1ST SOURCE CORP
For the period ended Dec 31, 2024. Filed Feb 18, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 18, 2025
SRCE$86.94-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-20.
0000034782-24-000033
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-18.
0000034782-25-000025
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 156 previous paragraphs and 159 current paragraphs.
82 unchanged; 71 reworded; 6 added; 3 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 18 previous and 18 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
NM = Not Meaningful
Current report
NM = Not Meaningful
Current report
During 2024, we reclassified the provision for unfunded loan commitments out of Other Noninterest Expense and into the Provision for Credit Losses in the Consolidated Statements of Income. We believe this reclassification more appropriately reflects the nature of this expense item and will enhance comparability for peer comparison purposes. We have not reclassified the 2023 and 2022 presentation. The increase in 2023 compared to 2022 was primarily the result of an increase in non-cancelable outstanding loan commitments and a lengthening of the average contractual draw period.
Current report
Commercial and agricultural lending, excluding those loans secured by real estate, increased $6.75 million or 0.88% in 2024 over 2023. Commercial and agricultural lending outstandings were $772.97 million and $766.22 million at December 31, 2024 and December 31, 2023, respectively. Consistent with what we saw in 2023, loan growth continued to be difficult as higher interest rates caused borrowers to manage their cash closely. We saw this in the form of reduced line of credit (LOC) balances throughout the year although we did experience an increase from a small number of specialty finance borrowers at year end. Further, the agriculture sector is in its second consecutive year of depressed commodity prices which caused lower LOC usage as well as reduced investment in equipment from these borrowers. Finally, our commercial and industrial loan outstandings were impacted by the acquisition and subsequent pay-off of three of our larger credit exposures.
Current report
Residential real estate and home equity loans were $680.07 million at December 31, 2024 and $637.97 million at December 31, 2023. Residential real estate and home equity loans increased $42.10 million or 6.60% in 2024 from 2023. Residential mortgage and home equity outstandings grew in 2024 as clients began to turn back to home equity loans as variable rates began to decrease. In addition, increased cost of home repairs and improvements resulted in larger loan amounts.
Current report
Medium and heavy duty truck – The industry continues to struggle with overcapacity and weak freight rates. This portfolio has historically been a barometer for overall economic weakness and the industry has experienced several high-profile carrier bankruptcies and generally difficult conditions. In previous downturns, small companies and independent owner-operators were hit the hardest and asset valuations were pressured. Asset valuations have weakened. The portfolio reported a slight decline in loan balances for the year and has exhibited some credit weakness, although it has likely outperformed the industry as a whole and the Company did not incur any credit losses in the portfolio during the period. The possibility of labor unrest within the shipping industry raises the potential for volatility in the segment and we continue to monitor for signs of credit deterioration in our portfolio given the industry’s increased risk profile.
Removed paragraphs (3)
Previous report
Commercial and agricultural lending, excluding those loans secured by real estate, decreased $45.81 million or 5.64% in 2023 over 2022. Commercial and agricultural lending outstandings were $766.22 million and $812.03 million at December 31, 2023 and December 31, 2022, respectively. The reduction in balances during 2023 can be attributed to reduced borrowings within our working capital and line of credit products as borrowers utilized excess deposits to reduce their line of credit borrowings fueled by elevated interest rates.
Previous report
Residential real estate and home equity loans were $637.97 million at December 31, 2023 and $584.74 million at December 31, 2022. Residential real estate and home equity loans increased $53.24 million or 9.10% in 2023 from 2022. Residential mortgage and home equity outstandings grew in 2023 as new adjustable-rate mortgage loans were retained rather than being sold into the secondary market. Additionally, reduced homeowner liquidity drove continued high demand for home equity lines of credit and loans. The trends from 2022 continued in 2023 as clients did not want to refinance their first mortgages to pull equity from their homes. In addition, a slow housing market and low builder confidence tended to slow home purchases.
Previous report
Medium and heavy duty truck – The industry has weakened as it deals with overcapacity and declining freight rates. This portfolio has historically been a barometer for overall economic weakness and 2024 is expected to be a difficult year for the industry. In previous downturns, small companies and independent owner-operators have been hit the hardest and asset valuations could be pressured should consolidation accelerate. The portfolio exhibited no material loan growth for the year and has decreased as a percentage of capital, comparably to our other portfolios. At year-end, we adjusted qualitative factors in our allowance analysis to account for the industry’s increasing risk profile and expected credit deterioration.
Reworded paragraphs (71)
Previous wording
We have identified the following two policies as being critical because they require management to make particularly difficult, subjective, and/or complex estimates or judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the determination of the allowance for loan and lease losses and fair value measurements. Management believes it has used the best information available to make the estimations or judgments necessary to value the related assets and liabilities. Actual performance that differs from estimates or judgments and future changes in the key variables could change future valuations and impact net income. Management has reviewed the application of these policies with the Audit, Finance and Risk Committee of the Board of Directors. Following is a discussion of the areas we view as our most critical accounting policies.
