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 June 30, 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 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 July 15, 2022 — 24,655,727 shares

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition — June 30, 2022 and December 31, 2021	3
	Consolidated Statements of Income — three and six months ended June 30, 2022 and 2021	4
	Consolidated Statements of Comprehensive Income (Loss) — three and six months ended June 30, 2022 and 2021	5
	Consolidated Statements of Shareholders’ Equity — three and six months ended June 30, 2022 and 2021	6
	Consolidated Statements of Cash Flows — six months ended June 30, 2022 and 2021	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
SIGNATURES		45
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)

	June 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	116,915	$	54,420
Federal funds sold and interest bearing deposits with other banks	164,848		470,767
Investment securities available-for-sale	1,836,389		1,863,041
Other investments	25,538		27,189
Mortgages held for sale	5,525		13,284
Loans and leases, net of unearned discount:
Commercial and agricultural	842,618		918,712
Solar	350,472		348,302
Auto and light truck	708,720		603,775
Medium and heavy duty truck	278,334		259,740
Aircraft	959,876		898,401
Construction equipment	803,734		754,273
Commercial real estate	931,058		929,341
Residential real estate and home equity	535,589		500,590
Consumer	140,815		133,080
Total loans and leases	5,551,216		5,346,214
Allowance for loan and lease losses	(132,865)		(127,492)
Net loans and leases	5,418,351		5,218,722
Equipment owned under operating leases, net	36,579		48,433
Net premises and equipment	45,250		47,038
Goodwill and intangible assets	83,916		83,926
Accrued income and other assets	296,048		269,469
Total assets	$	8,029,359	$	8,096,289
LIABILITIES
Deposits:
Noninterest-bearing demand	$	2,032,566	$	2,052,981
Interest-bearing deposits:
Interest-bearing demand	2,644,590		2,455,580
Savings	1,282,791		1,286,367
Time	784,949		884,137
Total interest-bearing deposits	4,712,330		4,626,084
Total deposits	6,744,896		6,679,065
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	162,649		194,727
Other short-term borrowings	5,190		5,300
Total short-term borrowings	167,839		200,027
Long-term debt and mandatorily redeemable securities	48,459		71,251
Subordinated notes	58,764		58,764
Accrued expenses and other liabilities	98,734		117,718
Total liabilities	7,118,692		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 June 30, 2022 and December 31, 2021	436,538		436,538
Retained earnings	646,600		603,787
Cost of common stock in treasury (3,555,267 shares at June 30, 2022 and 3,466,162 shares at December 31, 2021)	(119,876)		(114,209)
Accumulated other comprehensive loss	(107,011)		(9,861)
Total shareholders’ equity	856,251		916,255
Noncontrolling interests	54,416		$	53,209
Total equity	910,667		969,464
Total liabilities and equity	$	8,029,359	$	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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest income:
Loans and leases	$	60,415	$	57,144	$	115,623	$	115,008
Investment securities, taxable	6,289		4,155		12,633		8,143
Investment securities, tax-exempt	157		154		291		328
Other	1,168		317		1,531		583
Total interest income	68,029		61,770		130,078		124,062
Interest expense:
Deposits	3,553		3,202		5,929		6,728
Short-term borrowings	23		29		47		65
Subordinated notes	851		814		1,674		1,632
Long-term debt and mandatorily redeemable securities	140		790		(652)		1,290
Total interest expense	4,567		4,835		6,998		9,715
Net interest income	63,462		56,935		123,080		114,347
Provision (recovery of provision) for credit losses	2,503		(3,025)		4,736		(627)
Net interest income after provision for credit losses	60,959		59,960		118,344		114,974
Noninterest income:
Trust and wealth advisory	6,087		6,466		12,001		11,947
Service charges on deposit accounts	2,942		2,508		5,734		4,955
Debit card	4,561		4,754		8,755		8,936
Mortgage banking	1,062		2,859		2,439		6,760
Insurance commissions	1,568		1,684		3,473		3,836
Equipment rental	3,295		4,255		6,957		8,884
Losses on investment securities available-for-sale	—		(680)		—		(680)
Other	3,315		3,052		6,616		6,129
Total noninterest income	22,830		24,898		45,975		50,767
Noninterest expense:
Salaries and employee benefits	25,562		25,510		51,029		50,706
Net occupancy	2,524		2,527		5,335		5,246
Furniture and equipment	1,384		1,420		2,679		2,894
Data processing	5,402		4,917		10,610		9,901
Depreciation – leased equipment	2,664		3,550		5,679		7,323
Professional fees	2,094		2,146		3,702		3,759
FDIC and other insurance	893		772		1,743		1,437
Business development and marketing	1,669		1,351		2,937		2,348
Loan and lease collection and repossession	(265)		486		(131)		615
Other	3,728		2,519		7,408		5,109
Total noninterest expense	45,655		45,198		90,991		89,338
Income before income taxes	38,134		39,660		73,328		76,403
Income tax expense	8,804		9,425		16,597		18,062
Net income	29,330		30,235		56,731		58,341
Net (income) loss attributable to noncontrolling interests	(16)		(12)		(27)		(13)
Net income available to common shareholders	$	29,314	$	30,223	$	56,704	$	58,328
Per common share:
Basic net income per common share	$	1.18	$	1.19	$	2.28	$	2.29
Diluted net income per common share	$	1.18	$	1.19	$	2.28	$	2.29
Cash dividends	$	0.31	$	0.30	$	0.62	$	0.59
Basic weighted average common shares outstanding	24,691,747		25,143,712		24,717,625		25,231,789
Diluted weighted average common shares outstanding	24,691,747		25,143,712		24,717,625		25,231,789

