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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, 2022
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock - without par valueSRCEThe 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 filerx 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 15, 2022 — 24,732,545 shares



TABLE OF CONTENTS
  Page
   
 
   
 
 
 
 
 
 
   
 
   
   
   
EXHIBITS 
 
 
 
 

2



1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
March 31,
2022
December 31,
2021
ASSETS  
Cash and due from banks$69,195 $54,420 
Federal funds sold and interest bearing deposits with other banks347,697 470,767 
Investment securities available-for-sale1,857,431 1,863,041 
Other investments25,538 27,189 
Mortgages held for sale4,757 13,284 
Loans and leases, net of unearned discount: 
Commercial and agricultural869,093 918,712 
Solar337,485 348,302 
Auto and light truck629,780 603,775 
Medium and heavy duty truck255,277 259,740 
Aircraft957,040 898,401 
Construction equipment775,972 754,273 
Commercial real estate920,807 929,341 
Residential real estate and home equity510,537 500,590 
Consumer138,012 133,080 
Total loans and leases5,394,003 5,346,214 
Allowance for loan and lease losses(129,959)(127,492)
Net loans and leases5,264,044 5,218,722 
Equipment owned under operating leases, net41,792 48,433 
Net premises and equipment45,960 47,038 
Goodwill and intangible assets83,921 83,926 
Accrued income and other assets272,128 269,469 
Total assets$8,012,463 $8,096,289 
LIABILITIES  
Deposits:  
Noninterest-bearing demand$2,061,111 $2,052,981 
Interest-bearing deposits:
Interest-bearing demand2,430,979 2,455,580 
Savings1,328,981 1,286,367 
Time852,021 884,137 
Total interest-bearing deposits4,611,981 4,626,084 
Total deposits6,673,092 6,679,065 
Short-term borrowings:  
Federal funds purchased and securities sold under agreements to repurchase193,798 194,727 
Other short-term borrowings5,360 5,300 
Total short-term borrowings199,158 200,027 
Long-term debt and mandatorily redeemable securities69,563 71,251 
Subordinated notes58,764 58,764 
Accrued expenses and other liabilities92,416 117,718 
Total liabilities7,092,993 7,126,825 
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, 2022 and December 31, 2021
436,538 436,538 
Retained earnings624,503 603,787 
Cost of common stock in treasury (3,473,139 shares at March 31, 2022 and 3,466,162 shares at December 31, 2021)
(115,654)(114,209)
Accumulated other comprehensive loss(80,537)(9,861)
Total shareholders’ equity864,850 916,255 
Noncontrolling interests54,620 $53,209 
Total equity919,470 969,464 
Total liabilities and equity$8,012,463 $8,096,289 
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,
 20222021
Interest income:  
Loans and leases$55,208 $57,864 
Investment securities, taxable6,344 3,988 
Investment securities, tax-exempt134 174 
Other363 266 
Total interest income62,049 62,292 
Interest expense:  
Deposits2,376 3,526 
Short-term borrowings24 36 
Subordinated notes823 818 
Long-term debt and mandatorily redeemable securities(792)500 
Total interest expense2,431 4,880 
Net interest income59,618 57,412 
Provision for credit losses2,233 2,398 
Net interest income after provision for credit losses57,385 55,014 
Noninterest income:  
Trust and wealth advisory5,914 5,481 
Service charges on deposit accounts2,792 2,447 
Debit card4,194 4,182 
Mortgage banking1,377 3,901 
Insurance commissions1,905 2,152 
Equipment rental3,662 4,629 
Gains on investment securities available-for-sale  
Other3,301 3,077 
Total noninterest income23,145 25,869 
Noninterest expense:  
Salaries and employee benefits25,467 25,196 
Net occupancy2,811 2,719 
Furniture and equipment1,295 1,474 
Data processing5,208 4,984 
Depreciation – leased equipment3,015 3,773 
Professional fees1,608 1,613 
FDIC and other insurance850 665 
Business development and marketing1,268 997 
Loan and lease collection and repossession134 129 
Other3,680 2,590 
Total noninterest expense45,336 44,140 
Income before income taxes35,194 36,743 
Income tax expense7,793 8,637 
Net income27,401 28,106 
Net (income) loss attributable to noncontrolling interests(11)(1)
Net income available to common shareholders$27,390 $28,105 
Per common share:  
Basic net income per common share$1.10 $1.10 
Diluted net income per common share$1.10 $1.10 
Cash dividends$0.31 $0.29 
Basic weighted average common shares outstanding24,743,790 25,320,930 
Diluted weighted average common shares outstanding24,743,790 25,320,930 
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,
 20222021
Net income$27,401 $28,106 
Other comprehensive income (loss):  
Unrealized depreciation of available-for-sale securities(93,094)(14,658)
Reclassification adjustment for realized gains included in net income  