Current wording
We have identified the following two policies as being critical because they require management to make particularly difficult, subjective, and/or complex estimates or judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the determination of the allowance for credit losses and fair value measurements. Management believes it has used the best information available to make the estimations or judgments necessary to value the related assets and liabilities. Actual performance that differs from estimates or judgments and future changes in the key variables could change future valuations and impact net income. Management has reviewed the application of these policies with the Audit, Finance and Risk Committee of the Board of Directors. Following is a discussion of the areas we view as our most critical accounting policies.
Previous wording
Additionally, we are required to use forecasts about future economic conditions to determine the expected credit losses over the remaining life of the asset. Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with increasing geopolitical uncertainty, elevated inflation, high interest rates, and persistently inverted yield curve. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions. We use a two-year reasonable and supportable period across all loan and lease segments to forecast economic conditions. We believe the two-year time horizon aligns with available industry guidance and various forecasting sources. Following this two-year forecasting period, we use a two-year reversion period to revert forecast rates to historical loss rates.
Current wording
Additionally, we are required to use forecasts about future economic conditions to determine the expected credit losses over the remaining life of the asset. Forecast adjustments are fundamentally difficult to establish and the current environment presents challenges with widespread geopolitical uncertainty, continued elevated inflation, and high interest rates. We endeavor to apply a forecast adjustment that is directionally consistent, reasonable, supportable, and reflective of current expectations and conditions. We use a two-year reasonable and supportable period across all loan and lease segments to forecast economic conditions. We believe the two-year time horizon aligns with available industry guidance and various forecasting sources. Following this two-year forecasting period, we use a two-year reversion period to revert forecast rates to historical loss rates.
Previous wording
In assessing the factors used to derive an appropriate allowance, management benefits from a lengthy organizational history and experience with credit decisions and related outcomes. We have been diligent in our efforts to review our portfolios, loan segmentations, methodologies and models and believe we have made appropriate and prudent decisions. Nonetheless, if management’s underlying assumptions prove to be inaccurate, the allowance for loan and lease losses would have to be adjusted. Our accounting policies related to the allowance for credit losses is disclosed in Note 1 under the heading “Allowance for Credit Losses.”
Current wording
In assessing the factors used to derive an appropriate allowance, management benefits from a lengthy organizational history and experience with credit decisions and related outcomes. We have been diligent in our efforts to review our portfolios, loan segmentations, methodologies and models and believe we have made appropriate and prudent decisions. Nonetheless, if management’s underlying assumptions prove to be inaccurate, the allowance for credit losses would have to be adjusted. Our accounting policies related to the allowance for credit losses is disclosed in Note 1 under the heading “Allowance for Credit Losses.”
Previous wording
Net income available to common shareholders in 2023 was $124.93 million, up from $120.51 million in 2022 and up from $118.53 million in 2021. Diluted net income per common share was $5.03 in 2023, $4.84 in 2022, and $4.70 in 2021. Return on average total assets was 1.48% in 2023 compared to 1.49% in 2022, and 1.53% in 2021. Return on average common shareholders’ equity was 13.48% in 2023 versus 13.81% in 2022, and 13.07% in 2021.
Current wording
Net income available to common shareholders in 2024 was $132.62 million, up from $124.93 million in 2023 and up from $120.51 million in 2022. Diluted net income per common share was $5.36 in 2024, $5.03 in 2023, and $4.84 in 2022. Return on average total assets was 1.52% in 2024 compared to 1.48% in 2023, and 1.49% in 2022. Return on average common shareholders’ equity was 12.54% in 2024 versus 13.48% in 2023, and 13.81% in 2022.
Previous wording
Net income in 2023, as compared to 2022, was positively impacted by a $15.18 million or 5.76% increase in net interest income and a $7.38 million decrease in the provision for credit losses which was offset by a $17.03 million or 9.22% increase in noninterest expense. Net income in 2022, as compared to 2021, was positively impacted by a $26.83 million or 11.34% increase in net interest income and a $1.45 million or 0.78% decrease in noninterest expense which was offset by a $17.55 million or 407.81% increase in the provision for credit losses and an $8.83 million or 8.82% decrease in noninterest income.
Current wording
Net income in 2024, as compared to 2023, was positively impacted by a $22.17 million or 7.96% increase in net interest income, which was offset by a $6.60 million increase in provision for credit losses, a $4.32 million or 4.76% decrease in noninterest income and a $1.88 million or 0.93% increase in noninterest expense. Net income in 2023, as compared to 2022, was positively impacted by a $15.18 million or 5.76% increase in net interest income and a $7.38 million decrease in the provision for credit losses which was offset by a $17.03 million or 9.22% increase in noninterest expense.
