 million or 13.37% primarily in the auto and light truck, construction equipment, and aircraft portfolios. Average investment securities decreased $118.43 million or 6.28% which was the result of elevated fair value unrealized losses and securities sales in the first quarter of 2023 to fund loan growth. Average other investments, primarily held at the Federal Reserve Bank, decreased $342.70 million or 85.66% largely to fund loan growth.

Average interest-bearing deposits increased $400.85 million or 8.74% for the first quarter of 2023 over the same period in 2022 primarily due to public fund deposits, time deposits and brokered deposits. The effective rate paid on average interest-bearing deposits increased 152 basis points to 1.73% from 0.21% in line with the general rising rate environment. Average noninterest-bearing deposits declined $148.71 million or 7.33% for the first quarter of 2023 over the same period in 2022 primarily due to greater utilization of excess funds by our business customers, and a heightened rate sensitivity in our customer base given the overall level of market yields.

Average short-term borrowings increased $55.78 million or 28.25% for the first quarter of 2023 compared to the same period in 2022 primarily to support loan growth and liquidity during the quarter. Interest paid on short-term borrowings increased 213 basis points due to higher short-term FHLB borrowings. Interest paid on subordinated notes increased 136 basis points during the first quarter of 2023 from the same period a year ago due to a variable rate increase on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $24.59 million or 35.14%. Interest paid on long-term debt and mandatorily redeemable securities increased 1,545 basis points during the first quarter of 2023 from the same period in 2022 primarily due to higher rates on mandatorily redeemable securities from an increase in book value per share during the quarter. 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.

Reconciliation of 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. These include taxable-equivalent net interest income (including its individual components) and net interest margin (including its individual components). 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.

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.

		Three Months Ended
		March 31,			December 31,			March 31,
(Dollars in thousands)		2023			2022			2022
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	94,456		$	87,260		$	62,049
	Fully tax-equivalent adjustments:
(B)	- Loans and leases	103			109			77
(C)	- Tax-exempt investment securities	123			106			31
(D)	Interest income - FTE (A+B+C)	94,682			87,475			62,157
(E)	Interest expense (GAAP)	24,891			15,805			2,431
(F)	Net interest income (GAAP) (A–E)	69,565			71,455			59,618
(G)	Net interest income - FTE (D–E)	69,791			71,670			59,726
(H)	Annualization factor	4.056			3.967			4.056
(I)	Total earning assets	$	7,864,595		$	7,707,769		$	7,620,248
	Net interest margin (GAAP-derived) (F*H)/I	3.59		%	3.68		%	3.17		%
	Net interest margin - FTE (G*H)/I	3.60		%	3.69		%	3.18		%

36

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

The provision for credit losses for the three months ended March 31, 2023 was $3.05 million compared to $2.23 million during the three months ended March 31, 2022. Net recoveries of $0.19 million or 0.01% of average loans and leases were recorded for the first quarter 2023, compared to net recoveries of $0.23 million or 0.02% of average loans and leases for the same quarter a year ago. Net recoveries in 2023 were principally in the aircraft, auto and light truck, and residential real estate and home equity portfolios.

The provision for credit losses for the three months ended March 31, 2023 was principally driven by loan growth during the quarter along with an upward revision to the forecast adjustment as broader market liquidity concerns and tightening credit conditions have added uncertainty and increased downside risks in the forecast period. Ongoing risks include a weakened domestic GDP outlook, persistent inflation, higher interest rates, and geopolitical uncertainty. We remain concerned about the potential risks in our small business portfolio as liquidity provided by government programs afforded to our lending clients dissipates and economic growth slows. Impairment reserves for assets individually evaluated increased slightly this quarter, but continue to be a small component of our overall allowance.

We continue to evaluate risks which may impact our loan portfolios. Most notably, the weakened economic outlook and increased uncertainty characterized by persistent inflation, ongoing hostilities in Ukraine, and the Federal Reserve’s challenge of taming inflation while maintaining overall stability and liquidity in the financial sector. The direct impacts of the pandemic and related economic disruptions which previously dominated our risk analysis, have lessened, however, economic disruption remains a concern, particularly the availability of raw materials, components, and price volatility across the supply chain. We remain concerned that geopolitical events and persistently high inflation with weakened growth prospects raises the potential for adverse impacts in the domestic and global economies. Increasing interest rates could impact valuations of assets which collateralize our loans and the persistently inverted yield curve may lead to tightening credit market conditions. Weakened growth projections in the U.S. and abroad along with the potential for raw material shortages and prolonged trade disruption caused by the war in Ukraine increases overall uncertainty. Congressional spending initiatives face multiple challenges and uncompromising partisanship. Political discord continues in Latin America, with governments facing increased pressures from social tensions, continued high unemployment, and elevated inflation. Corruption scandals persist, fueling U.S. border concerns. Globally, concerns continue to be heightened due to the ongoing threat of terrorism.

Another area of concern continues to be our aircraft portfolio where we have a collateral concentration and $295 million of foreign exposure, the majority of which is in Mexico and Brazil. We review political and economic data for these countries on a regular basis to assess the impact the environment may have on our customers. Historically, we have experienced volatile and unanticipated losses in both the foreign and domestic segments of our aircraft portfolios. Losses have been primarily attributable to unexpected declines in the value of specific aircraft collateral at a time when the borrower is experiencing financial difficulties. We review and assess aircraft values on an ongoing basis and use a tiered approach to establish advance rates and amortization schedules to limit collateral exposure. We continue to monitor individual customer performance and assess risks in the overall portfolio.

On March 31, 2023, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.06%, compared to 0.19% on March 31, 2022. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.33% compared to 2.41% one year ago. A summary of loan and lease loss experience during the three months ended March 31, 2023 and 2022 is located in Note 5 of the Consolidated Financial Statements.

37

NONPERFORMING ASSETS

The following table shows nonperforming assets.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Loans and leases past due 90 days or more	$	24	$	54	$	274
Nonaccrual loans and leases	18,062		26,420		35,435
Other real estate	117		104		—
Repossessions	445		327		73
Equipment owned under operating leases	—		22		343
Total nonperforming assets	$	18,648	$	26,927	$	36,125

Nonperforming assets as a percentage of loans and leases were 0.30% at March 31, 2023, 0.45% at December 31, 2022, and 0.66% at March 31, 2022. Nonperforming assets totaled $18.65 million at March 31, 2023, a decrease of 30.75% from the $26.93 million reported at December 31, 2022, and a 48.38% decrease from the $36.13 million reported at March 31, 2022. The decrease in nonperforming assets during the first three months of 2023 was related to lower nonaccrual loans and leases. The decrease in nonperforming assets at March 31, 2023 from March 31, 2022 was related to a decrease in nonaccrual loans and leases and decreased equipment owned under operating leases.

The decrease in nonaccrual loans and leases at March 31, 2023 from December 31, 2022 and March 31, 2022 occurred primarily due to multiple pay-downs in the construction equipment portfolio along with balance reduction from fleet sales and scheduled payments in the auto and light truck portfolio and a pay-off in the residential mortgage portfolio. A summary of nonaccrual loans and leases and past due aging for the period ended March 31, 2023 and December 31, 2022 is located in Note 4 of the Consolidated Financial Statements.

Other real estate is the result of foreclosing on real estate in the local market for which we have a current appraisal and are well secured. We currently have one property held in other real estate assets.

Repossessions consisted of a few loans in the consumer portfolio and the auto and light truck portfolio at March 31, 2023. At the time of repossession, the recorded amount of the loan or lease is written down to the fair value of the equipment or vehicle by a charge to the allowance for loan and lease losses or other income, if a positive adjustment, unless the equipment is in the process of immediate sale. Any subsequent fair value write-downs or write-ups, to the extent of previous write-downs, are included in noninterest expense. The increase in repossession balances at March 31, 2023 compared to March 31, 2022 was primarily the result of repossession activity in the auto and light truck portfolio.

The following table shows a summary of other real estate and repossessions.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Commercial and agricultural	$	—	$	—	$	—
Solar	—		—		—
Auto and light truck	367		311		26
Medium and heavy duty truck	—		—		—
Aircraft	—		—		—
Construction equipment	—		—		47
Commercial real estate	—		—		—
Residential real estate and home equity	117		104		—
Consumer	78		16		—
Total	$	562	$	431	$	73

For financial statement purposes, nonaccrual loans and leases are included in loan and lease outstandings, whereas repossessions and other real estate are included in other assets.

38

NONINTEREST INCOME

The following table shows the details of noninterest income.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022		$ Change	% Change
Noninterest income:
Trust and wealth advisory	$	5,679	$	5,914	(235)	(3.97)	%
Service charges on deposit accounts	3,003		2,792		211	7.56	%
Debit card	4,507		4,194		313	7.46	%
Mortgage banking	802		1,377		(575)	(41.76)	%
Insurance commissions	2,029		1,905		124	6.51	%
Equipment rental	2,503		3,662		(1,159)	(31.65)	%
Losses on investment securities available-for-sale	(44)		—		(44)	NM
Other	4,844		3,301		1,543	46.74	%
Total noninterest income	$	23,323	$	23,145	178	0.77	%

NM = Not Meaningful

Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) decreased during the three months ended March 31, 2023 compared with the same period a year ago. 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 March 31, 2023, December 31, 2022, and March 31, 2022 was $4.91 billion, $4.84 billion, and $5.09 billion, respectively. The stock and bond market made steady trends upward during the first three months of 2023 and resulted in an increase in the market value of trust assets under management compared to December 31, 2022, however revenue decreased due to the loss of two large employee benefit accounts as our clients were acquired and the acquiring companies merged the plan management into their current plans.

Service charges on deposit accounts increased for the three months ended March 31, 2023 over the comparable period in 2022. The increase primarily reflects a higher volume of consumer nonsufficient fund transactions.

Debit card income increased during the first three months ended March 31, 2023 compared to the same period a year ago due to an increased volume of debit card transactions.

Mortgage banking income decreased in the three months ended March 31, 2023 as compared to the same period in 2022. The reduction is mainly from lower mortgage origination volumes resulting in lower income from loans sold in the secondary market. Demand for mortgages has continued to decline as higher rates have negatively impacted refinancing volumes, affordability and market activity.

Insurance commissions grew during the three months ended March 31, 2023 compared to the same period a year ago. The increase during 2023 was mainly due to increased contingent commissions received.

Equipment rental income decreased for the three months ended March 31, 2023 over the comparable period in 2022. The decline was the result of a reduction in the construction equipment and medium and heavy duty truck portfolios resulting in the average equipment rental portfolio decreasing by 32.3% over the same period a year ago due to changing customer preferences and competitive pricing pressures for new business.

Losses on available-for-sale investment securities sold during the three months ended March 31, 2023 were immaterial. The sales proceeds were used to support liquidity and fund loan growth during the quarter.

Other income increased for the quarter compared to the comparable period in 2022. The increase is primarily due to partnership investment gains on sale of renewable energy tax equity investments of $1.11 million, increased customer interest rate swap fees, and higher bank owned life insurance policy income.

39

NONINTEREST EXPENSE

The following table shows the details of noninterest expense.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022		$ Change	% Change
Noninterest expense:
Salaries and employee benefits	$	28,597	$	25,467	3,130	12.29	%
Net occupancy	2,622		2,811		(189)	(6.72)	%
Furniture and equipment	1,307		1,295		12	0.93	%
Data processing	6,157		5,208		949	18.22	%
Depreciation – leased equipment	2,022		3,015		(993)	(32.94)	%
Professional fees	682		1,608		(926)	(57.59)	%
FDIC and other insurance	1,360		850		510	60.00	%
Business development and marketing	1,972		1,268		704	55.52	%
Other	4,702		3,814		888	23.28	%
Total noninterest expense	$	49,421	$	45,336	4,085	9.01	%

Salaries and employee benefits increased during the three months ended March 31, 2023 compared to the same period in 2022. Higher base salaries were a result of normal merit increases, wage inflation as well as a higher headcount. Group insurance claims were elevated.

Net occupancy expense decreased during the three months ended March 31, 2023 compared to the same period in 2022. The quarterly decrease was primarily due to higher snow removal costs due to seasonal weather conditions in the first quarter of 2022.

Furniture and equipment expense, including depreciation, was flat during the three months ended March 31, 2023 compared to the same period a year ago.

Data processing expense grew during the first quarter of 2023 compared to the same period a year ago due primarily to higher computer processing charges and software maintenance expense on technology projects.

Depreciation on leased equipment decreased for the three months ended March 31, 2023 compared to the same period in 2022. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Professional fees were lower during the first quarter of 2023 compared to the same period a year ago. The decline was mostly due to a $1.08 million reversal of accrued legal fees offset by increased board of directors fees.

FDIC and other insurance was higher during the three months ended March 31, 2023 compared to the same period in 2022. The increase was mainly due to higher FDIC insurance premiums due to a two basis-point increase in assessment rates during the first quarter 2023.

Business development and marketing expense was higher during the first quarter of 2023 compared to the same period a year ago. The increase was due to marketing promotions during the first quarter of 2023 as well as increased business meals, entertainment, and travel opportunities compared to the same period a year ago due to lingering COVID-19 restrictions in the first quarter of 2022.

Other expenses were higher during the three months ended March 31, 2023 compared to the same period in 2022. The increase was primarily the result of a rise in the loan loss provision for unfunded loan commitments, an increase in the interest rate swap valuation provision, increased postage costs, and travel for employee training.

INCOME TAXES

The provision for income taxes for the three month period ended March 31, 2023 was $9.29 million compared to $7.79 million for the same period in 2022. The effective tax rate was 22.98% and 22.14% for the quarter ended March 31, 2023 and 2022, respectively. The increase in the quarterly effective tax rate was due to higher permanent book and tax differences in relationship to pretax income in 2023 compared to 2022.

40

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risks faced by 1st Source since December 31, 2022. For information regarding our market risk, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report an evaluation was carried out, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2023, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by 1st Source in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

In addition, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the first fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.        Legal Proceedings.

1st Source and its subsidiaries are involved in various legal proceedings that are inherent risks of, or incidental to, the conduct of our businesses. Management does not expect the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.

ITEM 1A.    Risk Factors.

The Company is attentive to various risks and continuously evaluates the potential impact of such risks. Except as set forth below, where an already disclosed risk factor has been updated for the current period, there have been no material updates or changes in risks faced by 1st Source since December 31, 2022. For information regarding our risk factors, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2022.

We could experience an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern— Liquidity measures the ability to meet current and future cash flow needs as they become due. 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. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The bank failures in March 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition, and results of operations. Additionally, under Indiana law governing the collateralization of public fund deposits, the Indiana Board for Depositories determines which financial institutions are required to pledge collateral based on the strength of their financial ratings. We have been informed that no collateral is required for our public fund deposits. 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.

41

ITEM 2.        Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

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
January 01 - 31, 2023	—	$	—	—	1,576,265
February 01 - 28, 2023	—	—		—	1,576,265
March 01 - 31, 2023	16,359	46.79		16,359	1,559,906

* 1st Source maintains a stock repurchase plan that was authorized by the Board of Directors on July 22, 2021. Under the terms of the plan, 1st Source may repurchase up to 2,000,000 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 440,094 shares.

ITEM 3.        Defaults Upon Senior Securities.

None

ITEM 4.        Mine Safety Disclosures.

None

ITEM 5.        Other Information.

None

ITEM 6.        Exhibits.

The following exhibits are filed with this report:

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a).
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a).
32.1	Certification pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer.
101.INS	XBRL Instance Document — The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

42

SIGNATURES

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 thereunto duly authorized.

		1st Source Corporation
DATE	April 20, 2023	/s/ CHRISTOPHER J. MURPHY III
		Christopher J. Murphy III Chairman of the Board, President and CEO
DATE	April 20, 2023	/s/ BRETT A. BAUER
		Brett A. Bauer Treasurer and Chief Financial Officer Principal Accounting Officer

43

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Christopher J. Murphy III, Chief Executive Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of 1st Source Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 20, 2023

/s/ CHRISTOPHER J. MURPHY III

Christopher J. Murphy III

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brett A. Bauer, Chief Financial Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of 1st Source Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 20, 2023

/s/ BRETT A. BAUER

Brett A. Bauer

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of 1st Source Corporation (1st Source) on Form 10-Q for the quarterly period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Murphy III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of sections 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of 1st Source.

Date: April 20, 2023

/s/ CHRISTOPHER J. MURPHY III

Christopher J. Murphy III

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of 1st Source Corporation (1st Source) on Form 10-Q for the quarterly period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brett A. Bauer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of sections 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of 1st Source.

Date: April 20, 2023

/s/ BRETT A. BAUER

Brett A. Bauer

Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2023	Apr. 14, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Document Transition Report	false
Entity File Number	0-6233
Entity Incorporation, State or Country Code	IN
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
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock - without par value
Trading Symbol	SRCE
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		24,695,552
Entity Registrant Name	1st Source Corp
Entity Central Index Key	0000034782
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
ASSETS
Cash and due from banks	$ 66,866	$ 84,703
Federal funds sold and interest bearing deposits with other banks	27,171	38,094
Investment securities available-for-sale	1,713,480	1,775,128
Other investments	25,293	25,293
Mortgages held for sale	2,068	3,914
Loans and leases - net of unearned discount
Loans and leases	6,116,716	6,011,162
Allowance for loan and lease losses	(142,511)	(139,268)
Net loans and leases	5,974,205	5,871,894
Equipment owned under operating leases, net	30,083	31,700
Net premises and equipment	44,034	44,773
Goodwill and intangible assets	83,901	83,907
Accrued income and other assets	362,702	380,010
Total assets	8,329,803	8,339,416
Deposits:
Noninterest-bearing demand	1,815,123	1,998,151
Interest-bearing deposits:
Interest-bearing demand	2,403,818	2,591,464
Savings	1,171,418	1,198,191
Time	1,411,105	1,140,459
Total interest-bearing deposits	4,986,341	4,930,114
Total deposits	6,801,464	6,928,265
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	73,396	141,432
Other short-term borrowings	229,640	74,097
Total short-term borrowings	303,036	215,529
Long-term debt and mandatorily redeemable securities	46,714	46,555
Subordinated notes	58,764	58,764
Accrued expenses and other liabilities	151,381	166,537
Total liabilities	7,361,359	7,415,650
SHAREHOLDERS' EQUITY
Preferred stock; no par value Authorized 10,000,000 shares; none issued or outstanding	0	0
Common stock; no par value Authorized 40,000,000 shares; issued 28,205,674 at March 31, 2023 and December 31, 2022	436,538	436,538
Retained earnings	719,495	694,862
Cost of common stock in treasury (3,510,122 shares at March 31, 2023 and 3,543,388 shares at December 31, 2022)	(119,409)	(119,642)
Accumulated other comprehensive loss	(127,465)	(147,690)
Total shareholders’ equity	909,159	864,068
Noncontrolling interests	59,285	59,698
Total equity	968,444	923,766
Total liabilities and equity	$ 8,329,803	$ 8,339,416
Preferred stock; no par value (in dollars per share)	$ 0	$ 0
Preferred stock, Authorized shares	10,000,000	10,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock; no par value (in dollars per share)	$ 0	$ 0
Common stock, Authorized shares	40,000,000	40,000,000
Common stock, issued shares	28,205,674	28,205,674
Cost of common stock in treasury, shares	3,510,122	3,543,388
Commercial and agricultural
Loans and leases - net of unearned discount
Loans and leases	$ 795,429	$ 812,031
Allowance for loan and lease losses	(16,087)	(14,635)
Solar
Loans and leases - net of unearned discount
Loans and leases	375,330	381,163
Allowance for loan and lease losses	(6,288)	(7,217)
Auto and light truck
Loans and leases - net of unearned discount
Loans and leases	875,564	808,117
Allowance for loan and lease losses	(18,558)	(18,634)
Medium and heavy duty truck
Loans and leases - net of unearned discount
Loans and leases	326,588	313,862
Allowance for loan and lease losses	(7,829)	(7,566)
Aircraft
Loans and leases - net of unearned discount
Loans and leases	1,056,829	1,077,722
Allowance for loan and lease losses	(40,133)	(41,093)
Construction equipment
Loans and leases - net of unearned discount
Loans and leases	991,412	938,503
Allowance for loan and lease losses	(25,579)	(24,039)
Commercial real estate
Loans and leases - net of unearned discount
Loans and leases	954,221	943,745
Allowance for loan and lease losses	(19,300)	(17,431)
Residential real estate and home equity
Loans and leases - net of unearned discount
Loans and leases	594,618	584,737
Allowance for loan and lease losses	(6,621)	(6,478)
Consumer
Loans and leases - net of unearned discount
Loans and leases	146,725	151,282
Allowance for loan and lease losses	$ (2,116)	$ (2,175)