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	29,330	$	30,235	$	56,731	$	58,341
Other comprehensive income (loss):
Unrealized depreciation of available-for-sale securities	(34,692)		(204)		(127,786)		(14,862)
Reclassification adjustment for realized losses included in net income	—		680		—		680
Income tax effect	8,218		(115)		30,636		3,415
Other comprehensive (loss) income, net of tax	(26,474)		361		(97,150)		(10,767)
Comprehensive income (loss)	2,856		30,596		$	(40,419)	$	47,574
Comprehensive (income) loss attributable to noncontrolling interests	(16)		(12)		(27)		(13)
Comprehensive income (loss) available to common shareholders	$	2,840	$	30,584	$	(40,446)	$	47,561

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

5

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 April 1, 2021	$	—	$	436,538	$	535,737	$	(88,223)	$	7,243	$	891,295	$	44,464	$	935,759
Net income	—		—		30,223		—		—		30,223		12		30,235
Other comprehensive income	—		—		—		—		361		361		—		361
Issuance of 15,799 common shares under stock based compensation awards	—		—		427		289		—		716		—		716
Cost of 283,759 shares of common stock acquired for treasury	—		—		—		(13,777)		—		(13,777)		—		(13,777)
Common stock dividend ($0.30 per share)	—		—		(7,592)		—		—		(7,592)		—		(7,592)
Distributions to noncontrolling interests	—		—		—		—		—		—		(245)		(245)
Balance at June 30, 2021	$	—	$	436,538	$	558,795	$	(101,711)	$	7,604	$	901,226	$	44,231	$	945,457
Balance at April 1, 2022	$	—	$	436,538	$	624,503	$	(115,654)	$	(80,537)	$	864,850	$	54,620	$	919,470
Net income	—		—		29,314		—		—		29,314		16		29,330
Other comprehensive loss	—		—		—		—		(26,474)		(26,474)		—		(26,474)
Issuance of 22,272 common shares under stock based compensation awards	—		—		474		439		—		913		—		913
Cost of 104,400 shares of common stock acquired for treasury	—		—		—		(4,661)		—		(4,661)		—		(4,661)
Common stock dividend ($0.31 per share)	—		—		(7,691)		—		—		(7,691)		—		(7,691)
Distributions to noncontrolling interests	—		—		—		—		—		—		(220)		(220)
Balance at June 30, 2022	$	—	$	436,538	$	646,600	$	(119,876)	$	(107,011)	$	856,251	$	54,416	$	910,667