Previous wording
Dividends paid on common stock in 2023 amounted to $1.30 per share, compared to $1.26 per share in 2022, and $1.21 per share in 2021. The level of earnings reinvested and dividend payouts are determined by the Board of Directors based on various considerations, including liquidity needs, capital requirements, and management’s assessment of future growth opportunities and the level of capital necessary to support them.
Current wording
Dividends paid on common stock in 2024 amounted to $1.40 per share, compared to $1.30 per share in 2023, and $1.26 per share in 2022. The level of earnings reinvested and dividend payouts are determined by the Board of Directors based on various considerations, including liquidity needs, capital requirements, and management’s assessment of future growth opportunities and the level of capital necessary to support them.
Previous wording
Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 3.51% in 2023, compared to 3.45% in 2022 and 3.23% in 2021. Net interest income was $278.65 million for 2023, compared to $263.47 million for 2022 and $236.64 million for 2021. Tax-equivalent net interest income totaled $279.39 million for 2023, up $15.29 million from the $264.10 million reported in 2022. Tax-equivalent net interest income for 2022 was up $27.00 million from the $237.10 million reported for 2021.
Current wording
Net interest margin (the ratio of net interest income to average earning assets) is significantly affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable- equivalent basis was 3.64% in 2024, compared to 3.51% in 2023 and 3.45% in 2022. Net interest income was $300.82 million for 2024, compared to $278.65 million for 2023 and $263.47 million for 2022. Tax-equivalent net interest income totaled $301.40 million for 2024, up $22.02 million from the $279.39 million reported in 2023. Tax-equivalent net interest income for 2023 was up $15.29 million from the $264.10 million reported for 2022.
Previous wording
During 2023, average earning assets increased $295.44 million or 3.86% while average interest-bearing liabilities increased $520.63 million or 10.41% over the comparable period in 2022. The yield on average earning assets increased 141 basis points to 5.25% for 2023 from 3.84% for 2022 primarily due to higher rates on loans and leases, tax exempt investment securities and other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper. Total cost of average interest-bearing liabilities increased 189 basis points to 2.50% during 2023 from 0.61% in 2022 as a result of the higher interest rate environment. The result to the fully taxable-equivalent net interest margin was an increase of six basis points.
Current wording
During 2024, average earning assets increased $327.89 million or 4.12% while average interest-bearing liabilities increased $315.75 million or 5.72% over the comparable period in 2023. The yield on average earning assets increased 60 basis points to 5.85% for 2024 from 5.25% for 2023 primarily due to higher rates and average balances on loans and leases, higher rates on taxable investment securities and higher average balances on other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank excess balances, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock and commercial paper. Total cost of average interest-bearing liabilities increased 64 basis points to 3.14% during 2024 from 2.50% in 2023 as a result of the higher interest rate environment and its impact on deposit competition. The result to the fully taxable-equivalent net interest margin was an increase of 13 basis points.
Previous wording
The largest contributor to the increase in the yield on average earning assets in 2023 was the 151 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates. Average loans and leases increased $637.16 million or 11.45% in 2023 from 2022 while the yield increased to 6.25%. Strong growth primarily within our Auto and Light Truck, Construction Equipment and Commercial Real Estate portfolios drove total average loans and leases higher during the year. Net interest recoveries positively contributed three basis points to the yield on average loans and leases during 2023 and two basis points to the average loans and leases yield during 2022.
Current wording
The largest contributor to the increase in the yield on average earning assets in 2024 was the 59 basis point improvement in the loan and lease portfolio yield primarily from rising interest rates and higher average balances. Average loans and leases increased $394.47 million or 6.36% in 2024 from 2023 while the yield increased to 6.84%. Strong growth primarily within our Construction Equipment, Auto and Light Truck and Renewable Energy portfolios, and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year. Net interest recoveries positively contributed five basis points to the yield on average loans and leases during 2024 and four basis points to the average loans and leases yield during 2023.
Previous wording
During 2023, the tax-equivalent yield on investment securities available-for-sale increased seven basis points to 1.57% while the average balance decreased $168.70 million or 9.14% with the largest decreases in U.S. treasury and federal agency securities and mortgage-backed securities. Average mortgages held for sale decreased $2.81 million or 54.27% during 2023 while the yield increased 236 basis points. Average other investments decreased $170.21 million or 69.78% during 2023 while the yield increased 391 basis points. The average balance decrease in other investments was primarily a result of lower balances held at the Federal Reserve Bank.
Current wording
During 2024, the tax-equivalent yield on investment securities available-for-sale increased 15 basis points to 1.72% while the average balance decreased $106.29 million or 6.34% with the largest decreases in U.S. treasury and federal agency securities and state and municipal securities. Average mortgages held for sale increased $0.87 million or 36.53% during 2024 while the yield increased seven basis points. Average other investments increased $38.83 million or 52.67% during 2024 while the yield increased 29 basis points. The average balance increase in other investments was primarily a result of higher balances held at the Federal Reserve Bank.