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Interest income:
Loans and leases	$ 86,689	$ 55,208
Investment securities, taxable	6,648	6,344
Investment securities, tax-exempt	482	134
Other	637	363
Total interest income	94,456	62,049
Interest expense:
Deposits	21,263	2,376
Short-term borrowings	1,393	24
Subordinated notes	1,020	823
Long-term debt and mandatorily redeemable securities	1,215	(792)
Total interest expense	24,891	2,431
Net interest income	69,565	59,618
Provision for credit losses	3,049	2,233
Net interest income after provision for loan and lease losses	66,516	57,385
Noninterest income:
Mortgage banking	802	1,377
Insurance commissions	2,029	1,905
Equipment rental	2,503	3,662
Losses on investment securities available-for-sale	(44)	0
Other	4,844	3,301
Total noninterest income	23,323	23,145
Noninterest expense:
Salaries and employee benefits	28,597	25,467
Net occupancy	2,622	2,811
Furniture and equipment	1,307	1,295
Information Technology and Data Processing	6,157	5,208
Depreciation - leased equipment	2,022	3,015
Professional fees	682	1,608
FDIC and other insurance	1,360	850
Business development and marketing	1,972	1,268
Other	4,702	3,814
Total noninterest expense	49,421	45,336
Income before income taxes	40,418	35,194
Income tax expense	9,287	7,793
Net income	31,131	27,401
Net (income) loss attributable to noncontrolling interests	(7)	(11)
Net income available to common shareholders	$ 31,124	$ 27,390
Per common share:
Basic net income per common share (in dollars per share)	$ 1.25	$ 1.10
Diluted net income per common share (in dollars per share)	1.25	1.10
Cash dividends (in dollars per share)	$ 0.32	$ 0.31
Basic weighted average common shares outstanding (in shares)	24,687,087	24,743,790
Diluted weighted average common shares outstanding (in shares)	24,687,087	24,743,790
Trust and wealth advisory
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	$ 5,679	$ 5,914
Service charges on deposit accounts
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	3,003	2,792
Debit card
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	$ 4,507	$ 4,194

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Statement of Comprehensive Income [Abstract]
Net income	$ 31,131	$ 27,401
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of available-for-sale securities	26,476	(93,094)
Reclassification adjustment for realized losses included in net income	44	0
Income tax effect	(6,295)	22,418
Other comprehensive income (loss), net of tax	20,225	(70,676)
Comprehensive income (loss)	51,356	(43,275)
Comprehensive (income) loss attributable to noncontrolling interests	(7)	(11)
Comprehensive income (loss) available to common shareholders	$ 51,349	$ (43,286)

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Retained Earnings	Cost of Common Stock in Treasury	Accumulated Other Comprehensive Income (Loss), Net	Total Shareholders' Equity	Noncontrolling Interests
Balance at Dec. 31, 2021	$ 969,464	$ 436,538	$ 603,787	$ (114,209)	$ (9,861)	$ 916,255	$ 53,209
Increase (Decrease) in Shareholders' Equity
Net income	27,401		27,390			27,390	11
Other comprehensive income (loss)	(70,676)				(70,676)	(70,676)
Issuance of 49,625 and 38,442 common shares under stock based compensation awards for the three months ended March 31, 2023 and 2022, respectively.	1,754		1,024	730		1,754
Cost of 16,359 and 45,419 shares of common stock acquired for treasury for the three months ended March 31, 2023 and 2022, respectively.	(2,175)			(2,175)		(2,175)
Common stock dividend ($0.32 and $0.31 per share for the three months ended March 31, 2023 and 2022, respectively.	(7,698)		(7,698)			(7,698)
Contributions from noncontrolling interests	1,627					0	1,627
Distributions to noncontrolling interests	$ (227)					0	(227)
Issuance of common shares under stock based compensation awards (in shares)	38,442
Common stock acquired for treasury (in shares)	45,419
Cash dividends (in dollars per share)	$ 0.31
Balance at Mar. 31, 2022	$ 919,470	436,538	624,503	(115,654)	(80,537)	864,850	54,620
Balance at Dec. 31, 2022	923,766	436,538	694,862	(119,642)	(147,690)	864,068	59,698
Increase (Decrease) in Shareholders' Equity
Net income	31,131		31,124			31,124	7
Other comprehensive income (loss)	20,225				20,225	20,225
Issuance of 49,625 and 38,442 common shares under stock based compensation awards for the three months ended March 31, 2023 and 2022, respectively.	2,425		1,426	999		2,425
Cost of 16,359 and 45,419 shares of common stock acquired for treasury for the three months ended March 31, 2023 and 2022, respectively.	(766)			(766)		(766)
Common stock dividend ($0.32 and $0.31 per share for the three months ended March 31, 2023 and 2022, respectively.	(7,917)		(7,917)			(7,917)
Distributions to noncontrolling interests	$ (420)					0	(420)
Issuance of common shares under stock based compensation awards (in shares)	49,625
Common stock acquired for treasury (in shares)	16,359
Cash dividends (in dollars per share)	$ 0.32
Balance at Mar. 31, 2023	$ 968,444	$ 436,538	$ 719,495	$ (119,409)	$ (127,465)	$ 909,159	$ 59,285

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Statement of Cash Flows [Abstract]
Net income	$ 31,131	$ 27,401
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	3,049	2,233
Depreciation of premises and equipment	1,146	1,177
Depreciation of equipment owned and leased to others	2,022	3,015
Stock-based compensation	1,121	732
Amortization of investment securities premiums and accretion of discounts, net	855	967
Amortization of mortgage servicing rights	221	381
Amortization of right of use assets	778	785
Deferred income taxes	(993)	80
Losses on investment securities available-for-sale	44	0
Originations of loans held for sale, net of principal collected	(8,862)	(32,314)
Proceeds from the sales of loans held for sale	10,934	41,456
Net gain on sale of loans held for sale	(226)	(615)
Net gain on sale of other real estate and repossessions	(39)	(47)
Change in interest receivable	(125)	(530)
Change in interest payable	7,599	199
Change in other assets	(5,422)	9,099
Change in other liabilities	3,987	(10,882)
Other	(367)	(1,334)
Net Cash Provided by (Used in) Operating Activities	46,853	41,803
Investing activities:
Proceeds from sales of investment securities available-for-sale	64,928	0
Proceeds from maturities and paydowns of investment securities available-for-sale	25,341	57,392
Purchases of investment securities available-for-sale	(3,000)	(145,843)
Net change in partnership investments	(5,274)	(2,128)
Net change in other investments	0	1,651
Loans sold or participated to others	16,026	7,987
Proceeds from principal payments on direct finance leases	13,043	9,377
Net change in loans and leases	(134,913)	(66,069)
Net change in equipment owned under operating leases	(405)	3,626
Purchases of premises and equipment	(408)	(113)
Proceeds from disposal of premises and equipment	2	14
Proceeds from sales of other real estate and repossessions	391	1,983
Net Cash Provided by (Used in) Investing Activities	(24,269)	(132,123)
Financing activities:
Net change in demand deposits and savings accounts	(397,447)	26,143
Net change in time deposits	270,646	(32,116)
Net change in short-term borrowings	87,507	(869)
Payments on long-term debt	(2,727)	(2,440)
Acquisition of treasury stock	(766)	(2,175)
Net (distributions to) contributions from noncontrolling interests	(420)	1,400
Cash dividends paid on common stock	(8,137)	(7,918)
Net change in financing activities	(51,344)	(17,975)
Net change in cash and cash equivalents	(28,760)	(108,295)
Cash and cash equivalents, beginning of year	122,797	525,187
Cash and cash equivalents, end of period	94,037	416,892
Non-cash transactions:
Loans transferred to other real estate and repossessed assets	484	1,150
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan	1,753	683
Right of use assets obtained in exchange for lease obligations	$ 2,495	$ 116

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Accounting Policies

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Accounting Policies

Accounting Policies

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

Basis of Presentation – The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K (2022 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Statement of Financial Condition at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation.

Use of Estimates in the Preparation of Financial Statements – Financial statements prepared in accordance with GAAP require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

Loans and Leases – Loans are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. Interest income is accrued as earned based on unpaid principal balances. Origination fees and direct loan and lease origination costs are deferred, and the net amount amortized to interest income over the estimated life of the related loan or lease. Loan commitment fees are deferred and amortized into other income over the commitment period.

Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, net of unamortized deferred lease origination fees and costs and unearned income. Only those costs incurred as a direct result of closing a lease transaction are capitalized and all other initial direct costs are expensed immediately. Interest income on direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.

Accrued interest is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses. The accrual of interest on loans and leases is discontinued when a loan or lease becomes contractually delinquent for 90 days, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential mortgage loans and consumer loans that are well secured and in the process of collection. Residential mortgage loans are placed on nonaccrual at the time the loan is placed in foreclosure. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan and lease losses. However, in some cases, the Company may elect to continue the accrual of interest when the net realizable value of collateral is sufficient to cover the principal and accrued interest. When a loan or lease is classified as nonaccrual and the future collectability of the recorded loan or lease balance is doubtful, collections on interest and principal are applied as a reduction to principal outstanding. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, which is typically evidenced by a sustained repayment performance of at least six months.

Occasionally, the Company modifies loans and leases to borrowers in financial distress (typically denoted by internal credit quality graded “substandard” or worse) by providing term extensions, other-than-insignificant payment delays, or interest rate reductions. In some cases, a combination of modifications are made to the same loan or lease. These modifications typically result from the Company’s loss mitigation activities. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for loan and lease losses estimate or a charge-off to the allowance for loan and lease losses.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2023

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Investments-Equity Method and Joint Ventures: In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards (ASU) No. 2023-02 “Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company is assessing ASU 2023-02 and its impact on its accounting and disclosures.

Fair Value Measurements: In June 2022, the FASB issued ASU No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company has assessed ASU 2022-03 and does not expect it to have a material impact on its accounting and disclosures.

Reference Rate Reform: In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In December of 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company continues to implement its transition plan towards cessation of LIBOR and the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the LIBOR transition relief allowed under ASU 2020-04, ASU 2021-01 and ASU 2022-06, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures.

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Investment Securities

3 Months Ended

Mar. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities Available-For-Sale

The following table shows investment securities available-for-sale.

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2023
U.S. Treasury and Federal agencies securities	$	1,052,191	$	—	$	(76,970)	$	975,221
U.S. States and political subdivisions securities	114,237		412		(6,774)		107,875
Mortgage-backed securities — Federal agencies	702,499		35		(83,922)		618,612
Corporate debt securities	11,476		—		(281)		11,195
Foreign government and other securities	600		—		(23)		577
Total debt securities available-for-sale	$	1,881,003	$	447	$	(167,970)	$	1,713,480
December 31, 2022
U.S. Treasury and Federal agencies securities	$	1,090,743	$	—	$	(92,145)	$	998,598
U.S. States and political subdivisions securities	130,670		591		(8,499)		122,762
Mortgage-backed securities — Federal agencies	730,672		60		(93,674)		637,058
Corporate debt securities	16,486		—		(355)		16,131
Foreign government and other securities	600		—		(21)		579
Total debt securities available-for-sale	$	1,969,171	$	651	$	(194,694)	$	1,775,128

Amortized cost excludes accrued interest receivable which is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition. At March 31, 2023 and December 31, 2022, accrued interest receivable on investment securities available-for-sale was $4.88 million and $5.98 million, respectively.

At March 31, 2023 and December 31, 2022, the residential mortgage-backed securities held by the Company consisted primarily of GNMA, FNMA and FHLMC pass-through certificates which are guaranteed by those respective agencies of the United States government (Government Sponsored Enterprise, GSEs).

The following table shows the contractual maturities of investments in debt securities available-for-sale at March 31, 2023. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	96,181	$	94,493
Due after one year through five years	1,040,653		960,875
Due after five years through ten years	17,843		15,396
Due after ten years	23,827		24,104
Mortgage-backed securities	702,499		618,612
Total debt securities available-for-sale	$	1,881,003	$	1,713,480

The following table summarizes gross unrealized losses and fair value by investment category and age. At March 31, 2023, the Company’s available-for-sale securities portfolio consisted of 717 securities, 650 of which were in an unrealized loss position.

	Less than 12 Months				12 months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2023
U.S. Treasury and Federal agencies securities	$	14,465	$	(292)	$	960,756	$	(76,678)	$	975,221	$	(76,970)
U.S. States and political subdivisions securities	19,458		(331)		63,258		(6,443)		82,716		(6,774)
Mortgage-backed securities - Federal agencies	90,318		(2,945)		524,803		(80,977)		615,121		(83,922)
Corporate debt securities	3,317		(10)		7,878		(271)		11,195		(281)
Foreign government and other securities	—		—		577		(23)		577		(23)
Total debt securities available-for-sale	$	127,558	$	(3,578)	$	1,557,272	$	(164,392)	$	1,684,830	$	(167,970)
December 31, 2022
U.S. Treasury and Federal agencies securities	$	164,481	$	(6,299)	$	834,117	$	(85,846)	$	998,598	$	(92,145)
U.S. States and political subdivisions securities	57,592		(2,126)		38,834		(6,373)		96,426		(8,499)
Mortgage-backed securities - Federal agencies	198,469		(13,482)		426,989		(80,192)		625,458		(93,674)
Corporate debt securities	16,132		(355)		—		—		16,132		(355)
Foreign government and other securities	484		(16)		95		(5)		579		(21)
Total debt securities available-for-sale	$	437,158	$	(22,278)	$	1,300,035	$	(172,416)	$	1,737,193	$	(194,694)

The Company does not consider available-for-sale securities with unrealized losses at March 31, 2023 to be experiencing credit losses and recognized no resulting allowance for credit losses. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. The unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

The following table shows the gross realized gains and losses from the available-for-sale debt securities portfolio. Realized gains and losses of all securities are computed using the specific identification cost basis.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Gross realized gains	$	1,286	$	—
Gross realized losses	(1,330)		—
Net realized losses	$	(44)	$	—

At March 31, 2023 and December 31, 2022, investment securities available-for-sale with carrying values of $284.67 million and $282.87 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.

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Loan and Lease Financings

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Loan and Lease Financings

Loan and Lease Financings

The Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.

All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $250,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the allowance for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12). For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.

Below is a summary of the Company’s loan and lease portfolio segments and a discussion of the risk characteristics relevant to each portfolio segment.

Commercial and agricultural – loans are to entities within the Company’s local market communities. Loans are for business or agri-business purposes and include working capital lines of credit secured by accounts receivable and inventory that are generally renewable annually and term loans secured by equipment with amortizations based on the expected life of the underlying collateral, generally three to seven years. These loans are typically further supported by personal guarantees. Commercial exposure is to a wide range of industries and services. Risks in this sector are also varied and are most impacted by general economic conditions. Risk mitigants include appropriate underwriting and monitoring and, when appropriate, government guarantees, including SBA and FSA.

Solar – loans are for the purpose of financing solar related projects and may include construction draw notes, operating loans, letters of credit and may entail a tax equity structure. Collateral in a multi-state area includes tangible assets of the borrower, assignment of intangible assets including power purchase agreements, and pledges of permits and licenses. Financing is provided to qualified borrowers throughout the continental United States with an emphasis on the region east of the Rocky Mountains.

Auto and light truck – loans are secured by vehicles and borrowers are nationwide. The portfolio predominantly consists of loans to borrowers in the auto rental and commercial auto leasing industries. Borrowers in the auto rental segment are primarily independent auto rental entities with on-airport and off-airport locations, and some insurance replacement business. Loan amortizations are relatively short, generally eighteen months, but up to four years. Auto leasing customers lease to businesses and the Company takes assignment of the lease stream and places its lien on the vehicles. Terms are generally longer than the auto rental sector, three to seven years and match the underlying leases. Risks in both these segments include economic risks and collateral risks, principally used vehicle values.

Medium and heavy duty truck – loans and full-service truck leases are secured by heavy-duty trucks, commonly Class 8 trucks, and are generally personally guaranteed. In addition to economic risks, collateral risk is significant. Financing is generally at full cost, plus additional expenditures to get the vehicle operational, such as taxes, insurance and fees. It takes three to four years of debt amortization to reach an equity position in the collateral.

Aircraft – loans are to domestic and foreign borrowers with the domestic segment further divided into two pools: 1) personal and business use, and 2) dealers and operators. The Company’s focus for the foreign sector is Latin America, principally Mexico and Brazil. Loans are primarily secured by new and used business jets and helicopters, with appropriate advances, amortizations of ten to fifteen years, and are generally guaranteed by individuals. The most significant risk in the Aircraft portfolio is collateral risk - volatility in underlying values and maintenance concerns. The portfolio is subject to national and global economic risks.

Construction equipment – loans are to borrowers throughout the country secured by specific equipment. The borrowers include highway and road builders, asphalt producers and pavers, suppliers of aggregate products, site developers, frac sand operations, general construction equipment dealers and operators, and crane rental entities. Generally, loans include personal guarantees. The construction equipment industry is heavily dependent on the U.S. economy and the global economy. Market growth is reliant on investments from public and private sectors into urbanization and infrastructure projects.

Commercial real estate – loans are generally to entities within the local market communities served by the Company with advances generally within regulatory guidelines. Historically, the Company’s exposure to commercial real estate has been primarily to the less risky owner-occupied segment. The non-owner-occupied segment accounts for less than half of the commercial real estate portfolio and includes hotels, apartment complexes and warehousing facilities. There is limited exposure to construction loans. Many commercial real estate loans carry personal guarantees. Additional risks in the commercial real estate portfolio stem from geographical concentration in northern Indiana and southwest Michigan and general economic conditions.

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

Consumer – loans are to individuals in the Company’s local markets and auto loans are generally secured by personal vehicles and appropriately underwritten.