	Six 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, 2021	$	—	$	436,538	$	514,176	$	(82,240)	$	18,371	$	886,845	$	43,825	$	930,670
Net income	—		—		58,328		—		—		58,328		13		58,341
Other comprehensive loss	—		—		—		—		(10,767)		(10,767)		—		(10,767)
Issuance of 50,826 common shares under stock based compensation awards	—		—		1,271		927		—		2,198		—		2,198
Cost of 439,216 shares of common stock acquired for treasury	—		—		—		(20,398)		—		(20,398)		—		(20,398)
Common stock dividend ($0.59 per share)	—		—		(14,980)		—		—		(14,980)		—		(14,980)
Contributions from noncontrolling interests	—		—		—		—		—		—		887		887
Distributions to noncontrolling interests	—		—		—		—		—		—		(494)		(494)
Balance at June 30, 2021	$	—	$	436,538	$	558,795	$	(101,711)	$	7,604	$	901,226	$	44,231	945,457
Balance at January 1, 2022	$	—	$	436,538	$	603,787	$	(114,209)	$	(9,861)	$	916,255	$	53,209	$	969,464
Net income	—		—		56,704		—		—		56,704		27		56,731
Other comprehensive loss	—		—		—		—		(97,150)		(97,150)		—		(97,150)
Issuance of 60,714 common shares under stock based compensation awards	—		—		1,498		1,169		—		2,667		—		2,667
Cost of 149,819 shares of common stock acquired for treasury	—		—		—		(6,836)		—		(6,836)		—		(6,836)
Common stock dividend ($0.62 per share)	—		—		(15,389)		—		—		(15,389)		—		(15,389)
Contributions from noncontrolling interests	—		—		—		—		—		—		1,627		1,627
Distributions to noncontrolling interests	—		—		—		—		—		—		(447)		(447)
Balance at June 30, 2022	$	—	$	436,538	$	646,600	$	(119,876)	$	(107,011)	$	856,251	$	54,416	$	910,667

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

6

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Dollars in thousands)

	Six Months Ended June 30,
	2022		2021
Operating activities:
Net income	$	56,731	$	58,341
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (recovery of provision) for credit losses	4,736		(627)
Depreciation of premises and equipment	2,322		2,675
Depreciation of equipment owned and leased to others	5,679		7,323
Stock-based compensation	1,619		1,726
Amortization of investment securities premiums and accretion of discounts, net	2,110		3,372
Amortization of mortgage servicing rights	736		1,109
Mortgage servicing rights impairment recoveries	—		(589)
Amortization of right of use assets	1,577		1,545
Deferred income taxes	(3,259)		8,343
Losses on investment securities available-for-sale	—		680
Originations of loans held for sale, net of principal collected	(55,752)		(135,647)
Proceeds from the sales of loans held for sale	64,533		146,251
Net gain on sale of loans held for sale	(1,022)		(4,172)
Net gain on sale of other real estate and repossessions	(269)		(303)
Purchases of bank owned life insurance policies	(10,000)		—
Change in interest receivable	(377)		1,104
Change in interest payable	409		(1,224)
Change in other assets	(729)		3,113
Change in other liabilities	9,788		(6,697)
Other	(1,879)		233
Net change in operating activities	76,953		86,556
Investing activities:
Proceeds from sales of investment securities available-for-sale	—		99,208
Proceeds from maturities and paydowns of investment securities available-for-sale	102,979		182,499
Purchases of investment securities available-for-sale	(206,223)		(515,496)
Net change in partnership investments	(10,081)		(13,756)
Net change in other investments	1,651		—
Loans sold or participated to others	10,223		15,903
Proceeds from principal payments on direct finance leases	21,358		20,086
Net change in loans and leases	(237,225)		(34,519)
Net change in equipment owned under operating leases	6,175		1,706
Purchases of premises and equipment	(552)		(947)
Proceeds from disposal of premises and equipment	18		28
Proceeds from sales of other real estate and repossessions	2,305		2,240
Net change in investing activities	(309,372)		(243,048)
Financing activities:
Net change in demand deposits and savings accounts	165,019		574,114
Net change in time deposits	(99,188)		(174,732)
Net change in short-term borrowings	(32,188)		21,703
Payments on long-term debt	(23,414)		(2,870)
Stock issued under stock purchase plans	252		90
Acquisition of treasury stock	(6,836)		(20,398)
Net contributions from (distributions to) noncontrolling interests	1,180		393
Cash dividends paid on common stock	(15,830)		(15,408)
Net change in financing activities	(11,005)		382,892
Net change in cash and cash equivalents	(243,424)		226,400
Cash and cash equivalents, beginning of year	525,187		243,047
Cash and cash equivalents, end of period	$	281,763	$	469,447
Supplemental Information:
Non-cash transactions:
Loans transferred to other real estate and repossessed assets	$	1,279	$	1,120
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan	683		715
Right of use assets obtained in exchange for lease obligations	561		615