Previous wording
Average interest-bearing deposits increased $530.60 million or 11.35% during 2023 while the effective rate paid on those deposits increased 183 basis points. The increased average balance was primarily due to increases in time deposits, public fund, and brokered deposits. The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix. The deposit mix change which began during 2022 carried over into 2023 with clients moving their funds from non-maturity accounts to certificates of deposit due to the rising interest rate environment. Average noninterest-bearing demand deposits decreased $284.73 million or 13.97% during 2023 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.
Current wording
Average interest-bearing deposits increased $305.86 million or 5.88% during 2024 while the effective rate paid on those deposits increased 66 basis points. The increased average balance was primarily due to increases in time deposits, money market accounts, and brokered deposits. The increase in the average cost of interest-bearing deposits was primarily the result of higher rates and a shift in the deposit mix. The deposit mix change which began during 2022 carried over into 2023 and 2024 with clients moving their funds from non-maturity accounts to higher yielding certificates of deposit and money market accounts due to the elevated interest rate environment. Average noninterest-bearing demand deposits decreased $144.15 million or 8.22% during 2024 due primarily to persistent rate competition for deposits and greater utilization of excess funds by our business customers.
Previous wording
Average short-term borrowings decreased $1.36 million or 0.63% during 2023 while the effective rate paid increased 259 basis points. The decrease in short-term borrowings was primarily the result of lower repurchase agreements offset by increased borrowings with the FHLB. Average long-term debt and mandatorily redeemable securities balances decreased $8.62 million or 15.68% during 2023 while the effective rate increased 827 basis points primarily due to higher rates on mandatorily redeemable securities from an improvement in book value per share during 2023. 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.
Current wording
Average short-term borrowings increased $15.24 million or 7.13% during 2024 while the effective rate paid increased 63 basis points due to higher Federal Reserve Bank Term Funding Program borrowings offset with decreased FHLB borrowings and lower securities sold under agreements to repurchase balances. Average long-term debt and mandatorily redeemable securities balances decreased $5.35 million or 11.55% during 2024 while the effective rate decreased 68 basis points primarily due to a lower imputed interest on mandatorily redeemable securities from a reduced improvement in book value per share during 2024 compared to 2023. 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.
Previous wording
Noninterest Income — Noninterest income decreased $0.64 million or 0.70% in 2023 from 2022 following a $8.83 million or 8.82% decrease in 2022 from 2021. The following table shows the components of our noninterest income for the most recent three years ended December 31.
Current wording
Noninterest Income — Noninterest income decreased in 2024 from 2023 following a decrease in 2023 from 2022. The following table shows the components of our noninterest income for the most recent three years ended December 31.
Previous wording
Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased $0.60 million or 2.59% in 2023 from 2022 compared to a $0.68 million or 2.84% decrease in 2022 over 2021. Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at December 31, 2023 and 2022 was $5.46 billion and $4.84 billion, respectively. The positive performance of the stock and bond markets primarily during the fourth quarter of 2023 resulted in an increase in the market value of trust assets under management compared to 2022. At December 31, 2023, these trust assets were comprised of $3.66 billion of personal and agency trusts and estate administration assets, $1.10 billion of employee benefit plan assets, $0.53 million of individual retirement accounts, and $0.17 million of custody assets.
Current wording
Trust and wealth advisory fees (which include investment management fees, estate administration fees, mutual fund fees, annuity fees, and fiduciary fees) increased in 2024 from 2023 compared to an increase in 2023 over 2022. Trust and wealth advisory fees are largely based on the number and size of client relationships and the market value of assets under management. The market value of trust assets under management at December 31, 2024 and 2023 was $5.97 billion and $5.46 billion, respectively. The positive performance of the stock and bond markets primarily during the first nine months of 2024 resulted in an increase in the market value of trust assets under management compared to 2023. At December 31, 2024, these trust assets were comprised of $4.03 billion of personal and agency trusts and estate administration assets, $1.18 billion of employee benefit plan assets, $0.59 million of individual retirement accounts, and $0.17 million of custody assets.
Previous wording
Service charges on deposit accounts increased by $0.60 million or 4.96% in 2023 from 2022 compared to an increase of $1.56 million or 14.70% in 2022 from 2021. The growth in service charges on deposit accounts in 2023 was primarily due to increased consumer and business overdraft transactions. The increase during 2022 was primarily due to increased consumer and business nonsufficient fund transactions.
Current wording
Service charges on deposit accounts increased in 2024 from 2023 compared to an increase in 2023 from 2022. The growth in service charges on deposit accounts in 2024 was primarily due to a higher volume of business deposit account fees. The growth in service charges on deposit accounts in 2023 was primarily due to increased consumer and business overdraft transactions.