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of March 31, 2023 and gross charge-offs for the three months ended March 31, 2023.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	45,821	$	149,606	$	99,146	$	62,310	$	29,946	$	27,265	$	346,317	$	—	$	760,411
Grades 7-12	500		3,464		6,231		184		1,407		2,207		21,025		—		35,018
Total commercial and agricultural	46,321		153,070		105,377		62,494		31,353		29,472		367,342		—		795,429
Current period gross charge-offs	—		411		—		13		—		—		140		—		564
Solar
Grades 1-6	3,777		108,743		106,603		34,112		72,254		38,906		—		—		364,395
Grades 7-12	—		—		—		1,086		5,634		4,215		—		—		10,935
Total solar	3,777		108,743		106,603		35,198		77,888		43,121		—		—		375,330
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	190,009		455,563		127,423		47,856		26,206		11,049		—		—		858,106
Grades 7-12	888		5,487		1,540		4,940		2,264		2,339		—		—		17,458
Total auto and light truck	190,897		461,050		128,963		52,796		28,470		13,388		—		—		875,564
Current period gross charge-offs	—		—		25		5		19		63		—		—		112
Medium and heavy duty truck
Grades 1-6	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Grades 7-12	—		—		—		—		—		—		—		—		—
Total medium and heavy duty truck	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	26,669		425,103		255,143		201,937		53,072		61,214		5,865		—		1,029,003
Grades 7-12	2,502		11,362		7,059		5,896		—		1,007		—		—		27,826
Total aircraft	29,171		436,465		262,202		207,833		53,072		62,221		5,865		—		1,056,829
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Construction equipment
Grades 1-6	142,305		442,999		188,726		95,472		51,591		15,529		18,496		2,912		958,030
Grades 7-12	—		19,676		4,986		1,514		1,618		84		136		5,368		33,382
Total construction equipment	142,305		462,675		193,712		96,986		53,209		15,613		18,632		8,280		991,412
Current period gross charge-offs	—		—		1		—		—		—		—		—		1
Commercial real estate
Grades 1-6	51,163		256,208		162,337		117,541		95,078		254,145		336		—		936,808
Grades 7-12	38		1,969		1,695		7,630		5,057		1,024		—		—		17,413
Total commercial real estate	51,201		258,177		164,032		125,171		100,135		255,169		336		—		954,221
Current period gross charge-offs	—		39		—		—		—		—		—		—		39
Residential real estate and home equity
Performing	20,510		113,006		99,425		95,591		32,888		83,659		144,185		3,946		593,210
Nonperforming	—		—		—		—		414		729		190		75		1,408
Total residential real estate and home equity	20,510		113,006		99,425		95,591		33,302		84,388		144,375		4,021		594,618
Current period gross charge-offs	—		—		—		—		—		—		1		—		1
Consumer
Performing	15,137		67,476		30,376		10,658		5,797		2,578		14,471		—		146,493
Nonperforming	—		75		43		46		51		17		—		—		232
Total consumer	15,137		67,551		30,419		10,704		5,848		2,595		14,471		—		146,725
Current period gross charge-offs	$	112	$	174	$	30	$	1	$	4	$	—	$	3	$	—	$	324

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

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	159,317	$	107,232	$	71,365	$	35,874	$	17,192	$	13,860	$	370,553	$	—	$	775,393
Grades 7-12	4,491		5,934		60		2,094		1,644		1,040		21,375		—		36,638
Total commercial and agricultural	163,808		113,166		71,425		37,968		18,836		14,900		391,928		—		812,031
Solar
Grades 1-6	109,393		113,276		35,660		72,652		18,518		20,654		—		—		370,153
Grades 7-12	—		—		1,091		5,678		701		3,540		—		—		11,010
Total solar	109,393		113,276		36,751		78,330		19,219		24,194		—		—		381,163
Auto and light truck
Grades 1-6	521,399		155,508		62,063		32,975		10,946		3,476		—		—		786,367
Grades 7-12	5,972		3,366		5,836		2,836		1,792		1,948		—		—		21,750
Total auto and light truck	527,371		158,874		67,899		35,811		12,738		5,424		—		—		808,117
Medium and heavy duty truck
Grades 1-6	158,296		66,533		43,711		31,980		10,053		3,274		—		—		313,847
Grades 7-12	—		—		—		—		—		15		—		—		15
Total medium and heavy duty truck	158,296		66,533		43,711		31,980		10,053		3,289		—		—		313,862
Aircraft
Grades 1-6	438,481		273,726		213,661		57,379		31,085		35,012		3,687		—		1,053,031
Grades 7-12	12,962		4,253		6,190		—		—		1,286		—		—		24,691
Total aircraft	451,443		277,979		219,851		57,379		31,085		36,298		3,687		—		1,077,722
Construction equipment
Grades 1-6	475,854		213,349		106,409		59,204		17,834		4,593		23,310		2,754		903,307
Grades 7-12	20,709		7,757		2,483		1,878		313		32		583		1,441		35,196
Total construction equipment	496,563		221,106		108,892		61,082		18,147		4,625		23,893		4,195		938,503
Commercial real estate
Grades 1-6	271,526		164,173		121,685		97,470		102,271		168,391		251		—		925,767
Grades 7-12	1,532		1,716		7,824		5,789		47		1,070		—		—		17,978
Total commercial real estate	273,058		165,889		129,509		103,259		102,318		169,461		251		—		943,745
Residential real estate and home equity
Performing	115,154		100,690		97,205		34,498		6,864		81,653		142,724		4,115		582,903
Nonperforming	—		131		693		—		—		725		180		105		1,834
Total residential real estate and home equity	115,154		100,821		97,898		34,498		6,864		82,378		142,904		4,220		584,737
Consumer
Performing	74,258		34,619		12,924		7,375		2,977		692		18,098		—		150,943
Nonperforming	148		65		49		53		12		12		—		—		339
Total consumer	74,406		34,684		12,973		7,428		2,989		704		18,098		—		151,282

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing  Loans		Nonaccrual		Total Financing Receivables
March 31, 2023
Commercial and agricultural	$	793,509	$	836	$	—	$	—	$	794,345	$	1,084	$	795,429
Solar	375,330		—		—		—		375,330		—		375,330
Auto and light truck	865,316		32		—		—		865,348		10,216		875,564
Medium and heavy duty truck	326,588		—		—		—		326,588		—		326,588
Aircraft	1,055,282		—		1,007		—		1,056,289		540		1,056,829
Construction equipment	989,525		340		—		—		989,865		1,547		991,412
Commercial real estate	951,111		51		—		—		951,162		3,059		954,221
Residential real estate and home equity	592,464		623		123		24		593,234		1,384		594,618
Consumer	146,035		390		68		—		146,493		232		146,725
Total	$	6,095,160	$	2,272	$	1,198	$	24	$	6,098,654	$	18,062	$	6,116,716
December 31, 2022
Commercial and agricultural	$	810,223	$	944	$	—	$	—	$	811,167	$	864	$	812,031
Solar	381,163		—		—		—		381,163		—		381,163
Auto and light truck	793,610		353		1		—		793,964		14,153		808,117
Medium and heavy duty truck	313,845		—		2		—		313,847		15		313,862
Aircraft	1,075,865		223		1,063		—		1,077,151		571		1,077,722
Construction equipment	932,603		431		—		—		933,034		5,469		938,503
Commercial real estate	940,516		—		—		—		940,516		3,229		943,745
Residential real estate and home equity	582,053		562		288		49		582,952		1,785		584,737
Consumer	150,328		416		199		5		150,948		334		151,282
Total	$	5,980,206	$	2,929	$	1,553	$	54	$	5,984,742	$	26,420	$	6,011,162

Accrued interest receivable on loans and leases at March 31, 2023 and December 31, 2022 was $19.82 million and $18.75 million, respectively.

Loan Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans and leases at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		% of Total Segment Financing Receivables
Commercial and agricultural	$	—	$	752	$	—	$	—	0.09	%
Construction equipment	—		3,912		—		—		0.39
Commercial real estate	—		—		511		—		0.05
Total	$	—	$	4,664	$	511	$	—	0.08	%

There were no commitments to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three months ended March 31, 2023.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
Commercial and agricultural	$	752	$	—	$	—	$	—	$	—
Construction equipment	3,912		—		—		—		—
Commercial real estate	511		—		—		—		—
Total	$	5,175	$	—	$	—	$	—	$	—

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

	Weighted- Average Interest Rate Reduction		Weighted- Average Term Extension (in months)
Commercial and agricultural	—	%	3
Construction equipment	—	%	5
Commercial real estate	3.00	%	—
Total	3.00	%	4

There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

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

There were no loan and lease modifications classified as a TDR during the three months ended March 31, 2022. The classification between nonperforming and performing is determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months ended March 31, 2022 that resulted in an interest rate below market rate.

There were no TDRs which had a payment default within the twelve months following modification during the three months ended March 31, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

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

(Dollars in thousands)	December 31, 2022
Performing TDRs	$	—
Nonperforming TDRs	3,640
Total TDRs	$	3,640

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Allowance for Credit Losses

3 Months Ended

Mar. 31, 2023

Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]

Allowance for Credit Losses

Allowance for Credit Losses

Allowance for Loan and Lease Losses

The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326. The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.

The Company categorizes its loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either: 1) a cohort cumulative loss rate methodology (“cohort”) or, 2) the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended March 31, 2023 and 2022.

(Dollars in thousands)	Commercial and agricultural		Solar		Auto and light truck		Medium and heavy duty truck		Aircraft		Construction equipment		Commercial real estate		Residential real estate and home equity		Consumer		Total
March 31, 2023
Balance, beginning of period	$	14,635	$	7,217	$	18,634	$	7,566	$	41,093	$	24,039	$	17,431	$	6,478	$	2,175	$	139,268
Charge-offs	564		—		112		—		—		1		39		1		324		1,041
Recoveries	172		—		541		—		226		—		3		233		60		1,235
Net charge-offs (recoveries)	392		—		(429)		—		(226)		1		36		(232)		264		(194)
Provision (recovery of provision)	1,844		(929)		(505)		263		(1,186)		1,541		1,905		(89)		205		3,049
Balance, end of period	$	16,087	$	6,288	$	18,558	$	7,829	$	40,133	$	25,579	$	19,300	$	6,621	$	2,116	$	142,511
March 31, 2022
Balance, beginning of period	$	15,409	$	6,585	$	19,624	$	6,015	$	33,628	$	19,673	$	19,691	$	5,084	$	1,783	$	127,492
Charge-offs	—		—		—		—		—		48		—		4		165		217
Recoveries	4		—		65		—		316		—		—		1		65		451
Net charge-offs (recoveries)	(4)		—		(65)		—		(316)		48		—		3		100		(234)
Provision (recovery of provision)	185		(168)		(168)		34		2,024		416		(445)		137		218		2,233
Balance, end of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959

The allowance for credit losses increased during the quarter in response to loan growth along with an increase to the forecast adjustment. Broader market liquidity concerns and tightening credit conditions have added additional uncertainty and increased downside risks in the forecast period. Ongoing risks include a weakened domestic GDP outlook, persistent inflation, higher interest rates, and continued geopolitical uncertainty. Credit quality metrics remain relatively stable as evidenced by a modest decline in total special attention credit outstandings during the quarter and continued low delinquency rates. Charge-off activity during the quarter was offset with an uptick in recoveries leading to a net recovery position for the period. Total special attention balances were down slightly, but downgrades within the special attention pool during the quarter indicate some additional credit risk within the problem loan pool.

Commercial and agricultural – the increase in the allowance during the quarter was principally due to a change in mix within the commercial special attention pool towards higher risk rated loans which carry higher loss ratios along with the impact of the forecast adjustment.

Solar – the allowance decreased due to a decline in outstanding loan balances during the quarter. Credit quality is stable.

Auto and light truck – the allowance reported minimal change as continued growth in the auto rental and leasing sectors was offset by a decline in loan outstandings in higher risk sectors of the portfolio.

Medium and heavy duty truck – the allowance increased due to higher loan outstandings during the quarter. Credit quality metrics continue to be strong for this portfolio. Energy price volatility and driver availability remain a challenge.

Aircraft – the allowance decreased due to lower loan outstandings in both the domestic and foreign sectors. The portfolio is currently bolstered by strong collateral values somewhat offset by continuing economic concerns related primarily to Latin American-based foreign loans. The Company has historically carried a higher allowance in this portfolio due to risk volatility.

Construction equipment – the allowance increased primarily due to strong loan growth in the portfolio.

Commercial real estate – the allowance increased during the quarter due to loan growth along with the impact of the forecast adjustment.

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

Consumer – the allowance decreased slightly due to lower loan outstandings during the period.

Economic Outlook

As of March 31, 2023, the most significant economic factors impacting the Company’s loan portfolios are a weakened domestic growth outlook, exacerbated by persistent inflation, higher interest rates and the protracted war in Ukraine and resultant increased geopolitical uncertainty. Recent market liquidity events have added uncertainty and the Company is concerned about the impact of tighter credit conditions on the economy and the effect that may have on future economic growth. The forecast considers global and domestic economic impacts from these factors as well as other key economic factors such as change in gross domestic product and unemployment which may impact the Company’s clients. The Company’s assumption was that economic growth will slow markedly in 2023 and 2024 and inflation will remain well above the 2% Federal Reserve target rate resulting in an adverse impact on the loan and lease portfolio over the next two years.

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

Liability for Credit Losses on Unfunded Loan Commitments

The liability for credit losses inherent in unfunded loan commitments is included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition. The following table shows the changes in the liability for credit losses on unfunded loan commitments.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Balance, beginning of period	$	5,616	$	4,196
Provision	1,035		728
Balance, end of period	$	6,651	$	4,924

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Lease Investments

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Lease Investments

Lease Investments

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Solar, Auto and Light Truck, Medium and Heavy Duty Truck, Aircraft, and Construction Equipment on the Consolidated Statements of Financial Condition. The Company also finances various types of construction equipment, medium and heavy duty trucks, automobiles and other equipment under leases classified as operating leases, which are included in Equipment Owned Under Operating Leases, net, on the Consolidated Statements of Financial Condition.

The following table shows interest income recognized from direct finance lease payments and operating lease equipment rental income and related depreciation expense.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Direct finance leases:
Interest income on lease receivable	$	3,121	$	1,781
Operating leases:
Income related to lease payments	$	2,503	$	3,662
Depreciation expense	2,022		3,015

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three months ended March 31, 2023 and 2022 was $0.22 million and $0.20 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three months ended March 31, 2023 and 2022 was $0.22 million and $0.20 million, respectively.

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Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2023

Transfers and Servicing of Financial Assets [Abstract]

Mortgage Servicing Rights

Mortgage Servicing Rights

The Company recognizes the rights to service residential mortgage loans for others as separate assets, whether the servicing rights are acquired through a separate purchase or through the sale of originated loans with servicing rights retained. The Company allocates a portion of the total proceeds of a mortgage loan to servicing rights based on the relative fair value. The unpaid principal balance of residential mortgage loans serviced for third parties was $838.24 million and $848.96 million at March 31, 2023 and December 31, 2022, respectively.

Mortgage servicing rights (MSRs) are evaluated for impairment at each reporting date. For purposes of impairment measurement, MSRs are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type. If temporary impairment exists within a tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced through a recovery of income.

The following table shows changes in the carrying value of MSRs and the associated valuation allowance.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Mortgage servicing rights:
Balance at beginning of period	$	4,137	$	4,671
Additions	91		335
Amortization	(221)		(381)
Carrying value before valuation allowance at end of period	4,007		4,625
Valuation allowance:
Balance at beginning of period	—		—
Impairment recoveries	—		—
Balance at end of period	$	—	$	—
Net carrying value of mortgage servicing rights at end of period	$	4,007	$	4,625
Fair value of mortgage servicing rights at end of period	$	8,053	$	6,363

At March 31, 2023 and 2022, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $4.05 million and $1.74 million, respectively. This difference represents increases in the fair value of certain MSRs that could not be recorded above cost basis.

Mortgage loan contractual servicing fees, including late fees and ancillary income, were $0.66 million and $0.72 million for the three months ended March 31, 2023 and 2022, respectively. Mortgage loan contractual servicing fees are included in Mortgage Banking on the Consolidated Statements of Income.

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Commitments and Financial Instruments with Off-Balance-Sheet Risk

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Financial Instruments with Off-Balance-Sheet Risk

Commitments and Financial Instruments with Off-Balance-Sheet Risk

Financial Instruments with Off-Balance-Sheet Risk — 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

The following table shows financial instruments whose contract amounts represent credit risk.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Amounts of commitments:
Loan commitments to extend credit	$	1,303,869	$	1,234,866
Standby letters of credit	$	17,782	$	18,055
Commercial and similar letters of credit	$	1,960	$	2,368

The exposure to credit loss in the event of nonperformance by the other party to the financial instruments for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The Company grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments that guarantee the performance of a client to a third party. The credit risk involved in and collateral obtained when issuing standby letters of credit is essentially the same as that involved in extending loan commitments to clients. Standby letters of credit generally have terms ranging from two months to one year.

Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. Commercial letters of credit generally have terms ranging from two months to six months.

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments. See Note 8 for further information.

The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Statements of Financial Condition and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations.

The following table shows the amounts of non-hedging derivative financial instruments.

			Asset derivatives			Liability derivatives
(Dollars in thousands)	Notional or contractual amount		Statement of Financial Condition classification	Fair value		Statement of Financial Condition classification	Fair value
March 31, 2023
Interest rate swap contracts	$	866,390	Other assets	$	19,724	Other liabilities	$	20,094
Loan commitments	3,495		Mortgages held for sale	92		N/A	—
Forward contracts - mortgage loan	4,000		N/A	—		Mortgages held for sale	16
Total	$	873,885		$	19,816		$	20,110
December 31, 2022
Interest rate swap contracts	$	881,600	Other assets	$	24,838	Other liabilities	$	25,307
Loan commitments	2,638		Mortgages held for sale	67		N/A	—
Forward contracts - mortgage loan	3,750		Mortgages held for sale	24		N/A	—
Total	$	887,988		$	24,929		$	25,307

The following table shows the amounts included in the Consolidated Statements of Income for non-hedging derivative financial instruments.

		Gain (loss)
		Three Months Ended March 31,
(Dollars in thousands)	Statement of Income classification	2023		2022
Interest rate swap contracts	Other expense	$	99	$	237
Interest rate swap contracts	Other income	195		—
Loan commitments	Mortgage banking	25		(165)
Forward contracts - mortgage loan	Mortgage banking	(40)		211
Total		$	279	$	283

The following table shows the offsetting of financial assets and derivative assets.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
March 31, 2023
Interest rate swaps	$	19,724	$	—	$	19,724	$	—	$	20,155	$	(431)
December 31, 2022
Interest rate swaps	$	24,838	$	—	$	24,838	$	—	$	25,295	$	(457)

The following table shows the offsetting of financial liabilities and derivative liabilities.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2023
Interest rate swaps	$	20,094	$	—	$	20,094	$	—	$	—	$	20,094
Repurchase agreements	73,396		—		73,396		73,396		—		—
Total	$	93,490	$	—	$	93,490	$	73,396	$	—	$	20,094
December 31, 2022
Interest rate swaps	$	25,307	$	—	$	25,307	$	—	$	—	$	25,307
Repurchase agreements	141,432		—		141,432		141,432		—		—
Total	$	166,739	$	—	$	166,739	$	141,432	$	—	$	25,307

If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against obligations owing in respect of any other transactions. At March 31, 2023 and December 31, 2022, repurchase agreements had a remaining contractual maturity of $70.71 million and $138.08 million in overnight and $2.69 million and $3.35 million in up to 30 days, respectively and were collateralized by U.S. Treasury and Federal agencies securities.

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Variable Interest Entities

3 Months Ended

Mar. 31, 2023

Variable Interest Entities [Abstract]

Variable Interest Entities Disclosure

Variable Interest Entities

A variable interest entity (VIE) is a partnership, limited liability company, trust or other legal entity that meets any one of the following criteria:

•The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party.

•The entity’s investors lack the power to direct the activities that most significantly affect the entity’s economic performance.

•The entity’s at-risk holders do not have the obligation to absorb the losses or the right to receive residual returns.

•The voting rights of some investors are not proportional to their economic interests in the entity, and substantially all of the entity’s activities involve, or are conducted on behalf of, investors with disproportionately few voting rights.

The Company is involved in various entities that are considered to be VIEs. The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. Tax credits from affordable housing investments and community development investments are recognized as a reduction of tax expense. Investments in renewable energy sources qualify for investment tax credits which are recognized as a reduction to the related investment asset. The Company recognized federal income tax credits related to its affordable housing and community development tax-advantaged investments in tax expense of $0.66 million and $0.50 million for the three months ended March 31, 2023 and 2022, respectively. The Company also recognized $17.49 million and $0.00 million of investment tax credits for the three months ended March 31, 2023 and 2022, respectively.

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. As a limited partner in these operating partnerships, the Company is allocated credits and deductions associated with the underlying properties. The Company has determined that it is not the primary beneficiary of these investments because the general partners have the power to direct activities that most significantly influence the economic performance of their respective partnerships.

The Company’s investments in these unconsolidated VIEs are carried in Other Assets on the Consolidated Statements of Financial Condition. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in Other Liabilities on the Consolidated Statements of Financial Condition. The Company’s maximum exposure to loss from these unconsolidated VIEs includes the investment recorded on the Company’s Consolidated Statements of Financial Condition, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business, housing projects and renewable energy projects completely fail and do not meet certain taxing authority compliance requirements resulting in recapture of the related tax credits.

The following table provides a summary of investments in affordable housing, community development and renewable energy VIEs that the Company has not consolidated.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Investment carrying amount	$	53,691	$	70,887
Unfunded capital and other commitments	62,097		64,520
Maximum exposure to loss	45,302		45,020

The Company is required to consolidate VIEs in which it has concluded it has significant involvement in and the ability to direct the activities that impact the entity’s economic performance. The Company is the managing general partner of entities to which it shares interest in tax-advantaged investments with third parties. At March 31, 2023 and December 31, 2022, approximately $65.79 million and $66.26 million, respectively, of the Company’s assets and $0.00 million and $0.00 million, respectively, of its liabilities included on the Consolidated Statements of Financial Condition were related to tax-advantaged investment VIEs which the Company has consolidated, respectively. The assets of the consolidated VIEs are reported in Other Assets, the liabilities are reported in Other Liabilities and the non-controlling interest is reported in Equity on the Consolidated Statements of Financial Condition. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIE do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIE is generally limited to the carrying value of its variable interest plus any related tax credits previously recognized.