Income tax effect22,418 3,530 
Other comprehensive loss, net of tax(70,676)(11,128)
Comprehensive (loss) income$(43,275)$16,978 
Comprehensive (income) loss attributable to noncontrolling interests(11)(1)
Comprehensive (loss) income available to common shareholders$(43,286)$16,977 
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’ EquityNoncontrolling InterestsTotal Equity
Balance at January 1, 2021$— $436,538 $514,176 $(82,240)$18,371 $886,845 $43,825 $930,670 
Net income— — 28,105 — — 28,105 1 28,106 
Other comprehensive loss— — — — (11,128)(11,128)— (11,128)
Issuance of 35,027 common shares under stock based compensation awards
— — 844 638 — 1,482 — 1,482 
Cost of 155,457 shares of common stock acquired for treasury
— — — (6,621)— (6,621)— (6,621)
Common stock dividend ($0.29 per share)
— — (7,388)— — (7,388)— (7,388)
Contributions from noncontrolling interests— — — — —  887 887 
Distributions to noncontrolling interests— — — — —  (249)(249)
Balance at March 31, 2021$— $436,538 $535,737 $(88,223)$7,243 $891,295 $44,464 935,759 
Balance at January 1, 2022$— $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 
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,
 20222021
Operating activities:  
Net income$27,401 $28,106 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for credit losses2,233 2,398 
Depreciation of premises and equipment1,177 1,361 
Depreciation of equipment owned and leased to others3,015 3,773 
Stock-based compensation732 885 
Amortization of investment securities premiums and accretion of discounts, net967 1,734 
Amortization of mortgage servicing rights381 590 
Mortgage servicing rights impairment recoveries (42)
Amortization of right of use assets785 1,133 
Deferred income taxes80 2,452 
Gains on investment securities available-for-sale  
Originations of loans held for sale, net of principal collected(32,314)(85,663)
Proceeds from the sales of loans held for sale41,456 91,858 
Net gain on sale of loans held for sale(615)(2,661)
Net gain on sale of other real estate and repossessions(47)(141)
Change in interest receivable(530)(142)
Change in interest payable199 265 
Change in other assets9,099 (7,843)
Change in other liabilities(10,882)4,519 
Other(1,334)(93)
Net change in operating activities41,803 42,489 
Investing activities:  
Proceeds from sales of investment securities available-for-sale  
Proceeds from maturities and paydowns of investment securities available-for-sale57,392 119,692 
Purchases of investment securities available-for-sale(145,843)(229,957)
Net change in partnership investments(2,128)(1,142)
Net change in other investments1,651  
Loans sold or participated to others7,987 3,813 
Proceeds from principal payments on direct finance leases9,377 7,317 
Net change in loans and leases(66,069)(49,255)
Net change in equipment owned under operating leases3,626 (128)
Purchases of premises and equipment(113)(280)
Proceeds from disposal of premises and equipment14 5 
Proceeds from sales of other real estate and repossessions1,983 697 
Net change in investing activities(132,123)(149,238)
Financing activities:  
Net change in demand deposits and savings accounts26,143 271,650 
Net change in time deposits(32,116)(86,337)
Net change in short-term borrowings(869)29,960 
Payments on long-term debt(2,440)(2,035)
Acquisition of treasury stock(2,175)(6,621)
Net contributions from (distributions to) noncontrolling interests1,400 639 
Cash dividends paid on common stock(7,918)(7,600)
Net change in financing activities(17,975)199,656 
Net change in cash and cash equivalents(108,295)92,907 
Cash and cash equivalents, beginning of year525,187 243,047 
Cash and cash equivalents, end of period$416,892 $335,954 
Supplemental Information:  
Non-cash transactions:  
Loans transferred to other real estate and repossessed assets$1,150 $839 
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan683 715 
Right of use assets obtained in exchange for lease obligations116 46 
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 (2021 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, 2021 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. 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. Costs incurred as a direct result of closing lease transactions are capitalized and amortized over the life of the lease while all other initial direct costs are expensed immediately.
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.
Loans and leases that have been modified and economic concessions have been granted to borrowers who have experienced financial difficulties are considered a troubled debt restructuring (TDR). These concessions typically result from the Company’s loss mitigation activities and may include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.
8