Previous wording
Debit card income declined slightly during 2023 following a similar slight decrease during 2022. The declines in 2023 to 2022 were mainly the result of decreased discretionary spending and a focus on core expenses by consumers. Additionally, regulatory changes to web commerce transactions implemented by the Federal Reserve during 2023 had a negative impact.
Current wording
Debit card income declined during 2024 following a slight decrease during 2023. The decline in 2024 to 2023 was related to shifts in both client transaction behavior and the networks over which those merchants are routing transactions. During 2023, regulatory changes to web commerce transactions implemented by the Federal Reserve had a negative impact.
Previous wording
Mortgage banking income dropped $0.65 million or 15.79% in 2023 over 2022, compared to a $7.70 million or 65.13% decrease in 2022 from 2021. We had $0.81 million of MSR impairment recoveries in 2021. During 2023, 2022 and 2021, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2023 and 2022, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market. Demand for mortgages has continued to decline with steep increases in interest rates, limited inventory, and fewer housing starts all of which impacted market activity.
Current wording
Mortgage banking income increased in 2024 over 2023, compared to a decrease in 2023 from 2022. During 2024, 2023, and 2022, we determined that no permanent write-down was necessary for previously recorded impairment on MSRs. During 2024 mortgage banking income increased due to higher production of loans originated for the secondary market resulting in increased income on loans sold into the secondary market. During 2023, mortgage banking income decreased primarily due to reduced mortgage origination volumes resulting in lower income on loans sold in the secondary market.
Previous wording
Insurance commissions increased $0.21 million or 3.10% in 2023 compared to 2022 and declined $0.54 million or 7.51% in 2022 compared to 2021. The rise in 2023 was primarily due to a larger book of business and more contingent commissions received. The decrease in 2022 was primarily due to a reduced book of business and fewer contingent commissions received.
Current wording
Insurance commissions decreased in 2024 compared to 2023 and increased in 2023 compared to 2022. The decrease in 2024 was primarily due to fewer contingent commissions received. The rise in 2023 was primarily due to a larger book of business and more contingent commissions received.
Previous wording
Equipment rental income generated from operating leases decreased by $3.44 million or 28.00% during 2023 from 2022 compared to a reduction of $4.37 million or 26.27% during 2022 from 2021. The average equipment rental portfolio decreased 29.45% in 2023 over 2022 and decreased 21.27% in 2022 over 2021 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business. In 2023 and 2022, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.
Current wording
Equipment rental income generated from operating leases decreased during 2024 from 2023 compared to a similar reduction during 2023 from 2022. The average equipment rental portfolio decreased in 2024 over 2023 and decreased in 2023 over 2022 as a result of reduced leasing volume primarily in the medium and heavy duty truck, construction equipment and the auto and light truck portfolios due to changing customer preferences and competitive pricing pressures for new business. In 2024 and 2023, the decline in rental income was offset by a similar decline in depreciation on equipment owned under operating leases.
Previous wording
Losses on the sale of investment securities available-for-sale were $2.93 million in 2023 compared to losses of $0.18 million and $0.68 million in 2022 and 2021, respectively. Losses during 2023 of $2.88 million were the result of repositioning the investment securities portfolio. In the repositioning, approximately $40 million of securities with an average yield of 1.10% were sold and used to purchase approximately $40 million of securities with an average yield of 4.80%. The remaining 2023 losses were the result of sales to support liquidity and fund loan growth during the first quarter. Losses during 2022 and 2021 were from the sale of Federal agency securities in 2022 and corporate securities in 2021 with the goal of managing portfolio risk and liquidity.
Current wording
Losses on investment securities available-for-sale during 2024 were exclusively the result of repositioning the portfolio during the fourth quarter. In the repositioning, approximately $63 million of securities with a weighted average yield of 0.71% were sold and used to purchase approximately $63 million of securities with a weighted average yield of 4.64%. Losses during 2023 were primarily the result of repositioning the investment securities portfolio. In the 2023 repositioning, approximately $40 million of securities with a weighted average yield of 1.10% were sold and used to purchase approximately $40 million of securities with a weighted average yield of 4.80%. The remaining 2023 losses were the result of sales to support liquidity and fund loan growth during the first quarter. Losses during 2022 were from the sale of Federal agency securities with the goal of managing portfolio risk and liquidity.
Previous wording
Other income improved $4.85 million or 32.26% in 2023 from 2022 compared to an increase of $2.48 million or 19.76% in 2022 from 2021. The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer swap fees of $1.23 million and higher bank owned life insurance policy claims. The increase in 2022 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $2.24 million and higher bank owned life insurance policy claims offset by a write down of $0.37 million on small business capital investments and reduced customer swap fees of $0.33 million.