Additionally, the Company sponsors one trust, 1st Source Master Trust (Capital Trust) of which 100% of the common equity is owned by the Company. The Capital Trust was formed in 2007 for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the capital securities) to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debenture securities of the Company (the subordinated notes). The subordinated notes held by the Capital Trust are the sole assets of the Capital Trust. The Capital Trust qualifies as a variable interest entity for which the Company is not the primary beneficiary and is therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes on the Consolidated Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense on the Consolidated Statements of Income. The common shares issued by the Capital Trust are included in Other Assets on the Consolidated Statements of Financial Condition.

Distributions on the capital securities issued by the Capital Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Capital Trust on the subordinated notes held by the Capital Trust. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated notes. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the Capital Trust qualify as Tier 1 capital under Federal Reserve Board guidelines.

The following table shows subordinated notes at March 31, 2023.

(Dollars in thousands)	Amount of Subordinated Notes		Interest Rate		Maturity Date
June 2007 issuance (1)	$	41,238	7.22	%	6/15/2037
August 2007 issuance (2)	17,526		6.35	%	9/15/2037
Total	$	58,764

(1) Fixed rate through life of debt.

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

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Earnings Per Share

3 Months Ended

Mar. 31, 2023

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards. Non-vested restricted stock awards are considered participating securities to the extent the holders of these securities receive non-forfeitable dividends at the same rate as holders of common stock. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Stock options, where the exercise price was greater than the average market price of the common shares, were excluded from the computation of diluted earnings per common share because the result would have been antidilutive. There were no stock options outstanding as of March 31, 2023 and 2022. The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share.

	Three Months Ended March 31,
(Dollars in thousands - except per share amounts)	2023		2022
Distributed earnings allocated to common stock	$	7,892	$	7,672
Undistributed earnings allocated to common stock	22,977		19,516
Net earnings allocated to common stock	30,869		27,188
Net earnings allocated to participating securities	255		202
Net income allocated to common stock and participating securities	$	31,124	$	27,390
Weighted average shares outstanding for basic earnings per common share	24,687,087		24,743,790
Dilutive effect of stock compensation	—		—
Weighted average shares outstanding for diluted earnings per common share	24,687,087		24,743,790
Basic earnings per common share	$	1.25	$	1.10
Diluted earnings per common share	$	1.25	$	1.10

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Stock Based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

Stock Based Compensation

Stock Based CompensationAs of March 31, 2023, the Company had four active stock-based employee compensation plans, which are more fully described in Note 16 of the Consolidated Financial Statements in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2022. These plans include three executive stock award plans, the Executive Incentive Plan (EIP), the Restricted Stock Award Plan (RSAP), the Strategic Deployment Incentive Plan (SDP); and the Employee Stock Purchase Plan (ESPP). The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011 but the Company had not made any grants through March 31, 2023.

Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value. For all awards except stock option awards, the grant date fair value is either the fair market value per share or book value per share (corresponding to the type of stock awarded) as of the grant date. For stock option awards, the grant date fair value is estimated using the Black-Scholes option pricing model. For all awards, the Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, for which the Company uses the related vesting term.

Total fair value of options vested and expensed was zero for the three months ended March 31, 2023 and 2022. As of March 31, 2023 and 2022 there were no outstanding stock options. There were no stock options exercised during the three months ended March 31, 2023 and 2022. All shares issued in connection with stock option exercises are issued from available treasury stock.

As of March 31, 2023, there was $12.66 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 3.72 years.

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2023

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The following table presents reclassifications out of accumulated other comprehensive income (loss) related to unrealized gains and losses on available-for-sale securities.

	Three Months Ended March 31,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2023		2022
Realized losses included in net income	$	(44)	$	—	Losses on investment securities available-for-sale
	(44)		—		Income before income taxes
Tax effect	10		—		Income tax expense
Net of tax	$	(34)	$	—	Net income

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Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was zero at March 31, 2023 and December 31, 2022. Interest and penalties are recognized through the income tax provision. For the three months ended March 31, 2023 and 2022, the Company recognized no interest or penalties. There were no accrued interest and penalties at March 31, 2023 and December 31, 2022.

Tax years that remain open and subject to audit include the federal 2019-2022 years and the Indiana 2019-2022 years. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are also utilized to determine the initial value of certain assets and liabilities, to perform impairment assessments, and for disclosure purposes. The Company uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market prices, various valuation techniques are utilized to measure fair value. When possible, observable market data for identical or similar financial instruments is used in the valuation. When market data is not available, fair value is determined using valuation models that incorporate management’s estimates of the assumptions a market participant would use in pricing the asset or liability.

Fair value measurements are classified within one of three levels based on the observability of the inputs used to determine fair value, as follows:

•Level 1 — The valuation is based on quoted prices in active markets for identical instruments.

•Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•Level 3 — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company elected fair value accounting for mortgages held for sale and for its best-efforts forward sales commitments. The Company economically hedges its mortgages held for sale at the time the interest rate locks are issued to the customers. The Company believes the election for mortgages held for sale will reduce certain timing differences and better match changes in the value of these assets with changes in the value of derivatives or best-best efforts forward sales commitments. At March 31, 2023 and December 31, 2022, all mortgages held for sale were carried at fair value.

The following table shows the differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount the Company is contractually entitled to receive at maturity.

(Dollars in thousands)	Fair value  carrying amount		Aggregate unpaid principal		Excess of fair value carrying amount over (under) unpaid principal
March 31, 2023
Mortgages held for sale reported at fair value	$	2,068	$	1,944	$	124	(1)
December 31, 2022
Mortgages held for sale reported at fair value	$	3,914	$	3,766	$	148	(1)

(1)The excess of fair value carrying amount over (under) unpaid principal is included in mortgage banking income and includes changes in fair value at and subsequent to funding and gains and losses on the related loan commitment prior to funding.

Financial Instruments on Recurring Basis:

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis:

Investment securities available-for-sale are valued primarily by a third party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies and assumptions, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market levels. In general, the Company’s investment securities do not possess a complex structure that could introduce greater valuation risk. The portfolio mainly consists of traditional investments including U.S. Treasury and Federal agencies securities, Federal agency mortgage pass-through securities, and general obligation and revenue municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to prices obtained from other third party sources for a material portion of the portfolio.

The valuation policy and procedures for Level 3 fair value measurements of available-for-sale debt securities are decided through collaboration between management of the Corporate Accounting and Funds Management departments. The changes in fair value measurement for Level 3 securities are analyzed on a periodic basis under a collaborative framework with the aforementioned departments. The methodology and variables used for input are derived from the combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

Both the market and income valuation approaches are implemented using the following types of inputs:

•U.S. treasuries are priced using the market approach and utilizing live data feeds from active market exchanges for identical securities.

•Government-sponsored agency debt securities and corporate bonds are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.

•Other government-sponsored agency securities, mortgage-backed securities and some of the actively traded REMICs and CMOs, are primarily priced using available market information including benchmark yields, prepayment speeds, spreads and volatility of similar securities.

•State and political subdivisions are largely grouped by characteristics, i.e., geographical data and source of revenue in trade dissemination systems. Since some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. Local direct placement municipal securities, with very little market activity, are priced using an appropriate market yield curve, which includes a credit spread assumption.

Mortgages held for sale and the related loan commitments and forward contracts (hedges) are valued by a third party pricing agent. Prices supplied by the independent pricing agent, as well as their pricing methodologies, are reviewed by the Company for reasonableness and to ensure such prices are aligned with market values. On a quarterly basis, prices supplied by the pricing agent are validated by comparison to the prices obtained from other third party sources.

Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters. This valuation process considers various factors including interest rate yield curves, time value and volatility factors. Validation of third party agent valuations is accomplished by comparing those values to the Company’s swap counterparty valuations. Management believes an adjustment is required to “mid-market” valuations for derivatives tied to its performing loan portfolio to recognize the imprecision and related exposure inherent in the process of estimating expected credit losses as well as velocity of deterioration evident with systemic risks embedded in these portfolios. Any change in the mid-market derivative valuation adjustment will be recognized immediately through the Consolidated Statements of Income.

The following table shows the balance of assets and liabilities measured at fair value on a recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	548,587	$	426,634	$	—	$	975,221
U.S. States and political subdivisions securities	—		103,554		4,321		107,875
Mortgage-backed securities — Federal agencies	—		618,612		—		618,612
Corporate debt securities	—		11,195		—		11,195
Foreign government and other securities	—		577		—		577
Total debt securities available-for-sale	548,587		1,160,572		4,321		1,713,480
Mortgages held for sale	—		2,068		—		2,068
Accrued income and other assets (interest rate swap agreements)	—		19,724		—		19,724
Total	$	548,587	$	1,182,364	$	4,321	$	1,735,272
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	20,094	$	—	$	20,094
Total	$	—	$	20,094	$	—	$	20,094
December 31, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	573,679	$	424,919	$	—	$	998,598
U.S. States and political subdivisions securities	—		121,298		1,464		122,762
Mortgage-backed securities — Federal agencies	—		637,058		—		637,058
Corporate debt securities	—		16,131		—		16,131
Foreign government and other securities	—		579		—		579
Total debt securities available-for-sale	573,679		1,199,985		1,464		1,775,128
Mortgages held for sale	—		3,914		—		3,914
Accrued income and other assets (interest rate swap agreements)	—		24,838		—		24,838
Total	$	573,679	$	1,228,737	$	1,464	$	1,803,880
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	25,307	$	—	$	25,307
Total	$	—	$	25,307	$	—	$	25,307

The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the quarter ended March 31, 2023 and 2022.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance January 1, 2023	$	1,464
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	32
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(175)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2023	$	4,321
Beginning balance January 1, 2022	$	1,849
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(155)
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(165)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2022	$	4,529

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023 or 2022.

The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring basis.

(Dollars in thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Debt securities available-for sale
Direct placement municipal securities	$	4,321	Discounted cash flows	Credit spread assumption	3.49% - 4.59%	3.68	%
December 31, 2022
Debt securities available-for sale
Direct placement municipal securities	$	1,464	Discounted cash flows	Credit spread assumption	0.22% - 4.09%	3.49	%

Financial Instruments on Non-recurring Basis:

The Company may be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets.

The Credit Policy Committee (CPC), a management committee, is responsible for overseeing the valuation processes and procedures for Level 3 measurements of impaired loans, other real estate and repossessions. The CPC reviews these assets on a quarterly basis to determine the accuracy of the observable inputs, generally third party appraisals, auction values, values derived from trade publications and data submitted by the borrower, and the appropriateness of the unobservable inputs, generally discounts due to current market conditions and collection issues. The CPC establishes discounts based on asset type and valuation source; deviations from the standard are documented. The discounts are reviewed periodically, annually at a minimum, to determine they remain appropriate. Consideration is given to current trends in market values for the asset categories and gains and losses on sales of similar assets. The Loan and Funds Management Committee of the Board of Directors is responsible for overseeing the CPC.

Discounts vary depending on the nature of the assets and the source of value. Aircraft are generally valued using quarterly trade publications adjusted for engine time, condition, maintenance programs, discounted by 10%. Likewise, autos are valued using current auction values, discounted by 10%; medium and heavy duty trucks are valued using trade publications and auction values, discounted by 15%. Construction equipment is generally valued using trade publications and auction values, discounted by 20%. Real estate is valued based on appraisals or evaluations, discounted by 20% with higher discounts for property in poor condition or property with characteristics which may make it more difficult to market. Commercial loans subject to borrowing base certificates are generally discounted by 20% for receivables and 40% - 75% for inventory with higher discounts when monthly borrowing base certificates are not required or received.

Collateral-dependent impaired loans and related write-downs are based on the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are reviewed quarterly and estimated using customized discounting criteria, appraisals and dealer and trade magazine quotes which are used in a market valuation approach. In accordance with fair value measurements, only impaired loans for which an allowance for loan loss has been established based on the fair value of collateral require classification in the fair value hierarchy. As a result, only a portion of the Company’s impaired loans are classified in the fair value hierarchy.

The Company has established MSRs valuation policies and procedures based on industry standards and to ensure valuation methodologies are consistent and verifiable. MSRs and related adjustments to fair value result from application of lower of cost or fair value accounting. For purposes of impairment, MSRs are stratified based on the predominant risk characteristics of the underlying servicing, principally by loan type. The fair value of each tranche of the servicing portfolio is estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors. Prepayment rates and discount rates are derived through a third party pricing agent. Changes in the most significant inputs, including prepayment rates and discount rates, are compared to the changes in the fair value measurements and appropriate resolution is made. A fair value analysis is also obtained from an independent third party agent and compared to the internal valuation for reasonableness. MSRs do not trade in an active, open market with readily observable prices and though sales of MSRs do occur, precise terms and conditions typically are not readily available and the characteristics of the Company’s servicing portfolio may differ from those of any servicing portfolios that do trade.

Other real estate is based on the fair value of the underlying collateral less expected selling costs. Collateral values are estimated primarily using appraisals and reflect a market value approach. Fair values are reviewed quarterly, and new appraisals are obtained annually. Repossessions are similarly valued.

For assets measured at fair value on a nonrecurring basis the following represents impairment charges (recoveries) recognized on these assets during the quarter ended March 31, 2023: collateral-dependent impaired loans - $0.00 million; mortgage servicing rights - $0.00 million; repossessions - $0.00 million; and other real estate - $0.00 million.

The following table shows the carrying value of assets measured at fair value on a non-recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Collateral-dependent impaired loans	$	—	$	—	$	213	$	213
Accrued income and other assets (mortgage servicing rights)	—		—		4,007		4,007
Accrued income and other assets (repossessions)	—		—		445		445
Accrued income and other assets (other real estate)	—		—		117		117
Total	$	—	$	—	$	4,782	$	4,782
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	$	—	$	—
Accrued income and other assets (mortgage servicing rights)	—		—		4,137		4,137
Accrued income and other assets (repossessions)	—		—		327		327
Accrued income and other assets (other real estate)	—		—		104		104
Total	$	—	$	—	$	4,568	$	4,568

The following table below shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a non-recurring basis.

(Dollars in thousands)	Carrying Value		Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Collateral-dependent impaired loans	$	213	$	213	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	10% - 30%	27.6	%
Mortgage servicing rights	4,007		8,053		Discounted cash flows	Constant prepayment rate (CPR)	7.3% - 12.7%	7.9	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	445		487		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	5	%
Other real estate	117		117		Appraisals	Discount for lack of marketability	0% - 0%	0	%
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	0% - 0%	0.0	%
Mortgage servicing rights	4,137		8,007		Discounted cash flows	Constant prepayment rate (CPR)	7.6% - 9.6%	8.2	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	327		370		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	7	%
Other real estate	104		104		Appraisals	Discount for lack of marketability	0% - 0%	0	%

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

The following table shows the fair values of the Company’s financial instruments.

(Dollars in thousands)	Carrying or Contract Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2023
Assets:
Cash and due from banks	$	66,866	$	66,866	$	66,866	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	27,171		27,171		27,171		—		—
Investment securities, available-for-sale	1,713,480		1,713,480		548,587		1,160,572		4,321
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	2,068		2,068		—		2,068		—
Loans and leases, net of allowance for loan and lease losses	5,974,205		5,839,491		—		—		5,839,491
Mortgage servicing rights	4,007		8,053		—		—		8,053
Accrued interest receivable	24,872		24,872		—		24,872		—
Interest rate swaps	19,724		19,724		—		19,724		—
Liabilities:
Deposits	$	6,801,464	$	6,787,043	$	5,390,359	$	1,396,684	$	—
Short-term borrowings	303,036		303,036		71,856		231,180		—
Long-term debt and mandatorily redeemable securities	46,714		45,471		—		45,471		—
Subordinated notes	58,764		53,297		—		53,297		—
Accrued interest payable	13,598		13,598		—		13,598		—
Interest rate swaps	20,094		20,094		—		20,094		—
Off-balance-sheet instruments *	—		99		—		99		—
December 31, 2022
Assets:
Cash and due from banks	$	84,703	$	84,703	$	84,703	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	38,094		38,094		38,094		—		—
Investment securities, available-for-sale	1,775,128		1,775,128		573,679		1,199,985		1,464
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	3,914		3,914		—		3,914		—
Loans and leases, net of allowance for loan and lease losses	5,871,894		5,712,972		—		—		5,712,972
Mortgage servicing rights	4,137		8,007		—		—		8,007
Accrued interest receivable	24,747		24,747		—		24,747		—
Interest rate swaps	24,838		24,838		—		24,838		—
Liabilities:
Deposits	$	6,928,265	$	6,909,392	$	5,787,806	$	1,121,586	$	—
Short-term borrowings	215,529		215,529		139,079		76,450		—
Long-term debt and mandatorily redeemable securities	46,555		45,111		—		45,111		—
Subordinated notes	58,764		51,398		—		51,398		—
Accrued interest payable	5,999		5,999		—		5,999		—
Interest rate swaps	25,307		25,307		—		25,307		—
Off-balance-sheet instruments *	—		108		—		108		—

* Represents estimated cash outflows required to currently settle the obligations at current market rates.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. These estimates are subjective in nature and require considerable judgment to interpret market data. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange, nor are they intended to represent the fair value of the Company as a whole. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of the respective balance sheet date. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.

Other significant assets, such as premises and equipment, other assets, and liabilities not defined as financial instruments, are not included in the above disclosures. Also, the fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

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Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation – The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K (2022 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Statement of Financial Condition at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation.

Use of Estimates in the Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements – Financial statements prepared in accordance with GAAP require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

Loans and Leases

Loans and Leases – Loans are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. Interest income is accrued as earned based on unpaid principal balances. Origination fees and direct loan and lease origination costs are deferred, and the net amount amortized to interest income over the estimated life of the related loan or lease. Loan commitment fees are deferred and amortized into other income over the commitment period.

Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, net of unamortized deferred lease origination fees and costs and unearned income. Only those costs incurred as a direct result of closing a lease transaction are capitalized and all other initial direct costs are expensed immediately. Interest income on direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.

Accrued interest is included in Accrued Income and Other Assets on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses. The accrual of interest on loans and leases is discontinued when a loan or lease becomes contractually delinquent for 90 days, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential mortgage loans and consumer loans that are well secured and in the process of collection. Residential mortgage loans are placed on nonaccrual at the time the loan is placed in foreclosure. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan and lease losses. However, in some cases, the Company may elect to continue the accrual of interest when the net realizable value of collateral is sufficient to cover the principal and accrued interest. When a loan or lease is classified as nonaccrual and the future collectability of the recorded loan or lease balance is doubtful, collections on interest and principal are applied as a reduction to principal outstanding. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, which is typically evidenced by a sustained repayment performance of at least six months.

Occasionally, the Company modifies loans and leases to borrowers in financial distress (typically denoted by internal credit quality graded “substandard” or worse) by providing term extensions, other-than-insignificant payment delays, or interest rate reductions. In some cases, a combination of modifications are made to the same loan or lease. These modifications typically result from the Company’s loss mitigation activities. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for loan and lease losses estimate or a charge-off to the allowance for loan and lease losses.

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Schedule of investment securities available-for-sale

The following table shows investment securities available-for-sale.

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2023
U.S. Treasury and Federal agencies securities	$	1,052,191	$	—	$	(76,970)	$	975,221
U.S. States and political subdivisions securities	114,237		412		(6,774)		107,875
Mortgage-backed securities — Federal agencies	702,499		35		(83,922)		618,612
Corporate debt securities	11,476		—		(281)		11,195
Foreign government and other securities	600		—		(23)		577
Total debt securities available-for-sale	$	1,881,003	$	447	$	(167,970)	$	1,713,480
December 31, 2022
U.S. Treasury and Federal agencies securities	$	1,090,743	$	—	$	(92,145)	$	998,598
U.S. States and political subdivisions securities	130,670		591		(8,499)		122,762
Mortgage-backed securities — Federal agencies	730,672		60		(93,674)		637,058
Corporate debt securities	16,486		—		(355)		16,131
Foreign government and other securities	600		—		(21)		579
Total debt securities available-for-sale	$	1,969,171	$	651	$	(194,694)	$	1,775,128

Schedule of contractual maturities of investments in debt securities available-for-sale

The following table shows the contractual maturities of investments in debt securities available-for-sale at March 31, 2023. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	96,181	$	94,493
Due after one year through five years	1,040,653		960,875
Due after five years through ten years	17,843		15,396
Due after ten years	23,827		24,104
Mortgage-backed securities	702,499		618,612
Total debt securities available-for-sale	$	1,881,003	$	1,713,480

Schedule of gross unrealized losses and fair value by investment category and age

The following table summarizes gross unrealized losses and fair value by investment category and age. At March 31, 2023, the Company’s available-for-sale securities portfolio consisted of 717 securities, 650 of which were in an unrealized loss position.