When the Company modifies loans and leases in a TDR, it evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, or uses the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for loan and lease losses estimate or a charge-off to the allowance for loan and lease losses. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance for loan and lease losses.
Note 2 — Recent Accounting Pronouncements
Financial Instruments–Credit Losses: In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02 “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is assessing ASU 2022-02 and its 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. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company continues to implement its transition plan toward 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 and ASU 2021-01, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures. The Company will continue to assess the impact as the reference rate transition approaches June 30, 2023.
9

Note 3 — Investment Securities Available-For-Sale
The following table shows investment securities available-for-sale.
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
March 31, 2022    
U.S. Treasury and Federal agencies securities$1,137,278 $343 $(56,676)$1,080,945 
U.S. States and political subdivisions securities102,459 145 (4,251)98,353 
Mortgage-backed securities — Federal agencies700,666 394 (46,050)655,010 
Corporate debt securities22,511 88 (74)22,525 
Foreign government and other securities600  (2)598 
Total debt securities available-for-sale$1,963,514 $970 $(107,053)$1,857,431 
December 31, 2021    
U.S. Treasury and Federal agencies securities$1,093,780 $3,244 $(13,018)$1,084,006 
U.S. States and political subdivisions securities95,700 1,130 (1,129)95,701 
Mortgage-backed securities — Federal agencies663,441 4,745 (8,459)659,727 
Corporate debt securities22,510 499  23,009 
Foreign government and other securities600  (2)598 
Total debt securities available-for-sale$1,876,031 $9,618 $(22,608)$1,863,041 
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, 2022 and December 31, 2021, accrued interest receivable on investment securities available-for-sale was $5.02 million and $4.80 million, respectively.
At March 31, 2022 and December 31, 2021, 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, 2022. 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 CostFair Value
Due in one year or less$99,452 $99,754 
Due after one year through five years1,073,137 1,018,725 
Due after five years through ten years89,899 83,636 
Due after ten years360 306 
Mortgage-backed securities700,666 655,010 
Total debt securities available-for-sale$1,963,514 $1,857,431 
10

The following table summarizes gross unrealized losses and fair value by investment category and age. At March 31, 2022, the Company’s available-for-sale securities portfolio consisted of 719 securities, 541 of which were in an unrealized loss position.
 Less than 12 Months12 months or LongerTotal
(Dollars in thousands) Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
March 31, 2022      
U.S. Treasury and Federal agencies securities$796,571 $(40,683)$207,232 $(15,993)$1,003,803 $(56,676)
U.S. States and political subdivisions securities55,508 (2,367)18,798 (1,884)74,306 (4,251)
Mortgage-backed securities - Federal agencies486,975 (32,284)133,048 (13,766)620,023 (46,050)
Corporate debt securities8,109 (74)  8,109 (74)
Foreign government and other securities98 (2)  98 (2)
Total debt securities available-for-sale$1,347,261 $(75,410)$359,078 $(31,643)$1,706,339 $(107,053)
December 31, 2021      
U.S. Treasury and Federal agencies securities$