Current wording
Other income decreased in 2024 from 2023 compared to an increase in 2023 from 2022. The decrease in 2024 was mainly a result of lower partnership investment gains on sale of renewable energy tax equity investments, a writedown of $0.86 million on a small business capital investment and a reduction in customer interest rate swap fees of $0.48 million, offset by increased brokerage commissions and fees of $0.84 million and rental income of $0.23 million related to a repossessed asset. The increase in 2023 was mainly a result of partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, increased customer interest rate swap fees of $1.23 million and higher bank owned life insurance policy claims.
Previous wording
Noninterest Expense — Noninterest expense increased $17.03 million or 9.22% in 2023 from 2022 following a $1.45 million or 0.78% decrease in 2022 from 2021. The following table shows the components of our noninterest expense for the most recent three years ended December 31.
Current wording
Noninterest Expense — Noninterest expense increased in 2024 from 2023 following an increase in 2023 from 2022. The following table shows the components of our noninterest expense for the most recent three years ended December 31.
Previous wording
Total salaries and employee benefits increased $10.50 million or 9.99% in 2023 from 2022, following a slight decrease in 2022 from 2021.
Current wording
Total salaries and employee benefits increased in 2024 from 2023, following an increase in 2023 from 2022.
Previous wording
Employee salaries grew $7.17 million or 8.31% in 2023 from 2022 compared to an increase of $0.62 million or 0.73% in 2022 from 2021. The increase in 2023 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover. The increase in 2022 was mainly a result of higher base salaries due to normal merit increases offset by a decrease in incentive compensation and commission compensation primarily in our residential mortgage area.
Current wording
Employee salaries grew $7.45 million or 7.97% in 2024 from 2023 compared to an increase of $7.17 million or 8.31% in 2023 from 2022. The increase in 2024 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover as well as an increase in incentive compensation. The increase in 2023 was mainly a result of higher base salaries due to normal merit increases, the impact of wage inflation, and an increase in the number of employees from the filling of prior open positions and lower employee turnover.
Previous wording
Employee benefits increased $3.33 million or 17.73% in 2023 from 2022, compared to a $1.32 million or 6.58% decrease in 2022 from 2021. During 2023, group insurance costs were higher due to a rise in claims experienced and increased company contributions to employee retirement accounts compared to levels in 2022. During 2022, group insurance costs were lower due to decreased claims experienced compared to levels in 2021.
Current wording
Employee benefits decreased $1.15 million or 5.20% in 2024 from 2023, compared to a $3.33 million or 17.73% increase in 2023 from 2022. During 2024, group insurance costs were lower due to fewer claims experienced and the utilization of accumulated plan forfeitures of $0.65 million to offset current year employer contribution expense. During 2023, group insurance costs were higher due to a rise in claims experienced and increased company contributions to employee retirement accounts compared to levels in 2022.
Previous wording
Occupancy expense rose $0.36 million or 3.37% in 2023 from 2022, compared to an increase of $0.20 million or 1.94% in 2022 from 2021. The expense increase in 2023 was primarily the result of higher premises repairs. The elevated expense in 2022 was primarily the result of higher snow removal costs due to inclement weather conditions.
Current wording
Occupancy expense rose in 2024 from 2023, compared to an increase in 2023 from 2022. The expense increase in 2024 was primarily the result of increased premises expenses and higher rents. The elevated expense in 2023 was primarily the result of higher premises repairs.
Previous wording
Furniture and equipment expense, including depreciation, increased by $0.21 million or 3.76% in 2023 from 2022 compared to a decrease of $0.53 million or 8.85% in 2022 from 2021. The higher expense in 2023 was primarily due to increased equipment replacement costs. The lower expense in 2022 was primarily due to a reduction in equipment rental and depreciation expenses.
Current wording
Furniture and equipment expense, including depreciation, was relatively flat in 2024 from 2023 compared to an increase in 2023 from 2022. The higher expense in 2023 was primarily due to increased computer-related hardware replacement costs.
Previous wording
Data processing expense rose by $2.68 million or 11.98% in 2023 from 2022, following a $2.50 million or 12.57% increase in 2022 from 2021. The increases in 2023 and 2022 were due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.
Current wording
Data processing expense rose in 2024 from 2023, following an increase in 2023 from 2022. The increases in 2024 and 2023 were both due to a rise in software maintenance costs and higher computer processing charges related to a variety of technology projects.
Previous wording
Depreciation on equipment owned under operating leases declined $2.93 million or 29.23% in 2023 from 2022, following a $3.67 million or 26.81% decrease in 2022 from 2021. In 2023 and 2022, depreciation on equipment owned under operating leases correlated with the change in equipment rental income.