	Less than 12 Months				12 months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2023
U.S. Treasury and Federal agencies securities	$	14,465	$	(292)	$	960,756	$	(76,678)	$	975,221	$	(76,970)
U.S. States and political subdivisions securities	19,458		(331)		63,258		(6,443)		82,716		(6,774)
Mortgage-backed securities - Federal agencies	90,318		(2,945)		524,803		(80,977)		615,121		(83,922)
Corporate debt securities	3,317		(10)		7,878		(271)		11,195		(281)
Foreign government and other securities	—		—		577		(23)		577		(23)
Total debt securities available-for-sale	$	127,558	$	(3,578)	$	1,557,272	$	(164,392)	$	1,684,830	$	(167,970)
December 31, 2022
U.S. Treasury and Federal agencies securities	$	164,481	$	(6,299)	$	834,117	$	(85,846)	$	998,598	$	(92,145)
U.S. States and political subdivisions securities	57,592		(2,126)		38,834		(6,373)		96,426		(8,499)
Mortgage-backed securities - Federal agencies	198,469		(13,482)		426,989		(80,192)		625,458		(93,674)
Corporate debt securities	16,132		(355)		—		—		16,132		(355)
Foreign government and other securities	484		(16)		95		(5)		579		(21)
Total debt securities available-for-sale	$	437,158	$	(22,278)	$	1,300,035	$	(172,416)	$	1,737,193	$	(194,694)

Schedule of gross realized gains and losses from securities available-for-sale portfolio

The following table shows the gross realized gains and losses from the available-for-sale debt securities portfolio. Realized gains and losses of all securities are computed using the specific identification cost basis.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Gross realized gains	$	1,286	$	—
Gross realized losses	(1,330)		—
Net realized losses	$	(44)	$	—

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Loan and Lease Financings (Tables)

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Schedule of amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, credit quality rating and year of origination as of March 31, 2023 and gross charge-offs for the three months ended March 31, 2023.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	45,821	$	149,606	$	99,146	$	62,310	$	29,946	$	27,265	$	346,317	$	—	$	760,411
Grades 7-12	500		3,464		6,231		184		1,407		2,207		21,025		—		35,018
Total commercial and agricultural	46,321		153,070		105,377		62,494		31,353		29,472		367,342		—		795,429
Current period gross charge-offs	—		411		—		13		—		—		140		—		564
Solar
Grades 1-6	3,777		108,743		106,603		34,112		72,254		38,906		—		—		364,395
Grades 7-12	—		—		—		1,086		5,634		4,215		—		—		10,935
Total solar	3,777		108,743		106,603		35,198		77,888		43,121		—		—		375,330
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Auto and light truck
Grades 1-6	190,009		455,563		127,423		47,856		26,206		11,049		—		—		858,106
Grades 7-12	888		5,487		1,540		4,940		2,264		2,339		—		—		17,458
Total auto and light truck	190,897		461,050		128,963		52,796		28,470		13,388		—		—		875,564
Current period gross charge-offs	—		—		25		5		19		63		—		—		112
Medium and heavy duty truck
Grades 1-6	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Grades 7-12	—		—		—		—		—		—		—		—		—
Total medium and heavy duty truck	41,739		149,331		60,669		37,513		27,527		9,809		—		—		326,588
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Aircraft
Grades 1-6	26,669		425,103		255,143		201,937		53,072		61,214		5,865		—		1,029,003
Grades 7-12	2,502		11,362		7,059		5,896		—		1,007		—		—		27,826
Total aircraft	29,171		436,465		262,202		207,833		53,072		62,221		5,865		—		1,056,829
Current period gross charge-offs	—		—		—		—		—		—		—		—		—
Construction equipment
Grades 1-6	142,305		442,999		188,726		95,472		51,591		15,529		18,496		2,912		958,030
Grades 7-12	—		19,676		4,986		1,514		1,618		84		136		5,368		33,382
Total construction equipment	142,305		462,675		193,712		96,986		53,209		15,613		18,632		8,280		991,412
Current period gross charge-offs	—		—		1		—		—		—		—		—		1
Commercial real estate
Grades 1-6	51,163		256,208		162,337		117,541		95,078		254,145		336		—		936,808
Grades 7-12	38		1,969		1,695		7,630		5,057		1,024		—		—		17,413
Total commercial real estate	51,201		258,177		164,032		125,171		100,135		255,169		336		—		954,221
Current period gross charge-offs	—		39		—		—		—		—		—		—		39
Residential real estate and home equity
Performing	20,510		113,006		99,425		95,591		32,888		83,659		144,185		3,946		593,210
Nonperforming	—		—		—		—		414		729		190		75		1,408
Total residential real estate and home equity	20,510		113,006		99,425		95,591		33,302		84,388		144,375		4,021		594,618
Current period gross charge-offs	—		—		—		—		—		—		1		—		1
Consumer
Performing	15,137		67,476		30,376		10,658		5,797		2,578		14,471		—		146,493
Nonperforming	—		75		43		46		51		17		—		—		232
Total consumer	15,137		67,551		30,419		10,704		5,848		2,595		14,471		—		146,725
Current period gross charge-offs	$	112	$	174	$	30	$	1	$	4	$	—	$	3	$	—	$	324

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

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	159,317	$	107,232	$	71,365	$	35,874	$	17,192	$	13,860	$	370,553	$	—	$	775,393
Grades 7-12	4,491		5,934		60		2,094		1,644		1,040		21,375		—		36,638
Total commercial and agricultural	163,808		113,166		71,425		37,968		18,836		14,900		391,928		—		812,031
Solar
Grades 1-6	109,393		113,276		35,660		72,652		18,518		20,654		—		—		370,153
Grades 7-12	—		—		1,091		5,678		701		3,540		—		—		11,010
Total solar	109,393		113,276		36,751		78,330		19,219		24,194		—		—		381,163
Auto and light truck
Grades 1-6	521,399		155,508		62,063		32,975		10,946		3,476		—		—		786,367
Grades 7-12	5,972		3,366		5,836		2,836		1,792		1,948		—		—		21,750
Total auto and light truck	527,371		158,874		67,899		35,811		12,738		5,424		—		—		808,117
Medium and heavy duty truck
Grades 1-6	158,296		66,533		43,711		31,980		10,053		3,274		—		—		313,847
Grades 7-12	—		—		—		—		—		15		—		—		15
Total medium and heavy duty truck	158,296		66,533		43,711		31,980		10,053		3,289		—		—		313,862
Aircraft
Grades 1-6	438,481		273,726		213,661		57,379		31,085		35,012		3,687		—		1,053,031
Grades 7-12	12,962		4,253		6,190		—		—		1,286		—		—		24,691
Total aircraft	451,443		277,979		219,851		57,379		31,085		36,298		3,687		—		1,077,722
Construction equipment
Grades 1-6	475,854		213,349		106,409		59,204		17,834		4,593		23,310		2,754		903,307
Grades 7-12	20,709		7,757		2,483		1,878		313		32		583		1,441		35,196
Total construction equipment	496,563		221,106		108,892		61,082		18,147		4,625		23,893		4,195		938,503
Commercial real estate
Grades 1-6	271,526		164,173		121,685		97,470		102,271		168,391		251		—		925,767
Grades 7-12	1,532		1,716		7,824		5,789		47		1,070		—		—		17,978
Total commercial real estate	273,058		165,889		129,509		103,259		102,318		169,461		251		—		943,745
Residential real estate and home equity
Performing	115,154		100,690		97,205		34,498		6,864		81,653		142,724		4,115		582,903
Nonperforming	—		131		693		—		—		725		180		105		1,834
Total residential real estate and home equity	115,154		100,821		97,898		34,498		6,864		82,378		142,904		4,220		584,737
Consumer
Performing	74,258		34,619		12,924		7,375		2,977		692		18,098		—		150,943
Nonperforming	148		65		49		53		12		12		—		—		339
Total consumer	74,406		34,684		12,973		7,428		2,989		704		18,098		—		151,282

Schedule of amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status

The following table shows the amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing  Loans		Nonaccrual		Total Financing Receivables
March 31, 2023
Commercial and agricultural	$	793,509	$	836	$	—	$	—	$	794,345	$	1,084	$	795,429
Solar	375,330		—		—		—		375,330		—		375,330
Auto and light truck	865,316		32		—		—		865,348		10,216		875,564
Medium and heavy duty truck	326,588		—		—		—		326,588		—		326,588
Aircraft	1,055,282		—		1,007		—		1,056,289		540		1,056,829
Construction equipment	989,525		340		—		—		989,865		1,547		991,412
Commercial real estate	951,111		51		—		—		951,162		3,059		954,221
Residential real estate and home equity	592,464		623		123		24		593,234		1,384		594,618
Consumer	146,035		390		68		—		146,493		232		146,725
Total	$	6,095,160	$	2,272	$	1,198	$	24	$	6,098,654	$	18,062	$	6,116,716
December 31, 2022
Commercial and agricultural	$	810,223	$	944	$	—	$	—	$	811,167	$	864	$	812,031
Solar	381,163		—		—		—		381,163		—		381,163
Auto and light truck	793,610		353		1		—		793,964		14,153		808,117
Medium and heavy duty truck	313,845		—		2		—		313,847		15		313,862
Aircraft	1,075,865		223		1,063		—		1,077,151		571		1,077,722
Construction equipment	932,603		431		—		—		933,034		5,469		938,503
Commercial real estate	940,516		—		—		—		940,516		3,229		943,745
Residential real estate and home equity	582,053		562		288		49		582,952		1,785		584,737
Consumer	150,328		416		199		5		150,948		334		151,282
Total	$	5,980,206	$	2,929	$	1,553	$	54	$	5,984,742	$	26,420	$	6,011,162

Schedule of loan modifications to borrowers experiencing financing difficulties

The following table shows the amortized cost of loans and leases at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		% of Total Segment Financing Receivables
Commercial and agricultural	$	—	$	752	$	—	$	—	0.09	%
Construction equipment	—		3,912		—		—		0.39
Commercial real estate	—		—		511		—		0.05
Total	$	—	$	4,664	$	511	$	—	0.08	%

There were no commitments to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three months ended March 31, 2023.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
Commercial and agricultural	$	752	$	—	$	—	$	—	$	—
Construction equipment	3,912		—		—		—		—
Commercial real estate	511		—		—		—		—
Total	$	5,175	$	—	$	—	$	—	$	—

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

	Weighted- Average Interest Rate Reduction		Weighted- Average Term Extension (in months)
Commercial and agricultural	—	%	3
Construction equipment	—	%	5
Commercial real estate	3.00	%	—
Total	3.00	%	4

There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

Schedule of recorded investment in loans and leases classified as troubled debt restructuring

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

(Dollars in thousands)	December 31, 2022
Performing TDRs	$	—
Nonperforming TDRs	3,640
Total TDRs	$	3,640

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Allowance for Credit Losses (Tables)

3 Months Ended

Mar. 31, 2023

Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]

Schedule of changes in allowance for loan and lease losses, segregated by portfolio segment

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three months ended March 31, 2023 and 2022.

(Dollars in thousands)	Commercial and agricultural		Solar		Auto and light truck		Medium and heavy duty truck		Aircraft		Construction equipment		Commercial real estate		Residential real estate and home equity		Consumer		Total
March 31, 2023
Balance, beginning of period	$	14,635	$	7,217	$	18,634	$	7,566	$	41,093	$	24,039	$	17,431	$	6,478	$	2,175	$	139,268
Charge-offs	564		—		112		—		—		1		39		1		324		1,041
Recoveries	172		—		541		—		226		—		3		233		60		1,235
Net charge-offs (recoveries)	392		—		(429)		—		(226)		1		36		(232)		264		(194)
Provision (recovery of provision)	1,844		(929)		(505)		263		(1,186)		1,541		1,905		(89)		205		3,049
Balance, end of period	$	16,087	$	6,288	$	18,558	$	7,829	$	40,133	$	25,579	$	19,300	$	6,621	$	2,116	$	142,511
March 31, 2022
Balance, beginning of period	$	15,409	$	6,585	$	19,624	$	6,015	$	33,628	$	19,673	$	19,691	$	5,084	$	1,783	$	127,492
Charge-offs	—		—		—		—		—		48		—		4		165		217
Recoveries	4		—		65		—		316		—		—		1		65		451
Net charge-offs (recoveries)	(4)		—		(65)		—		(316)		48		—		3		100		(234)
Provision (recovery of provision)	185		(168)		(168)		34		2,024		416		(445)		137		218		2,233
Balance, end of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959

Schedule of changes in allowance for credit losses on unfunded loan commitments

The following table shows the changes in the liability for credit losses on unfunded loan commitments.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Balance, beginning of period	$	5,616	$	4,196
Provision	1,035		728
Balance, end of period	$	6,651	$	4,924

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Lease Investments (Tables)

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Schedule of the components of income from direct finance and operating lease equipment

The following table shows interest income recognized from direct finance lease payments and operating lease equipment rental income and related depreciation expense.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Direct finance leases:
Interest income on lease receivable	$	3,121	$	1,781
Operating leases:
Income related to lease payments	$	2,503	$	3,662
Depreciation expense	2,022		3,015

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Mortgage Servicing Rights (Tables)

3 Months Ended

Mar. 31, 2023

Transfers and Servicing of Financial Assets [Abstract]

Schedule of changes in carrying value of mortgage servicing rights and associated valuation allowance

The following table shows changes in the carrying value of MSRs and the associated valuation allowance.

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Mortgage servicing rights:
Balance at beginning of period	$	4,137	$	4,671
Additions	91		335
Amortization	(221)		(381)
Carrying value before valuation allowance at end of period	4,007		4,625
Valuation allowance:
Balance at beginning of period	—		—
Impairment recoveries	—		—
Balance at end of period	$	—	$	—
Net carrying value of mortgage servicing rights at end of period	$	4,007	$	4,625
Fair value of mortgage servicing rights at end of period	$	8,053	$	6,363

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Commitments and Financial Instruments with Off-Balance-Sheet Risk (Tables)

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Schedule of financial instruments whose contract amounts represent credit risk

The following table shows financial instruments whose contract amounts represent credit risk.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Amounts of commitments:
Loan commitments to extend credit	$	1,303,869	$	1,234,866
Standby letters of credit	$	17,782	$	18,055
Commercial and similar letters of credit	$	1,960	$	2,368

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Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of amounts of non-hedging derivative financial instruments

The following table shows the amounts of non-hedging derivative financial instruments.

			Asset derivatives			Liability derivatives
(Dollars in thousands)	Notional or contractual amount		Statement of Financial Condition classification	Fair value		Statement of Financial Condition classification	Fair value
March 31, 2023
Interest rate swap contracts	$	866,390	Other assets	$	19,724	Other liabilities	$	20,094
Loan commitments	3,495		Mortgages held for sale	92		N/A	—
Forward contracts - mortgage loan	4,000		N/A	—		Mortgages held for sale	16
Total	$	873,885		$	19,816		$	20,110
December 31, 2022
Interest rate swap contracts	$	881,600	Other assets	$	24,838	Other liabilities	$	25,307
Loan commitments	2,638		Mortgages held for sale	67		N/A	—
Forward contracts - mortgage loan	3,750		Mortgages held for sale	24		N/A	—
Total	$	887,988		$	24,929		$	25,307

Schedule of amounts included in the consolidated statements of income for non-hedging derivative financial instruments

The following table shows the amounts included in the Consolidated Statements of Income for non-hedging derivative financial instruments.

		Gain (loss)
		Three Months Ended March 31,
(Dollars in thousands)	Statement of Income classification	2023		2022
Interest rate swap contracts	Other expense	$	99	$	237
Interest rate swap contracts	Other income	195		—
Loan commitments	Mortgage banking	25		(165)
Forward contracts - mortgage loan	Mortgage banking	(40)		211
Total		$	279	$	283

Schedule of offsetting of financial assets and derivative assets

The following table shows the offsetting of financial assets and derivative assets.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
March 31, 2023
Interest rate swaps	$	19,724	$	—	$	19,724	$	—	$	20,155	$	(431)
December 31, 2022
Interest rate swaps	$	24,838	$	—	$	24,838	$	—	$	25,295	$	(457)

Schedule of offsetting of financial liabilities and derivative liabilities

The following table shows the offsetting of financial liabilities and derivative liabilities.

							Gross Amounts Not Offset in the Statement of Financial Condition
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2023
Interest rate swaps	$	20,094	$	—	$	20,094	$	—	$	—	$	20,094
Repurchase agreements	73,396		—		73,396		73,396		—		—
Total	$	93,490	$	—	$	93,490	$	73,396	$	—	$	20,094
December 31, 2022
Interest rate swaps	$	25,307	$	—	$	25,307	$	—	$	—	$	25,307
Repurchase agreements	141,432		—		141,432		141,432		—		—
Total	$	166,739	$	—	$	166,739	$	141,432	$	—	$	25,307

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Variable Interest Entities (Tables)

3 Months Ended

Mar. 31, 2023

Variable Interest Entities [Abstract]

Schedule of unconsolidated variable interest entities

The following table provides a summary of investments in affordable housing, community development and renewable energy VIEs that the Company has not consolidated.

(Dollars in thousands)	March 31, 2023		December 31, 2022
Investment carrying amount	$	53,691	$	70,887
Unfunded capital and other commitments	62,097		64,520
Maximum exposure to loss	45,302		45,020

Summary of subordinated notes

The following table shows subordinated notes at March 31, 2023.

(Dollars in thousands)	Amount of Subordinated Notes		Interest Rate		Maturity Date
June 2007 issuance (1)	$	41,238	7.22	%	6/15/2037
August 2007 issuance (2)	17,526		6.35	%	9/15/2037
Total	$	58,764

(1) Fixed rate through life of debt.

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

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2023

Earnings Per Share [Abstract]

Schedule of reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share.

	Three Months Ended March 31,
(Dollars in thousands - except per share amounts)	2023		2022
Distributed earnings allocated to common stock	$	7,892	$	7,672
Undistributed earnings allocated to common stock	22,977		19,516
Net earnings allocated to common stock	30,869		27,188
Net earnings allocated to participating securities	255		202
Net income allocated to common stock and participating securities	$	31,124	$	27,390
Weighted average shares outstanding for basic earnings per common share	24,687,087		24,743,790
Dilutive effect of stock compensation	—		—
Weighted average shares outstanding for diluted earnings per common share	24,687,087		24,743,790
Basic earnings per common share	$	1.25	$	1.10
Diluted earnings per common share	$	1.25	$	1.10

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2023

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of reclassifications out of accumulated other comprehensive income

The following table presents reclassifications out of accumulated other comprehensive income (loss) related to unrealized gains and losses on available-for-sale securities.

	Three Months Ended March 31,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2023		2022
Realized losses included in net income	$	(44)	$	—	Losses on investment securities available-for-sale
	(44)		—		Income before income taxes
Tax effect	10		—		Income tax expense
Net of tax	$	(34)	$	—	Net income

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2023

Fair value measurements

Schedule of differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount

The following table shows the differences between the fair value carrying amount of mortgages held for sale measured at fair value and the aggregate unpaid principal amount the Company is contractually entitled to receive at maturity.

(Dollars in thousands)	Fair value  carrying amount		Aggregate unpaid principal		Excess of fair value carrying amount over (under) unpaid principal
March 31, 2023
Mortgages held for sale reported at fair value	$	2,068	$	1,944	$	124	(1)
December 31, 2022
Mortgages held for sale reported at fair value	$	3,914	$	3,766	$	148	(1)

(1)The excess of fair value carrying amount over (under) unpaid principal is included in mortgage banking income and includes changes in fair value at and subsequent to funding and gains and losses on the related loan commitment prior to funding.

Schedule of assets and liabilities measured at fair value on a recurring basis

The following table shows the balance of assets and liabilities measured at fair value on a recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	548,587	$	426,634	$	—	$	975,221
U.S. States and political subdivisions securities	—		103,554		4,321		107,875
Mortgage-backed securities — Federal agencies	—		618,612		—		618,612
Corporate debt securities	—		11,195		—		11,195
Foreign government and other securities	—		577		—		577
Total debt securities available-for-sale	548,587		1,160,572		4,321		1,713,480
Mortgages held for sale	—		2,068		—		2,068
Accrued income and other assets (interest rate swap agreements)	—		19,724		—		19,724
Total	$	548,587	$	1,182,364	$	4,321	$	1,735,272
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	20,094	$	—	$	20,094
Total	$	—	$	20,094	$	—	$	20,094
December 31, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	573,679	$	424,919	$	—	$	998,598
U.S. States and political subdivisions securities	—		121,298		1,464		122,762
Mortgage-backed securities — Federal agencies	—		637,058		—		637,058
Corporate debt securities	—		16,131		—		16,131
Foreign government and other securities	—		579		—		579
Total debt securities available-for-sale	573,679		1,199,985		1,464		1,775,128
Mortgages held for sale	—		3,914		—		3,914
Accrued income and other assets (interest rate swap agreements)	—		24,838		—		24,838
Total	$	573,679	$	1,228,737	$	1,464	$	1,803,880
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	25,307	$	—	$	25,307
Total	$	—	$	25,307	$	—	$	25,307

Schedule of changes in investment securities available-for-sale Level 3 assets measured at fair value on a recurring basis

The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the quarter ended March 31, 2023 and 2022.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance January 1, 2023	$	1,464
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	32
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(175)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2023	$	4,321
Beginning balance January 1, 2022	$	1,849
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(155)
Purchases	3,000
Issuances	—
Sales	—
Settlements	—
Maturities	(165)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance March 31, 2022	$	4,529

Schedule of carrying value of assets measured at fair value on a non-recurring basis

The following table shows the carrying value of assets measured at fair value on a non-recurring basis.

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Collateral-dependent impaired loans	$	—	$	—	$	213	$	213
Accrued income and other assets (mortgage servicing rights)	—		—		4,007		4,007
Accrued income and other assets (repossessions)	—		—		445		445
Accrued income and other assets (other real estate)	—		—		117		117
Total	$	—	$	—	$	4,782	$	4,782
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	$	—	$	—
Accrued income and other assets (mortgage servicing rights)	—		—		4,137		4,137
Accrued income and other assets (repossessions)	—		—		327		327
Accrued income and other assets (other real estate)	—		—		104		104
Total	$	—	$	—	$	4,568	$	4,568

Schedule of fair values of financial instruments

The following table shows the fair values of the Company’s financial instruments.

(Dollars in thousands)	Carrying or Contract Value		Fair Value		Level 1		Level 2		Level 3
March 31, 2023
Assets:
Cash and due from banks	$	66,866	$	66,866	$	66,866	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	27,171		27,171		27,171		—		—
Investment securities, available-for-sale	1,713,480		1,713,480		548,587		1,160,572		4,321
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	2,068		2,068		—		2,068		—
Loans and leases, net of allowance for loan and lease losses	5,974,205		5,839,491		—		—		5,839,491
Mortgage servicing rights	4,007		8,053		—		—		8,053
Accrued interest receivable	24,872		24,872		—		24,872		—
Interest rate swaps	19,724		19,724		—		19,724		—
Liabilities:
Deposits	$	6,801,464	$	6,787,043	$	5,390,359	$	1,396,684	$	—
Short-term borrowings	303,036		303,036		71,856		231,180		—
Long-term debt and mandatorily redeemable securities	46,714		45,471		—		45,471		—
Subordinated notes	58,764		53,297		—		53,297		—
Accrued interest payable	13,598		13,598		—		13,598		—
Interest rate swaps	20,094		20,094		—		20,094		—
Off-balance-sheet instruments *	—		99		—		99		—
December 31, 2022
Assets:
Cash and due from banks	$	84,703	$	84,703	$	84,703	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	38,094		38,094		38,094		—		—
Investment securities, available-for-sale	1,775,128		1,775,128		573,679		1,199,985		1,464
Other investments	25,293		25,293		25,293		—		—
Mortgages held for sale	3,914		3,914		—		3,914		—
Loans and leases, net of allowance for loan and lease losses	5,871,894		5,712,972		—		—		5,712,972
Mortgage servicing rights	4,137		8,007		—		—		8,007
Accrued interest receivable	24,747		24,747		—		24,747		—
Interest rate swaps	24,838		24,838		—		24,838		—
Liabilities:
Deposits	$	6,928,265	$	6,909,392	$	5,787,806	$	1,121,586	$	—
Short-term borrowings	215,529		215,529		139,079		76,450		—
Long-term debt and mandatorily redeemable securities	46,555		45,111		—		45,111		—
Subordinated notes	58,764		51,398		—		51,398		—
Accrued interest payable	5,999		5,999		—		5,999		—
Interest rate swaps	25,307		25,307		—		25,307		—
Off-balance-sheet instruments *	—		108		—		108		—

* Represents estimated cash outflows required to currently settle the obligations at current market rates.

Recurring

Fair value measurements

Schedule of valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis

The following table shows the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring basis.

(Dollars in thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Debt securities available-for sale
Direct placement municipal securities	$	4,321	Discounted cash flows	Credit spread assumption	3.49% - 4.59%	3.68	%
December 31, 2022
Debt securities available-for sale
Direct placement municipal securities	$	1,464	Discounted cash flows	Credit spread assumption	0.22% - 4.09%	3.49	%

Non-recurring

Fair value measurements

Schedule of valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis

The following table below shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on a non-recurring basis.

(Dollars in thousands)	Carrying Value		Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs	Weighted Average
March 31, 2023
Collateral-dependent impaired loans	$	213	$	213	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	10% - 30%	27.6	%
Mortgage servicing rights	4,007		8,053		Discounted cash flows	Constant prepayment rate (CPR)	7.3% - 12.7%	7.9	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	445		487		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	5	%
Other real estate	117		117		Appraisals	Discount for lack of marketability	0% - 0%	0	%
December 31, 2022
Collateral-dependent impaired loans	$	—	$	—	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	0% - 0%	0.0	%
Mortgage servicing rights	4,137		8,007		Discounted cash flows	Constant prepayment rate (CPR)	7.6% - 9.6%	8.2	%
						Discount rate	11.4% - 14.2%	11.5	%
Repossessions	327		370		Appraisals, trade publications and auction values	Discount for lack of marketability	2% - 9%	7	%
Other real estate	104		104		Appraisals	Discount for lack of marketability	0% - 0%	0	%

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Accounting Policies (Details)	3 Months Ended
	Mar. 31, 2023
Minimum
Summary of Significant Accounting Policies [Line Items]
Period of sustained performance required to change from non-performing to performing status	6 months

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Investment Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Due in one year or less	$ 96,181
Due after one year through five years	1,040,653
Due after five years through ten years	17,843
Due after ten years	23,827
Mortgage-backed securities	702,499
Total debt securities available-for-sale	1,881,003	$ 1,969,171
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Due in one year or less	94,493
Due after one year through five years	960,875
Due after five years through ten years	15,396
Due after ten years	24,104
Mortgage-backed securities	618,612
Total debt securities available-for-sale	1,713,480	1,775,128
Accrued interest receivable on investment securities available-for-sale	4,880	5,980
U.S. Treasury and Federal agencies securities
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	1,052,191	1,090,743
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	975,221	998,598
U.S. States and political subdivisions securities
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	114,237	130,670
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	107,875	122,762
Mortgage-backed securities - Federal agencies
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	702,499	730,672
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	618,612	637,058
Corporate debt securities
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	11,476	16,486
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	11,195	16,131
Foreign government and other securities
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	600	600
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	$ 577	$ 579

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Investment Securities (Details 2) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	$ 1,881,003		$ 1,969,171
Gross Unrealized Gains	447		651
Gross Unrealized Losses	(167,970)		(194,694)
Investment securities available-for-sale	1,713,480		1,775,128
Fair Value
Less than 12 Months	127,558		437,158
12 months or Longer	1,557,272		1,300,035
Total fair value	1,684,830		1,737,193
Unrealized Losses
Less than 12 Months	(3,578)		(22,278)
12 months or Longer	(164,392)		(172,416)
Total unrealized losses	(167,970)		(194,694)
Gross realized gains and losses
Gross realized gains	1,286	$ 0
Gross realized losses	(1,330)	0
Net realized (losses) gains	(44)	$ 0
Investment securities pledged as collateral	$ 284,670		282,870
Number of available-for-sale debt securities	717
Number of available-for-sale debt securities in an unrealized loss position	650
U.S. Treasury and Federal agencies securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	$ 1,052,191		1,090,743
Gross Unrealized Gains	0		0
Gross Unrealized Losses	(76,970)		(92,145)
Investment securities available-for-sale	975,221		998,598
Fair Value
Less than 12 Months	14,465		164,481
12 months or Longer	960,756		834,117
Total fair value	975,221		998,598
Unrealized Losses
Less than 12 Months	(292)		(6,299)
12 months or Longer	(76,678)		(85,846)
Total unrealized losses	(76,970)		(92,145)
U.S. States and political subdivisions securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	114,237		130,670
Gross Unrealized Gains	412		591
Gross Unrealized Losses	(6,774)		(8,499)
Investment securities available-for-sale	107,875		122,762
Fair Value
Less than 12 Months	19,458		57,592
12 months or Longer	63,258		38,834
Total fair value	82,716		96,426
Unrealized Losses
Less than 12 Months	(331)		(2,126)
12 months or Longer	(6,443)		(6,373)
Total unrealized losses	(6,774)		(8,499)
Mortgage-backed securities - Federal agencies
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	702,499		730,672
Gross Unrealized Gains	35		60
Gross Unrealized Losses	(83,922)		(93,674)
Investment securities available-for-sale	618,612		637,058
Fair Value
Less than 12 Months	90,318		198,469
12 months or Longer	524,803		426,989
Total fair value	615,121		625,458
Unrealized Losses
Less than 12 Months	(2,945)		(13,482)
12 months or Longer	(80,977)		(80,192)
Total unrealized losses	(83,922)		(93,674)
Corporate debt securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	11,476		16,486
Gross Unrealized Gains	0		0
Gross Unrealized Losses	(281)		(355)
Investment securities available-for-sale	11,195		16,131
Fair Value
Less than 12 Months	3,317		16,132
12 months or Longer	7,878		0
Total fair value	11,195		16,132
Unrealized Losses
Less than 12 Months	(10)		(355)
12 months or Longer	(271)		0
Total unrealized losses	(281)		(355)
Foreign government and other securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	600		600
Gross Unrealized Gains	0		0
Gross Unrealized Losses	(23)		(21)
Investment securities available-for-sale	577		579
Fair Value
Less than 12 Months	0		484
12 months or Longer	577		95
Total fair value	577		579
Unrealized Losses
Less than 12 Months	0		(16)
12 months or Longer	(23)		(5)
Total unrealized losses	$ (23)		$ (21)

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Loan and Lease Financings (Details)	3 Months Ended
	Mar. 31, 2023 USD ($) item class	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)
Receivables [Abstract]
Number of methods to assess credit risk | item	2
Loan and Lease Financings
Number of methods to assess credit risk | item	2
Number of domestic aircraft loan pools | class	2
Amortized cost of loans and leases	$ 6,116,716,000		$ 6,011,162,000
Current period gross charge-offs	1,041,000	$ 217,000
Commercial and agricultural
Loan and Lease Financings
Financing receivable originated during current fiscal year	46,321,000		163,808,000
Financing receivable originated one year prior to current fiscal year	153,070,000		113,166,000
Financing receivable originated two years prior to current fiscal year	105,377,000		71,425,000
Financing receivable originated three years prior to current fiscal year	62,494,000		37,968,000
Financing receivable originated four years prior to current fiscal year	31,353,000		18,836,000
Financing receivable originated five years or more prior to current fiscal year	29,472,000		14,900,000
Revolving Loans	367,342,000		391,928,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	795,429,000		812,031,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	411,000
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	13,000
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	140,000
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	$ 564,000	0
Commercial and agricultural | Minimum
Loan and Lease Financings
Expected life of underlying collateral	3 years
Commercial and agricultural | Maximum
Loan and Lease Financings
Expected life of underlying collateral	7 years
Solar
Loan and Lease Financings
Financing receivable originated during current fiscal year	$ 3,777,000		109,393,000
Financing receivable originated one year prior to current fiscal year	108,743,000		113,276,000
Financing receivable originated two years prior to current fiscal year	106,603,000		36,751,000
Financing receivable originated three years prior to current fiscal year	35,198,000		78,330,000
Financing receivable originated four years prior to current fiscal year	77,888,000		19,219,000
Financing receivable originated five years or more prior to current fiscal year	43,121,000		24,194,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	375,330,000		381,163,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	0	0
Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	190,897,000		527,371,000
Financing receivable originated one year prior to current fiscal year	461,050,000		158,874,000
Financing receivable originated two years prior to current fiscal year	128,963,000		67,899,000
Financing receivable originated three years prior to current fiscal year	52,796,000		35,811,000
Financing receivable originated four years prior to current fiscal year	28,470,000		12,738,000
Financing receivable originated five years or more prior to current fiscal year	13,388,000		5,424,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	875,564,000		808,117,000
Current period gross charge-offs, financing receivable originated during current fiscal year	0
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	25,000
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	5,000
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	19,000
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	63,000
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	$ 112,000	0
Auto and light truck | Minimum
Loan and Lease Financings
Loan amortization period	18 months
Direct finance lease term	3 years
Auto and light truck | Maximum
Loan and Lease Financings
Loan amortization period	4 years
Direct finance lease term	7 years
Medium and heavy duty truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	$ 41,739,000		158,296,000
Financing receivable originated one year prior to current fiscal year	149,331,000		66,533,000
Financing receivable originated two years prior to current fiscal year	60,669,000		43,711,000
Financing receivable originated three years prior to current fiscal year	37,513,000		31,980,000
Financing receivable originated four years prior to current fiscal year	27,527,000		10,053,000
Financing receivable originated five years or more prior to current fiscal year	9,809,000		3,289,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	326,588,000		313,862,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	$ 0	0
Medium and heavy duty truck | Minimum
Loan and Lease Financings
Period of amortization to reach equity position in collateral	3 years
Medium and heavy duty truck | Maximum
Loan and Lease Financings
Period of amortization to reach equity position in collateral	4 years
Aircraft
Loan and Lease Financings
Financing receivable originated during current fiscal year	$ 29,171,000		451,443,000
Financing receivable originated one year prior to current fiscal year	436,465,000		277,979,000
Financing receivable originated two years prior to current fiscal year	262,202,000		219,851,000
Financing receivable originated three years prior to current fiscal year	207,833,000		57,379,000
Financing receivable originated four years prior to current fiscal year	53,072,000		31,085,000
Financing receivable originated five years or more prior to current fiscal year	62,221,000		36,298,000
Revolving Loans	5,865,000		3,687,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	1,056,829,000		1,077,722,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	$ 0	0
Aircraft | Minimum
Loan and Lease Financings
Loan amortization period	10 years
Aircraft | Maximum
Loan and Lease Financings
Loan amortization period	15 years
Construction equipment
Loan and Lease Financings
Financing receivable originated during current fiscal year	$ 142,305,000		496,563,000
Financing receivable originated one year prior to current fiscal year	462,675,000		221,106,000
Financing receivable originated two years prior to current fiscal year	193,712,000		108,892,000
Financing receivable originated three years prior to current fiscal year	96,986,000		61,082,000
Financing receivable originated four years prior to current fiscal year	53,209,000		18,147,000
Financing receivable originated five years or more prior to current fiscal year	15,613,000		4,625,000
Revolving Loans	18,632,000		23,893,000
Revolving Loans Converted to Term	8,280,000		4,195,000
Amortized cost of loans and leases	991,412,000		938,503,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	1,000
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	1,000	48,000
Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	51,201,000		273,058,000
Financing receivable originated one year prior to current fiscal year	258,177,000		165,889,000
Financing receivable originated two years prior to current fiscal year	164,032,000		129,509,000
Financing receivable originated three years prior to current fiscal year	125,171,000		103,259,000
Financing receivable originated four years prior to current fiscal year	100,135,000		102,318,000
Financing receivable originated five years or more prior to current fiscal year	255,169,000		169,461,000
Revolving Loans	336,000		251,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	954,221,000		943,745,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	39,000
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	0
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	39,000	0
Residential real estate and home equity
Loan and Lease Financings
Financing receivable originated during current fiscal year	20,510,000		115,154,000
Financing receivable originated one year prior to current fiscal year	113,006,000		100,821,000
Financing receivable originated two years prior to current fiscal year	99,425,000		97,898,000
Financing receivable originated three years prior to current fiscal year	95,591,000		34,498,000
Financing receivable originated four years prior to current fiscal year	33,302,000		6,864,000
Financing receivable originated five years or more prior to current fiscal year	84,388,000		82,378,000
Revolving Loans	144,375,000		142,904,000
Revolving Loans Converted to Term	4,021,000		4,220,000
Amortized cost of loans and leases	594,618,000		584,737,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	0
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	1,000
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	1,000	4,000
Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	15,137,000		74,406,000
Financing receivable originated one year prior to current fiscal year	67,551,000		34,684,000
Financing receivable originated two years prior to current fiscal year	30,419,000		12,973,000
Financing receivable originated three years prior to current fiscal year	10,704,000		7,428,000
Financing receivable originated four years prior to current fiscal year	5,848,000		2,989,000
Financing receivable originated five years or more prior to current fiscal year	2,595,000		704,000
Revolving Loans	14,471,000		18,098,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	146,725,000		151,282,000
Current period gross charge-offs, financing receivable originated during current fiscal year	112,000
Current period gross charge-offs, financing receivable originated one year prior to current fiscal year	174,000
Current period gross charge-offs, financing receivable originated two years prior to current fiscal year	30,000
Current period gross charge-offs, financing receivable originated three years prior to current fiscal year	1,000
Current period gross charge-offs, financing receivable originated four years prior to current fiscal year	4,000
Current period gross charge-offs, financing receivable originated five years prior to current fiscal year	0
Current period gross charge-offs, revolving financing receivable	3,000
Current period gross charge-offs, revolving financing receivable converted to term loan	0
Current period gross charge-offs	324,000	$ 165,000
Credit Quality Grades 1-6 | Commercial and agricultural
Loan and Lease Financings
Financing receivable originated during current fiscal year	45,821,000		159,317,000
Financing receivable originated one year prior to current fiscal year	149,606,000		107,232,000
Financing receivable originated two years prior to current fiscal year	99,146,000		71,365,000
Financing receivable originated three years prior to current fiscal year	62,310,000		35,874,000
Financing receivable originated four years prior to current fiscal year	29,946,000		17,192,000
Financing receivable originated five years or more prior to current fiscal year	27,265,000		13,860,000
Revolving Loans	346,317,000		370,553,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	760,411,000		775,393,000
Credit Quality Grades 1-6 | Solar
Loan and Lease Financings
Financing receivable originated during current fiscal year	3,777,000		109,393,000
Financing receivable originated one year prior to current fiscal year	108,743,000		113,276,000
Financing receivable originated two years prior to current fiscal year	106,603,000		35,660,000
Financing receivable originated three years prior to current fiscal year	34,112,000		72,652,000
Financing receivable originated four years prior to current fiscal year	72,254,000		18,518,000
Financing receivable originated five years or more prior to current fiscal year	38,906,000		20,654,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	364,395,000		370,153,000
Credit Quality Grades 1-6 | Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	190,009,000		521,399,000
Financing receivable originated one year prior to current fiscal year	455,563,000		155,508,000
Financing receivable originated two years prior to current fiscal year	127,423,000		62,063,000
Financing receivable originated three years prior to current fiscal year	47,856,000		32,975,000
Financing receivable originated four years prior to current fiscal year	26,206,000		10,946,000
Financing receivable originated five years or more prior to current fiscal year	11,049,000		3,476,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	858,106,000		786,367,000
Credit Quality Grades 1-6 | Medium and heavy duty truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	41,739,000		158,296,000
Financing receivable originated one year prior to current fiscal year	149,331,000		66,533,000
Financing receivable originated two years prior to current fiscal year	60,669,000		43,711,000
Financing receivable originated three years prior to current fiscal year	37,513,000		31,980,000
Financing receivable originated four years prior to current fiscal year	27,527,000		10,053,000
Financing receivable originated five years or more prior to current fiscal year	9,809,000		3,274,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	326,588,000		313,847,000
Credit Quality Grades 1-6 | Aircraft
Loan and Lease Financings
Financing receivable originated during current fiscal year	26,669,000		438,481,000
Financing receivable originated one year prior to current fiscal year	425,103,000		273,726,000
Financing receivable originated two years prior to current fiscal year	255,143,000		213,661,000
Financing receivable originated three years prior to current fiscal year	201,937,000		57,379,000
Financing receivable originated four years prior to current fiscal year	53,072,000		31,085,000
Financing receivable originated five years or more prior to current fiscal year	61,214,000		35,012,000
Revolving Loans	5,865,000		3,687,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	1,029,003,000		1,053,031,000
Credit Quality Grades 1-6 | Construction equipment
Loan and Lease Financings
Financing receivable originated during current fiscal year	142,305,000		475,854,000
Financing receivable originated one year prior to current fiscal year	442,999,000		213,349,000
Financing receivable originated two years prior to current fiscal year	188,726,000		106,409,000
Financing receivable originated three years prior to current fiscal year	95,472,000		59,204,000
Financing receivable originated four years prior to current fiscal year	51,591,000		17,834,000
Financing receivable originated five years or more prior to current fiscal year	15,529,000		4,593,000
Revolving Loans	18,496,000		23,310,000
Revolving Loans Converted to Term	2,912,000		2,754,000
Amortized cost of loans and leases	958,030,000		903,307,000
Credit Quality Grades 1-6 | Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	51,163,000		271,526,000
Financing receivable originated one year prior to current fiscal year	256,208,000		164,173,000
Financing receivable originated two years prior to current fiscal year	162,337,000		121,685,000
Financing receivable originated three years prior to current fiscal year	117,541,000		97,470,000
Financing receivable originated four years prior to current fiscal year	95,078,000		102,271,000
Financing receivable originated five years or more prior to current fiscal year	254,145,000		168,391,000
Revolving Loans	336,000		251,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	936,808,000		925,767,000
Credit Quality Grades 7-12
Loan and Lease Financings
Relationships reviewed quarterly as part of management's evaluation of the appropriateness of the allowance for loan and lease losses	250,000
Credit Quality Grades 7-12 | Commercial and agricultural
Loan and Lease Financings
Financing receivable originated during current fiscal year	500,000		4,491,000
Financing receivable originated one year prior to current fiscal year	3,464,000		5,934,000
Financing receivable originated two years prior to current fiscal year	6,231,000		60,000
Financing receivable originated three years prior to current fiscal year	184,000		2,094,000
Financing receivable originated four years prior to current fiscal year	1,407,000		1,644,000
Financing receivable originated five years or more prior to current fiscal year	2,207,000		1,040,000
Revolving Loans	21,025,000		21,375,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	35,018,000		36,638,000
Credit Quality Grades 7-12 | Solar
Loan and Lease Financings
Financing receivable originated during current fiscal year	0		0
Financing receivable originated one year prior to current fiscal year	0		0
Financing receivable originated two years prior to current fiscal year	0		1,091,000
Financing receivable originated three years prior to current fiscal year	1,086,000		5,678,000
Financing receivable originated four years prior to current fiscal year	5,634,000		701,000
Financing receivable originated five years or more prior to current fiscal year	4,215,000		3,540,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	10,935,000		11,010,000
Credit Quality Grades 7-12 | Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	888,000		5,972,000
Financing receivable originated one year prior to current fiscal year	5,487,000		3,366,000
Financing receivable originated two years prior to current fiscal year	1,540,000		5,836,000
Financing receivable originated three years prior to current fiscal year	4,940,000		2,836,000
Financing receivable originated four years prior to current fiscal year	2,264,000		1,792,000
Financing receivable originated five years or more prior to current fiscal year	2,339,000		1,948,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	17,458,000		21,750,000
Credit Quality Grades 7-12 | Medium and heavy duty truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	0		0
Financing receivable originated one year prior to current fiscal year	0		0
Financing receivable originated two years prior to current fiscal year	0		0
Financing receivable originated three years prior to current fiscal year	0		0
Financing receivable originated four years prior to current fiscal year	0		0
Financing receivable originated five years or more prior to current fiscal year	0		15,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	0		15,000
Credit Quality Grades 7-12 | Aircraft
Loan and Lease Financings
Financing receivable originated during current fiscal year	2,502,000		12,962,000
Financing receivable originated one year prior to current fiscal year	11,362,000		4,253,000
Financing receivable originated two years prior to current fiscal year	7,059,000		6,190,000
Financing receivable originated three years prior to current fiscal year	5,896,000		0
Financing receivable originated four years prior to current fiscal year	0		0
Financing receivable originated five years or more prior to current fiscal year	1,007,000		1,286,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	27,826,000		24,691,000
Credit Quality Grades 7-12 | Construction equipment
Loan and Lease Financings
Financing receivable originated during current fiscal year	0		20,709,000
Financing receivable originated one year prior to current fiscal year	19,676,000		7,757,000
Financing receivable originated two years prior to current fiscal year	4,986,000		2,483,000
Financing receivable originated three years prior to current fiscal year	1,514,000		1,878,000
Financing receivable originated four years prior to current fiscal year	1,618,000		313,000
Financing receivable originated five years or more prior to current fiscal year	84,000		32,000
Revolving Loans	136,000		583,000
Revolving Loans Converted to Term	5,368,000		1,441,000
Amortized cost of loans and leases	33,382,000		35,196,000
Credit Quality Grades 7-12 | Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	38,000		1,532,000
Financing receivable originated one year prior to current fiscal year	1,969,000		1,716,000
Financing receivable originated two years prior to current fiscal year	1,695,000		7,824,000
Financing receivable originated three years prior to current fiscal year	7,630,000		5,789,000
Financing receivable originated four years prior to current fiscal year	5,057,000		47,000
Financing receivable originated five years or more prior to current fiscal year	1,024,000		1,070,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	17,413,000		17,978,000
Performing | Residential real estate and home equity
Loan and Lease Financings
Financing receivable originated during current fiscal year	20,510,000		115,154,000
Financing receivable originated one year prior to current fiscal year	113,006,000		100,690,000
Financing receivable originated two years prior to current fiscal year	99,425,000		97,205,000
Financing receivable originated three years prior to current fiscal year	95,591,000		34,498,000
Financing receivable originated four years prior to current fiscal year	32,888,000		6,864,000
Financing receivable originated five years or more prior to current fiscal year	83,659,000		81,653,000
Revolving Loans	144,185,000		142,724,000
Revolving Loans Converted to Term	3,946,000		4,115,000
Amortized cost of loans and leases	593,210,000		582,903,000
Performing | Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	15,137,000		74,258,000
Financing receivable originated one year prior to current fiscal year	67,476,000		34,619,000
Financing receivable originated two years prior to current fiscal year	30,376,000		12,924,000
Financing receivable originated three years prior to current fiscal year	10,658,000		7,375,000
Financing receivable originated four years prior to current fiscal year	5,797,000		2,977,000
Financing receivable originated five years or more prior to current fiscal year	2,578,000		692,000
Revolving Loans	14,471,000		18,098,000
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	$ 146,493,000		150,943,000
Nonperforming
Loan and Lease Financings
Classification of nonperforming loans, threshold period past due	90 days
Nonperforming | Residential real estate and home equity
Loan and Lease Financings
Financing receivable originated during current fiscal year	$ 0		0
Financing receivable originated one year prior to current fiscal year	0		131,000
Financing receivable originated two years prior to current fiscal year	0		693,000
Financing receivable originated three years prior to current fiscal year	0		0
Financing receivable originated four years prior to current fiscal year	414,000		0
Financing receivable originated five years or more prior to current fiscal year	729,000		725,000
Revolving Loans	190,000		180,000
Revolving Loans Converted to Term	75,000		105,000
Amortized cost of loans and leases	1,408,000		1,834,000
Nonperforming | Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	0		148,000
Financing receivable originated one year prior to current fiscal year	75,000		65,000
Financing receivable originated two years prior to current fiscal year	43,000		49,000
Financing receivable originated three years prior to current fiscal year	46,000		53,000
Financing receivable originated four years prior to current fiscal year	51,000		12,000
Financing receivable originated five years or more prior to current fiscal year	17,000		12,000
Revolving Loans	0		0
Revolving Loans Converted to Term	0		0
Amortized cost of loans and leases	$ 232,000		$ 339,000