Current wording
Depreciation on equipment owned under operating leases declined in 2024 from 2023, following a similar decrease in 2023 from 2022. In 2024 and 2023, depreciation on equipment owned under operating leases correlated with the change in equipment rental income.
Previous wording
Professional fees decreased $0.58 million or 7.90% in 2023 from 2022, compared to a $1.40 million or 16.09% decrease in 2022 from 2021. The lower expense in 2023 can primarily be attributed to a decline in the utilization of consulting services for technology projects and compliance services. The lower expense in 2022 can primarily be attributed to a decline in legal fees offset by increased utilization of consulting services for technology projects and compliance services.
Current wording
Professional fees increased in 2024 from 2023, compared to a decrease in 2023 from 2022. The higher expense in 2024 can primarily be attributed to a $1.08 million reversal of accrued legal fees in the first quarter of 2023, as well as an increase in audit and examination fees and the utilization of consulting services for technology projects and compliance services during the year. The lower expense in 2023 can primarily be attributed to a decline in the utilization of consulting services for technology projects and compliance services as well as the aforementioned reversal of accrued legal fees during the first quarter of 2023.
Previous wording
FDIC and other insurance expense grew $2.30 million or 63.48% in 2023 from 2022 and increased $0.95 million or 35.41% in 2022 from 2021. The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023. The increase in 2022 was mainly the result of higher assessments for FDIC premiums from a larger asset base and a one-time $0.38 million recovery of an incurred but not reported insurance reserve in 2021.
Current wording
FDIC and other insurance expense grew in 2024 from 2023 and increased in 2023 from 2022. The increase in 2024 was mainly the result of higher general insurance premiums during 2024 and higher blanket bond insurance premiums. The increase in 2023 was mainly the result of higher assessments for FDIC premiums from a two basis point increase in assessment rates during the first quarter of 2023.
Previous wording
Business development and marketing expenses increased $1.33 million or 22.91% in 2023 from 2022 following a decline of $2.19 million or 27.33% in 2022 from 2021. The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million made during 2023 and higher marketing promotions. The decreased expense in 2022 was mainly the result of a one-time charitable contribution of $3.00 million made during 2021 offset by increased business development expense and marketing promotions.
Current wording
Business development and marketing expenses decreased in 2024 from 2023 following an increase in 2023 from 2022. The decreased expense in 2024 was mainly the result of a charitable contribution of $1.00 million made during 2023 offset with higher marketing promotions during the year. The increased expense in 2023 was mainly the result of a charitable contribution of $1.00 million and higher marketing promotions.
Previous wording
Other expenses increased by $3.15 million or 22.02% in 2023 as compared to 2022 and increased $3.39 million or 31.05% in 2022 as compared to 2021. The higher expense in 2023 was primarily the result of an increase in the provision for unfunded credit commitments, higher postage and shipping costs, and a rise in data communication line charges as bandwidth is improved. The higher expense in 2022 was primarily the result of an increase in the provision for unfunded loan commitments, a rise in the provision for interest rate swaps with customers, and higher employee training expenses.
Current wording
Other expenses decreased in 2024 as compared to 2023 and increased in 2023 as compared to 2022. The lower expense in 2024 was primarily the result of higher gains on the sale of fixed assets and leased equipment, lower printing and postage costs, reduced data communication line charges and a reduction in employment and relocation costs offset by a $0.85 million stolen check fraud loss. The higher expense in 2023 was primarily the result of higher postage and shipping costs and a rise in data communication line charges as bandwidth was improved.
Previous wording
Income Taxes — 1st Source recognized income tax expense in 2023 of $36.75 million, compared to $36.26 million in 2022, and $36.33 million in 2021. The effective tax rate in 2023 was 22.73% compared to 23.12% in 2022, and 23.45% in 2021.
Current wording
Income Taxes — 1st Source recognized income tax expense in 2024 of $38.44 million, compared to $36.75 million in 2023, and $36.26 million in 2022. The effective tax rate in 2024 was 22.47% compared to 22.73% in 2023, and 23.12% in 2022.
Previous wording
Loans and leases, net of unearned discount, at December 31, 2023, were $6.52 billion and were 74.69% of total assets, compared to $6.01 billion and 72.08% of total assets at December 31, 2022. Average loans and leases, net of unearned discount, increased $637.16 million or 11.45% and increased $128.88 million or 2.37% in 2023 and 2022, respectively.
Current wording
Loans and leases, net of unearned discount, at December 31, 2024, were $6.85 billion and were 76.74% of total assets, compared to $6.52 billion and 74.69% of total assets at December 31, 2023. Average loans and leases, net of unearned discount, increased $394.47 million or 6.36% and increased $637.16 million or 11.45% in 2024 and 2023, respectively.
Previous wording
Renewable energy loans and leases increased $18.55 million or 4.87% in 2023 over 2022. Renewable energy loan and lease outstandings were $399.71 million and $381.16 million at December 31, 2023 and 2022, respectively. The increase during 2023 was due to continued positive momentum from the addition of new clients and repeat business from existing clients.