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Loan and Lease Financings (Details 2) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
90 Days or More Past Due and Accruing	$ 24	$ 54
Total Accruing Loans	6,098,654	5,984,742
Nonaccrual	18,062	26,420
Total loans and leases	6,116,716	6,011,162
Accrued interest receivable on loans and leases	19,820	18,750
Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	6,095,160	5,980,206
30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	2,272	2,929
60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	1,198	1,553
Commercial and agricultural
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	794,345	811,167
Nonaccrual	1,084	864
Total loans and leases	795,429	812,031
Commercial and agricultural | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	793,509	810,223
Commercial and agricultural | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	836	944
Commercial and agricultural | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Solar
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	375,330	381,163
Nonaccrual	0	0
Total loans and leases	375,330	381,163
Solar | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	375,330	381,163
Solar | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Solar | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Auto and light truck
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	865,348	793,964
Nonaccrual	10,216	14,153
Total loans and leases	875,564	808,117
Auto and light truck | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	865,316	793,610
Auto and light truck | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	32	353
Auto and light truck | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	1
Medium and heavy duty truck
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	326,588	313,847
Nonaccrual	0	15
Total loans and leases	326,588	313,862
Medium and heavy duty truck | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	326,588	313,845
Medium and heavy duty truck | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Medium and heavy duty truck | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	2
Aircraft
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	1,056,289	1,077,151
Nonaccrual	540	571
Total loans and leases	1,056,829	1,077,722
Aircraft | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	1,055,282	1,075,865
Aircraft | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	223
Aircraft | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	1,007	1,063
Construction equipment
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	989,865	933,034
Nonaccrual	1,547	5,469
Total loans and leases	991,412	938,503
Construction equipment | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	989,525	932,603
Construction equipment | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	340	431
Construction equipment | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Commercial real estate
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	951,162	940,516
Nonaccrual	3,059	3,229
Total loans and leases	954,221	943,745
Commercial real estate | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	951,111	940,516
Commercial real estate | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	51	0
Commercial real estate | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	0	0
Residential real estate and home equity
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
90 Days or More Past Due and Accruing	24	49
Total Accruing Loans	593,234	582,952
Nonaccrual	1,384	1,785
Total loans and leases	594,618	584,737
Residential real estate and home equity | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	592,464	582,053
Residential real estate and home equity | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	623	562
Residential real estate and home equity | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	123	288
Consumer
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
90 Days or More Past Due and Accruing	0	5
Total Accruing Loans	146,493	150,948
Nonaccrual	232	334
Total loans and leases	146,725	151,282
Consumer | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	146,035	150,328
Consumer | 30 to 59 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	390	416
Consumer | 60 to 89 Days Past Due
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	$ 68	$ 199

XML

Loan and Lease Financings (Details 3) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) item default	Dec. 31, 2022 USD ($)
Financing receivable, loan modification [Line Items]
Percent of Total Segment of Financing Receivable	0.08%
Weighted Average Interest Rate Reduction	3.00%
Weighted Average Term Extension Modification (in months)	4 months
Commitments to lend additional amounts	$ 0
Loan modifications to borrowers experiencing financial difficulties subsequent default | item	0
Loans and leases classified as TDR
Number of Modifications | item	0
Number of Defaults | default	0
Loans and leases classified as troubled debt restructuring		$ 3,640
Troubled debt restructured loans and leases which had payment defaults within twelve months following modification
Default threshold	90 days
Payment deferral
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Extended maturity
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	4,664
Interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	511
Combination term extension and interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Performing
Loans and leases classified as TDR
Loans and leases classified as troubled debt restructuring		0
Nonperforming
Loans and leases classified as TDR
Loans and leases classified as troubled debt restructuring		$ 3,640
Current
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	5,175
30 to 59 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
60 to 89 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
90 Days or More Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Total Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Commercial and agricultural
Financing receivable, loan modification [Line Items]
Percent of Total Segment of Financing Receivable	0.09%
Weighted Average Term Extension Modification (in months)	3 months
Commercial and agricultural | Payment deferral
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Commercial and agricultural | Extended maturity
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	752
Commercial and agricultural | Interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial and agricultural | Combination term extension and interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial and agricultural | Current
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	752
Commercial and agricultural | 30 to 59 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial and agricultural | 60 to 89 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial and agricultural | 90 Days or More Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial and agricultural | Total Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Construction equipment
Financing receivable, loan modification [Line Items]
Percent of Total Segment of Financing Receivable	0.39%
Weighted Average Term Extension Modification (in months)	5 months
Construction equipment | Payment deferral
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Construction equipment | Extended maturity
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	3,912
Construction equipment | Interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Construction equipment | Combination term extension and interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Construction equipment | Current
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	3,912
Construction equipment | 30 to 59 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Construction equipment | 60 to 89 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Construction equipment | 90 Days or More Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Construction equipment | Total Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Commercial real estate
Financing receivable, loan modification [Line Items]
Percent of Total Segment of Financing Receivable	0.05%
Weighted Average Interest Rate Reduction	3.00%
Commercial real estate | Payment deferral
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Commercial real estate | Extended maturity
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial real estate | Interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	511
Commercial real estate | Combination term extension and interest rate reduction
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial real estate | Current
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	511
Commercial real estate | 30 to 59 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial real estate | 60 to 89 Days Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial real estate | 90 Days or More Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	0
Commercial real estate | Total Past Due
Financing receivable, loan modification [Line Items]
Financing Receivable, Loan Modification	$ 0
Interest Rate Below Market Reduction [Member]
Loans and leases classified as TDR
Number of Modifications | item	0

XML

Allowance for Credit Losses (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) item	Mar. 31, 2022 USD ($)
Allowance for credit losses
Number of classes existing in loan and lease portfolio | item	9
Changes in allowance for loan and lease losses
Balance at the beginning of the period	$ 139,268	$ 127,492
Financing Receivable, Allowance for Credit Loss, Writeoff	1,041	217
Recoveries	1,235	451
Net charge-offs (recoveries)	(194)	(234)
Provision (recovery of provision)	3,049	2,233
Balance at the end of the period	142,511	129,959
Commercial and agricultural
Changes in allowance for loan and lease losses
Balance at the beginning of the period	14,635	15,409
Financing Receivable, Allowance for Credit Loss, Writeoff	564	0
Recoveries	172	4
Net charge-offs (recoveries)	392	(4)
Provision (recovery of provision)	1,844	185
Balance at the end of the period	16,087	15,598
Solar
Changes in allowance for loan and lease losses
Balance at the beginning of the period	7,217	6,585
Financing Receivable, Allowance for Credit Loss, Writeoff	0	0
Recoveries	0	0
Net charge-offs (recoveries)	0	0
Provision (recovery of provision)	(929)	(168)
Balance at the end of the period	6,288	6,417
Auto and light truck
Changes in allowance for loan and lease losses
Balance at the beginning of the period	18,634	19,624
Financing Receivable, Allowance for Credit Loss, Writeoff	112	0
Recoveries	541	65
Net charge-offs (recoveries)	(429)	(65)
Provision (recovery of provision)	(505)	(168)
Balance at the end of the period	18,558	19,521
Medium and heavy duty truck
Changes in allowance for loan and lease losses
Balance at the beginning of the period	7,566	6,015
Financing Receivable, Allowance for Credit Loss, Writeoff	0	0
Recoveries	0	0
Net charge-offs (recoveries)	0	0
Provision (recovery of provision)	263	34
Balance at the end of the period	7,829	6,049
Aircraft
Changes in allowance for loan and lease losses
Balance at the beginning of the period	41,093	33,628
Financing Receivable, Allowance for Credit Loss, Writeoff	0	0
Recoveries	226	316
Net charge-offs (recoveries)	(226)	(316)
Provision (recovery of provision)	(1,186)	2,024
Balance at the end of the period	40,133	35,968
Construction equipment
Changes in allowance for loan and lease losses
Balance at the beginning of the period	24,039	19,673
Financing Receivable, Allowance for Credit Loss, Writeoff	1	48
Recoveries	0	0
Net charge-offs (recoveries)	1	48
Provision (recovery of provision)	1,541	416
Balance at the end of the period	25,579	20,041
Commercial real estate
Changes in allowance for loan and lease losses
Balance at the beginning of the period	17,431	19,691
Financing Receivable, Allowance for Credit Loss, Writeoff	39	0
Recoveries	3	0
Net charge-offs (recoveries)	36	0
Provision (recovery of provision)	1,905	(445)
Balance at the end of the period	19,300	19,246
Residential real estate and home equity
Changes in allowance for loan and lease losses
Balance at the beginning of the period	6,478	5,084
Financing Receivable, Allowance for Credit Loss, Writeoff	1	4
Recoveries	233	1
Net charge-offs (recoveries)	(232)	3
Provision (recovery of provision)	(89)	137
Balance at the end of the period	6,621	5,218
Consumer
Changes in allowance for loan and lease losses
Balance at the beginning of the period	2,175	1,783
Financing Receivable, Allowance for Credit Loss, Writeoff	324	165
Recoveries	60	65
Net charge-offs (recoveries)	264	100
Provision (recovery of provision)	205	218
Balance at the end of the period	$ 2,116	$ 1,901

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Allowance for Credit Losses (Details 2) - Unfunded Loan Commitment - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Allowance for credit losses
Balance, beginning of period	$ 5,616	$ 4,196
Provision	1,035	728
Balance, end of period	$ 6,651	$ 4,924

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Lease Investments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases [Abstract]
Interest income on lease receivable	$ 3,121	$ 1,781
Income related to lease payments	2,503	3,662
Depreciation - leased equipment	2,022	3,015
Income from reimbursements for personal property tax payments on operating leased equipment	220	200
Expense for payments of personal property taxes on operating leased equipment	$ 220	$ 200

XML

Mortgage Servicing Rights (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Residential mortgage loans
Mortgage Servicing Rights
Unpaid principal balance	$ 838,240	$ 848,960

XML

Mortgage Servicing Rights (Details 2) - Residential mortgage loans - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Changes in mortgage servicing assets
Balance at the beginning of the period	$ 4,137	$ 4,671
Additions	91	335
Amortization	(221)	(381)
Carrying value before valuation allowance at end of period	4,007	4,625
Changes in valuation allowance
Balance at the beginning of the period	0	0
Impairment recoveries	0	0
Balance at the end of the period	0	0
Net carrying value of mortgage servicing rights at end of period	4,007	4,625
Fair value of mortgage servicing rights at end of period	8,053	6,363
Fair value of mortgage servicing rights exceeding the carrying value	4,050	1,740
Mortgage loan contractual servicing fees, including late fees and ancillary income	$ 660	$ 720

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Commitments and Financial Instruments with Off-Balance-Sheet Risk (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Loan commitments to extend credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance-sheet instruments	$ 1,303,869	$ 1,234,866
Standby letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance-sheet instruments	$ 17,782	18,055
Standby letters of credit | Minimum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Letter of credit term	2 months
Standby letters of credit | Maximum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Letter of credit term	1 year
Commercial and similar letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance-sheet instruments	$ 1,960	$ 2,368
Commercial and similar letters of credit | Minimum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Letter of credit term	2 months
Commercial and similar letters of credit | Maximum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Letter of credit term	6 months

XML

Derivative Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	$ 873,885	$ 887,988
Asset derivatives, Fair value	19,816	24,929
Liability derivatives, Fair value	20,110	25,307
Interest rate swap contracts
Derivative Financial Instruments
Asset derivatives, Fair value	19,724	24,838
Interest rate swap contracts | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	866,390	881,600
Asset derivatives, Fair value	19,724	24,838
Liability derivatives, Fair value	20,094	25,307
Loan commitments | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	3,495	2,638
Asset derivatives, Fair value	92	67
Liability derivatives, Fair value	0	0
Forward contracts - mortgage loan | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	4,000	3,750
Asset derivatives, Fair value	0	24
Liability derivatives, Fair value	$ 16	$ 0

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Derivative Financial Instruments (Details 2) - Non-hedging derivative financial instruments - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Derivative Financial Instruments
Gain (loss)	$ 279	$ 283
Interest rate swap contracts | Other expense
Derivative Financial Instruments
Gain (loss)	99	237
Interest rate swap contracts | Other income
Derivative Financial Instruments
Gain (loss)	195	0
Loan commitments
Derivative Financial Instruments
Gain (loss)	25	(165)
Forward contracts - mortgage loan
Derivative Financial Instruments
Gain (loss)	$ (40)	$ 211

XML

Derivative Financial Instruments (Details 3) - Interest rate swaps - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Offsetting Assets
Asset derivatives, Fair value	$ 19,724	$ 24,838
Gross Amounts Offset in the Statement of Financial Position	0	0
Net Amounts of Assets Presented in the Statement of Financial Position	19,724	24,838
Derivative Asset, Fair Value, Amount Offset Against Collateral [Abstract]
Financial instruments	0	0
Cash collateral received	20,155	25,295
Net Amount	$ (431)	$ (457)

XML

Derivative Financial Instruments (Details 4) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	$ 93,490	$ 166,739
Gross Amounts Offset in the Statement of Financial Position	0	0
Net Amounts of Liabilities Presented in the Statement of Financial Position	93,490	166,739
Gross amounts Not Offset in the Statement of Financial Position
Financial Instruments	73,396	141,432
Cash Collateral Pledged	0	0
Net Amount	20,094	25,307
Interest rate swaps
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	20,094	25,307
Gross Amounts Offset in the Statement of Financial Position	0	0
Net Amounts of Liabilities Presented in the Statement of Financial Position	20,094	25,307
Derivative, Collateral, Right to Reclaim Securities	0	0
Gross amounts Not Offset in the Statement of Financial Position
Cash Collateral Pledged	0	0
Net Amount	20,094	25,307
Repurchase agreements
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	73,396	141,432
Net Amounts of Liabilities Presented in the Statement of Financial Position	73,396	141,432
Gross amounts Not Offset in the Statement of Financial Position
Financial Instruments	$ 73,396	$ 141,432

XML

Derivative Financial Instruments (Details 5) - U.S. Treasury and Federal agencies securities - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements	$ 70,710	$ 138,080
Up to 30 Days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements	$ 2,690	$ 3,350

XML

Variable Interest Entities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Subordinated Borrowing [Line Items]
Federal tax credits recognized in tax expense	$ 660	$ 500
Investment tax credits	17,490	$ 0
Investment carrying amount	8,329,803		$ 8,339,416
Unfunded capital and other commitments	7,361,359		7,415,650
Maximum exposure to loss, unconsolidated VIEs	45,302		45,020
Variable interest entity, primary beneficiary
Subordinated Borrowing [Line Items]
Investment carrying amount	65,790		66,260
Unfunded capital and other commitments	0		0
Variable interest entity, not primary beneficiary
Subordinated Borrowing [Line Items]
Investment carrying amount	53,691		70,887
Unfunded capital and other commitments	$ 62,097		$ 64,520

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Variable Interest Entities (Details 2) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) trust	Dec. 31, 2022 USD ($)
Variable Interest Entities [Abstract]
Number of trusts sponsored | trust	1
Percentage of ownership interest	100.00%
Subordinated Borrowing [Line Items]
Amount of subordinated notes	$ 58,764	$ 58,764
June 2007 issuance
Subordinated Borrowing [Line Items]
Amount of subordinated notes	$ 41,238
Interest rate (as a percent)	7.22%
Maturity date of subordinated notes	Jun. 15, 2037
August 2007 issuance
Subordinated Borrowing [Line Items]
Amount of subordinated notes	$ 17,526
Interest rate (as a percent)	6.35%
Maturity date of subordinated notes	Sep. 15, 2037
London Interbank Offered Rate (LIBOR) | August 2007 issuance
Subordinated Borrowing [Line Items]
Basis spread on variable rate (as a percent)	1.48%

XML

Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Earnings Per Share [Abstract]
Outstanding stock options (in shares)	0	0
Distributed earnings allocated to common stock	$ 7,892	$ 7,672
Undistributed earnings allocated to common stock	22,977	19,516
Net earnings allocated to common stock	30,869	27,188
Net earnings allocated to participating securities	255	202
Net income available to common shareholders	$ 31,124	$ 27,390
Weighted average shares outstanding for basic earnings per common share	24,687,087	24,743,790
Dilutive effect of stock compensation (in shares)	0	0
Weighted average shares outstanding for diluted earnings per common share	24,687,087	24,743,790
Basic earnings per common share (in dollars per share)	$ 1.25	$ 1.10
Diluted earnings per common share (in dollars per share)	$ 1.25	$ 1.10

XML

Stock Based Compensation (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) item shares	Mar. 31, 2022 USD ($) shares
Stock-based compensation
Number of stock-based employee compensation plans | item	4
Number of executive stock award plans | item	3
Outstanding stock options (in shares)	0	0
Total unrecognized compensation cost related to non-vested share-based compensation arrangements | $	$ 12,660
Weighted-average period over which unrecognized compensation cost is expected to be recognized	3 years 8 months 19 days
Stock options
Stock-based compensation
Total fair value of options vested and expensed | $	$ 0	$ 0
Outstanding stock options (in shares)	0	0
Stock options exercised (in shares)	0	0

XML

Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Reclassifications out of accumulated other comprehensive income
Losses on investment securities available-for-sale	$ (44)	$ 0
Income tax expense	(9,287)	(7,793)
Unrealized gains and losses on available-for-sale securities | Amount Reclassified from Accumulated Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income
Losses on investment securities available-for-sale	(44)	0
Income before income taxes	(44)	0
Income tax expense	10	0
Net income	$ (34)	$ 0

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Income Tax Disclosure [Abstract]
Unrecognized tax benefits that would affect the effective tax rate if recognized	$ 0		$ 0
Interest and penalties net of tax recognized	0	$ 0
Accrued interest and penalties	$ 0		$ 0

XML

Fair Value Measurements (Details) - USD ($) $ in Thousands		Mar. 31, 2023	Dec. 31, 2022
Fair value measurements
Fair value carrying amount		$ 2,068	$ 3,914
Mortgages held for sale reported at fair value
Fair value measurements
Fair value carrying amount		2,068	3,914
Aggregate unpaid principal		1,944	3,766
Excess of fair value carrying amount over (under) unpaid principal	[1]	$ 124	$ 148

[1] The excess of fair value carrying amount over (under) unpaid principal is included in mortgage banking income and includes changes in fair value at and subsequent to funding and gains and losses on the related loan commitment prior to funding.

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Fair Value Measurements (Details 2) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair value measurements
Investment securities available-for-sale	$ 1,713,480	$ 1,775,128
Assets:
Mortgages held for sale	2,068	3,914
U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	975,221	998,598
U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	107,875	122,762
Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	618,612	637,058
Corporate debt securities
Fair value measurements
Investment securities available-for-sale	11,195	16,131
Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	577	579
Total
Fair value measurements
Investment securities available-for-sale	1,713,480	1,775,128
Assets:
Mortgages held for sale	2,068	3,914
Level 1
Fair value measurements
Investment securities available-for-sale	548,587	573,679
Assets:
Mortgages held for sale	0	0
Level 2
Fair value measurements
Investment securities available-for-sale	1,160,572	1,199,985
Assets:
Mortgages held for sale	2,068	3,914
Level 3
Fair value measurements
Investment securities available-for-sale	4,321	1,464
Assets:
Mortgages held for sale	0	0
Recurring basis | Total
Fair value measurements
Investment securities available-for-sale	1,713,480	1,775,128
Assets:
Mortgages held for sale	2,068	3,914
Total	1,735,272	1,803,880
Liabilities:
Total	20,094	25,307
Recurring basis | Total | Interest rate swap contracts
Assets:
Accrued income and other assets	19,724	24,838
Liabilities:
Accrued expenses and other liabilities	20,094	25,307
Recurring basis | Total | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	975,221	998,598
Recurring basis | Total | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	107,875	122,762
Recurring basis | Total | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	618,612	637,058
Recurring basis | Total | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	11,195	16,131
Recurring basis | Total | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	577	579
Recurring basis | Level 1
Fair value measurements
Investment securities available-for-sale	548,587	573,679
Assets:
Mortgages held for sale	0	0
Total	548,587	573,679
Liabilities:
Total	0	0
Recurring basis | Level 1 | Interest rate swap contracts
Assets:
Accrued income and other assets	0	0
Liabilities:
Accrued expenses and other liabilities	0	0
Recurring basis | Level 1 | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	548,587	573,679
Recurring basis | Level 1 | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 1 | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 1 | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 1 | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 2
Fair value measurements
Investment securities available-for-sale	1,160,572	1,199,985
Assets:
Mortgages held for sale	2,068	3,914
Total	1,182,364	1,228,737
Liabilities:
Total	20,094	25,307
Recurring basis | Level 2 | Interest rate swap contracts
Assets:
Accrued income and other assets	19,724	24,838
Liabilities:
Accrued expenses and other liabilities	20,094	25,307
Recurring basis | Level 2 | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	426,634	424,919
Recurring basis | Level 2 | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	103,554	121,298
Recurring basis | Level 2 | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	618,612	637,058
Recurring basis | Level 2 | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	11,195	16,131
Recurring basis | Level 2 | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	577	579
Recurring basis | Level 3
Fair value measurements
Investment securities available-for-sale	4,321	1,464
Assets:
Mortgages held for sale	0	0
Total	4,321	1,464
Liabilities:
Total	0	0
Recurring basis | Level 3 | Interest rate swap contracts
Assets:
Accrued income and other assets	0	0
Liabilities:
Accrued expenses and other liabilities	0	0
Recurring basis | Level 3 | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 3 | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	4,321	1,464
Recurring basis | Level 3 | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 3 | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	0	0
Recurring basis | Level 3 | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	$ 0	$ 0

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Fair Value Measurements (Details 3) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Changes in the fair value of Level 3 assets measured on a recurring basis
Total gains or losses (unrealized): included in earnings	$ 0	$ 0
U.S. States and political subdivisions securities
Changes in the fair value of Level 3 assets measured on a recurring basis
Balance at the beginning of the period	1,464	1,849
Total gains or losses (realized/unrealized): included in earnings	0	0
Total gains or losses (realized/unrealized): included in other comprehensive income (loss)	32	(155)
Purchases	3,000	3,000
Issuances	0	0
Sales	0	0
Settlements	0	0
Maturities	(175)	(165)
Transfers into Level 3	0	0
Transfers out of Level 3	0	0
Balance at the end of the period	$ 4,321	$ 4,529

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Fair Value Measurements (Details 4) $ in Thousands	Mar. 31, 2023 USD ($)	Dec. 31, 2022 USD ($)
Valuation Methodology
Investment securities, available-for-sale	$ 1,713,480	$ 1,775,128
Level 3
Valuation Methodology
Investment securities, available-for-sale	4,321	1,464
Recurring | Level 3
Valuation Methodology
Investment securities, available-for-sale	4,321	1,464
Recurring | Level 3 | Discounted cash flows | Direct placement municipal securities
Valuation Methodology
Investment securities, available-for-sale	$ 4,321	$ 1,464
Discount for lack of marketability | Non-recurring | Level 3 | Trade publications | Aircraft
Unobservable Inputs
Discount rate (as a percent)	0.10
Discount for lack of marketability | Non-recurring | Level 3 | Auction values | Autos
Unobservable Inputs
Discount rate (as a percent)	0.10
Discount for lack of marketability | Non-recurring | Level 3 | Trade publications and auction values | Medium and heavy duty trucks
Unobservable Inputs
Discount rate (as a percent)	0.15
Discount for lack of marketability | Non-recurring | Level 3 | Trade publications and auction values | Construction equipment
Unobservable Inputs
Discount rate (as a percent)	0.20
Discount for lack of marketability | Non-recurring | Level 3 | Appraisals | Real estate
Unobservable Inputs
Discount rate (as a percent)	0.20
Credit spread assumption | Recurring | Level 3 | Discounted cash flows | Direct placement municipal securities | Minimum
Unobservable Inputs
Debt securities available-for-sale unobservable inputs (as a percent)	0.0349	0.0022
Credit spread assumption | Recurring | Level 3 | Discounted cash flows | Direct placement municipal securities | Maximum
Unobservable Inputs
Debt securities available-for-sale unobservable inputs (as a percent)	0.0459	0.0409
Credit spread assumption | Recurring | Level 3 | Discounted cash flows | Direct placement municipal securities | Weighted Average
Unobservable Inputs
Debt securities available-for-sale unobservable inputs (as a percent)	0.0368	0.0349
Receivables | Discount for lack of marketability | Non-recurring | Level 3 | Commercial loans
Unobservable Inputs
Discount rate (as a percent)	0.20
Inventory | Discount for lack of marketability | Non-recurring | Level 3 | Minimum | Commercial loans
Unobservable Inputs
Discount rate (as a percent)	0.40
Inventory | Discount for lack of marketability | Non-recurring | Level 3 | Maximum | Commercial loans
Unobservable Inputs
Discount rate (as a percent)	0.75

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Fair Value Measurements (Details 5) - Non-recurring - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Impaired loans
Fair value measurements
Impairment charges	$ 0
Mortgage servicing rights
Fair value measurements
Impairment recoveries	0
Repossessions
Fair value measurements
Impairment charges	0
Other real estate
Fair value measurements
Impairment charges	0
Total
Fair value measurements
Impaired loans - collateral based	213	$ 0
Assets measured at fair value	4,782	4,568
Total | Mortgage servicing rights
Fair value measurements
Accrued income and other assets	4,007	4,137
Total | Repossessions
Fair value measurements
Accrued income and other assets	445	327
Total | Other real estate
Fair value measurements
Accrued income and other assets	117	104
Level 3
Fair value measurements
Impaired loans - collateral based	213	0
Assets measured at fair value	4,782	4,568
Level 3 | Mortgage servicing rights
Fair value measurements
Accrued income and other assets	4,007	4,137
Level 3 | Repossessions
Fair value measurements
Accrued income and other assets	445	327
Level 3 | Other real estate
Fair value measurements
Accrued income and other assets	$ 117	$ 104

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Fair Value Measurements (Details 6) - Non-recurring $ in Thousands	Mar. 31, 2023 USD ($)	Dec. 31, 2022 USD ($)
Level 3
Valuation Methodology
Assets measured at fair value	$ 4,782	$ 4,568
Carrying Value | Level 3 | Collateral based measurements | Impaired loans
Valuation Methodology
Assets measured at fair value	213	0
Carrying Value | Level 3 | Discounted cash flows | Mortgage servicing rights
Valuation Methodology
Assets measured at fair value	4,007	4,137
Carrying Value | Level 3 | Appraisals trade publications and auction values | Repossessions
Valuation Methodology
Assets measured at fair value	445	327
Carrying Value | Level 3 | Appraisals | Other real estate
Valuation Methodology
Assets measured at fair value	117	104
Fair Value
Valuation Methodology
Assets measured at fair value	4,782	4,568
Fair Value | Level 3 | Collateral based measurements | Impaired loans
Valuation Methodology
Assets measured at fair value	213	0
Fair Value | Level 3 | Discounted cash flows | Mortgage servicing rights
Valuation Methodology
Assets measured at fair value	8,053	8,007
Fair Value | Level 3 | Appraisals trade publications and auction values | Repossessions
Valuation Methodology
Assets measured at fair value	487	370
Fair Value | Level 3 | Appraisals | Other real estate
Valuation Methodology
Assets measured at fair value	$ 117	$ 104
Discount for lack of marketability and current conditions | Level 3 | Collateral based measurements | Impaired loans | Minimum
Unobservable Inputs
Impaired loans unobservable inputs (as a percent)	0.10	0
Discount for lack of marketability and current conditions | Level 3 | Collateral based measurements | Impaired loans | Maximum
Unobservable Inputs
Impaired loans unobservable inputs (as a percent)	0.30	0
Discount for lack of marketability and current conditions | Level 3 | Collateral based measurements | Impaired loans | Weighted Average
Unobservable Inputs
Impaired loans unobservable inputs (as a percent)	0.276	0.000
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Minimum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.073	0.076
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Maximum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.127	0.096
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Weighted Average
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.079	0.082
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Minimum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.114	0.114
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Maximum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.142	0.142
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Weighted Average
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.115	0.115
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Minimum
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0.02	0.02
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Maximum
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0.09	0.09
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Weighted Average
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0.05	0.07
Discount for lack of marketability | Level 3 | Appraisals | Other real estate | Minimum
Unobservable Inputs
Other Real Estate Owned, Measurement Input	0	0
Discount for lack of marketability | Level 3 | Appraisals | Other real estate | Maximum
Unobservable Inputs
Other Real Estate Owned, Measurement Input	0	0
Discount for lack of marketability | Level 3 | Appraisals | Other real estate | Weighted Average
Unobservable Inputs
Other Real Estate Owned, Measurement Input	0	0

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Fair Value Measurements (Details 7) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Assets:
Cash and due from banks	$ 66,866	$ 84,703
Federal funds sold and interest bearing deposits with other banks	27,171	38,094
Investment securities available-for-sale	1,713,480	1,775,128
Other investments	25,293	25,293
Mortgages held for sale	2,068	3,914
Loans and leases, net of allowance for loan and lease losses	5,974,205	5,871,894
Liabilities:
Long-term debt and mandatorily redeemable securities	46,714	46,555
Subordinated notes	58,764	58,764
Carrying or Contract Value
Assets:
Cash and due from banks	66,866	84,703
Federal funds sold and interest bearing deposits with other banks	27,171	38,094
Investment securities available-for-sale	1,713,480	1,775,128
Other investments	25,293	25,293
Mortgages held for sale	2,068	3,914
Loans and leases, net of allowance for loan and lease losses	5,974,205	5,871,894
Mortgage servicing rights	4,007	4,137
Accrued interest receivable	24,872	24,747
Interest rate swaps	19,724	24,838
Liabilities:
Deposits	6,801,464	6,928,265
Short-term borrowings	303,036	215,529
Long-term debt and mandatorily redeemable securities	46,714	46,555
Subordinated notes	58,764	58,764
Accrued interest payable	13,598	5,999
Interest rate swaps	20,094	25,307
Off-balance-sheet instruments	0	0
Fair Value
Assets:
Cash and due from banks	66,866	84,703
Federal funds sold and interest bearing deposits with other banks	27,171	38,094
Investment securities available-for-sale	1,713,480	1,775,128
Other investments	25,293	25,293
Mortgages held for sale	2,068	3,914
Loans and leases, net of allowance for loan and lease losses	5,839,491	5,712,972
Mortgage servicing rights	8,053	8,007
Accrued interest receivable	24,872	24,747
Interest rate swaps	19,724	24,838
Liabilities:
Deposits	6,787,043	6,909,392
Short-term borrowings	303,036	215,529
Long-term debt and mandatorily redeemable securities	45,471	45,111
Subordinated notes	53,297	51,398
Accrued interest payable	13,598	5,999
Interest rate swaps	20,094	25,307
Off-balance-sheet instruments	99	108
Level 1
Assets:
Cash and due from banks	66,866	84,703
Federal funds sold and interest bearing deposits with other banks	27,171	38,094
Investment securities available-for-sale	548,587	573,679
Other investments	25,293	25,293
Mortgages held for sale	0	0
Loans and leases, net of allowance for loan and lease losses	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	0	0
Interest rate swaps	0	0
Liabilities:
Deposits	5,390,359	5,787,806
Short-term borrowings	71,856	139,079
Long-term debt and mandatorily redeemable securities	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Off-balance-sheet instruments	0	0
Level 2
Assets:
Cash and due from banks	0	0
Federal funds sold and interest bearing deposits with other banks	0	0
Investment securities available-for-sale	1,160,572	1,199,985
Other investments	0	0
Mortgages held for sale	2,068	3,914
Loans and leases, net of allowance for loan and lease losses	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	24,872	24,747
Interest rate swaps	19,724	24,838
Liabilities:
Deposits	1,396,684	1,121,586
Short-term borrowings	231,180	76,450
Long-term debt and mandatorily redeemable securities	45,471	45,111
Subordinated notes	53,297	51,398
Accrued interest payable	13,598	5,999
Interest rate swaps	20,094	25,307
Off-balance-sheet instruments	99	108
Level 3
Assets:
Cash and due from banks	0	0
Federal funds sold and interest bearing deposits with other banks	0	0
Investment securities available-for-sale	4,321	1,464
Other investments	0	0
Mortgages held for sale	0	0
Loans and leases, net of allowance for loan and lease losses	5,839,491	5,712,972
Mortgage servicing rights	8,053	8,007
Accrued interest receivable	0	0
Interest rate swaps	0	0
Liabilities:
Deposits	0	0
Short-term borrowings	0	0
Long-term debt and mandatorily redeemable securities	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Off-balance-sheet instruments	$ 0	$ 0