Current wording
Renewable energy loans and leases increased $87.56 million or 21.91% in 2024 over 2023. Renewable energy loan and lease outstandings were $487.27 million and $399.71 million at December 31, 2024 and 2023, respectively. The increase during 2024 was due to continued positive momentum from the addition of new clients and repeat business from existing clients. Demand for renewable energy loans and leases remained accelerated during 2024 from the incentives associated with the Inflation Reduction Act.
Previous wording
Auto and light truck loans increased $158.80 million or 19.65% in 2023 over 2022. At December 31, 2023, auto and light truck loans had outstandings of $966.91 million and $808.12 million at December 31, 2022. This increase was primarily attributable to expanding and selectively adding vehicle rental and commercial lessor client relationships as fleet availability continues to improve.
Current wording
Auto and light truck loans decreased $18.48 million or 1.91% in 2024 over 2023. At December 31, 2024, auto and light truck loans had outstandings of $948.44 million and $966.91 million at December 31, 2023. This decrease was primarily attributable to vehicle rental and commercial lessor clients’ reaction to elevated interest rates by cycling into lower cost units with increased vehicle availability, and shorter fleet holds which reflect a return to more seasonal trends.
Previous wording
Medium and heavy duty truck loans and leases decreased $1.92 million or 0.61% in 2023. Medium and heavy duty truck financing at December 31, 2023 and 2022 had outstandings of $311.95 million and $313.86 million, respectively. The decrease at December 31, 2023 from December 31, 2022 can be mainly attributed to competitive factors and a selective credit approach to maintain yield with existing clients while fleet availability continues to improve.
Current wording
Medium and heavy duty truck loans and leases decreased $22.32 million or 7.16% in 2024. Medium and heavy duty truck financing at December 31, 2024 and 2023 had outstandings of $289.62 million and $311.95 million, respectively. The decrease at December 31, 2024 from December 31, 2023 can be mainly attributed to a slow trucking industry recovery coupled with a selective credit approach to maintain risk adjusted yields, with minimal changes in competitive environment, for existing customers.
Previous wording
Aircraft financing at year-end 2023 was relatively flat from year-end 2022. Aircraft financing at December 31, 2023 and 2022 had outstandings of $1.08 billion and $1.08 billion, respectively. Our 2023 domestic balances remained flat while increasing aircraft inventories and fewer transactions took place in the market. Bonus depreciation-motivated purchases are phasing down resulting in lower demand for private turbine aircraft especially amongst private business and high net worth market segments. Higher usage of cash for purchases and increased caution with large capital spending was normalizing after the record COVID-era transaction activity. We continue to exercise a consistent disciplined approach to aircraft types and client credit profiles. Our foreign outstandings, all denominated in U.S. dollars, increased 1.66% during 2023 and were $302.41 million and $297.46 million as of December 31, 2023 and 2022, respectively. Loan and lease outstandings to borrowers in Brazil and Mexico were $119.38 million and $147.61 million as of December 31, 2023, respectively, compared to $129.98 million and $136.68 million as of December 31, 2022, respectively. Outstanding balances to other borrowers in other countries were insignificant.
Current wording
Aircraft financing at year-end 2024 increased $45.63 million or 4.23% from year-end 2023. Aircraft financing at December 31, 2024 and 2023 had outstandings of $1.12 billion and $1.08 billion, respectively. Domestic outstandings were driven by the addition of new clients and select expansions of existing aviation relationships against a background of normalizing demand post COVID-era. We continue to exercise a consistent disciplined approach to aircraft types and client credit profiles. Our foreign outstandings, all denominated in U.S. dollars, remained stable during 2024 and were $301.18 million and $302.41 million as of December 31, 2024 and 2023, respectively. Loan and lease outstandings to borrowers in Brazil and Mexico were $129.12 million and $145.85 million as of December 31, 2024, respectively, compared to $119.38 million and $147.61 million as of December 31, 2023, respectively. Outstanding balances to other borrowers in other countries were insignificant.
Previous wording
Construction equipment financing increased $146.25 million or 15.58% in 2023 compared to 2022. Construction equipment financing at December 31, 2023 had outstandings of $1.08 billion, compared to outstandings of $938.50 million at December 31, 2022. The growth in this category was primarily due to significant new client relationships and continued growth with existing clients.
Current wording
Construction equipment financing increased $119.16 million or 10.98% in 2024 compared to 2023. Construction equipment financing at December 31, 2024 had outstandings of $1.20 billion, compared to outstandings of $1.08 billion at December 31, 2023. The growth in this category was primarily due to significant new client relationships and continued growth with existing clients primarily amongst crane rental, aggregate producers and haulers, and site development clients.
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