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

7

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

Fair Value Measurements: In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

Financial Instruments–Credit Losses: In March 2022, the FASB issued 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.

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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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	1,126,483	$	14	$	(68,664)	$	1,057,833
U.S. States and political subdivisions securities	120,814		89		(6,107)		114,796
Mortgage-backed securities — Federal agencies	712,762		123		(66,018)		646,867
Corporate debt securities	16,506		11		(208)		16,309
Foreign government and other securities	600		—		(16)		584
Total debt securities available-for-sale	$	1,977,165	$	237	$	(141,013)	$	1,836,389
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 securities	95,700		1,130		(1,129)		95,701
Mortgage-backed securities — Federal agencies	663,441		4,745		(8,459)		659,727
Corporate debt securities	22,510		499		—		23,009
Foreign government and other securities	600		—		(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 June 30, 2022 and December 31, 2021, accrued interest receivable on investment securities available-for-sale was $5.04 million and $4.80 million, respectively.

At June 30, 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 June 30, 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 Cost		Fair Value
Due in one year or less	$	101,001	$	100,811
Due after one year through five years	1,099,005		1,029,214
Due after five years through ten years	41,543		36,840
Due after ten years	22,854		22,657
Mortgage-backed securities	712,762		646,867
Total debt securities available-for-sale	$	1,977,165	$	1,836,389

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The following table summarizes gross unrealized losses and fair value by investment category and age. At June 30, 2022, the Company’s available-for-sale securities portfolio consisted of 740 securities, 634 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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	777,875	$	(45,966)	$	254,062	$	(22,698)	$	1,031,937	$	(68,664)
U.S. States and political subdivisions securities	73,108		(3,493)		20,896		(2,614)		94,004		(6,107)
Mortgage-backed securities - Federal agencies	486,755		(45,677)		139,509		(20,341)		626,264		(66,018)
Corporate debt securities	11,309		(208)		—		—		11,309		(208)
Foreign government and other securities	584		(16)		—		—		584		(16)
Total debt securities available-for-sale	$	1,349,631	$	(95,360)	$	414,467	$	(45,653)	$	1,764,098	$	(141,013)
December 31, 2021
U.S. Treasury and Federal agencies securities	$	789,536	$	(10,728)	$	84,191	$	(2,290)	$	873,727	$	(13,018)
U.S. States and political subdivisions securities	39,585		(980)		4,875		(149)		44,460		(1,129)
Mortgage-backed securities - Federal agencies	454,413		(7,312)		35,232		(1,147)		489,645		(8,459)
Corporate debt securities	—		—		—		—		—		—
Foreign government and other securities	598		(2)		—		—		598		(2)
Total debt securities available-for-sale	$	1,284,132	$	(19,022)	$	124,298	$	(3,586)	$	1,408,430	$	(22,608)

The Company does not consider available-for-sale securities with unrealized losses at June 30, 2022 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Gross realized gains	$	—	$	221	$	—	$	221
Gross realized losses	—		(901)		—		(901)
Net realized gains (losses)	$	—	$	(680)	$	—	$	(680)

At June 30, 2022 and December 31, 2021, investment securities available-for-sale with carrying values of $298.02 million and $351.13 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.

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.

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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. This portfolio sector also includes PPP loans, which are fully guaranteed by the SBA. As of June 30, 2022, PPP loan balances were $9.13 million which is net of unearned fees of $0.21 million.

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 consists of multiple industries: auto rental, auto leasing and specialty vehicle which includes bus, funeral car and step van. 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. The bus segment is secured primarily by shuttle buses and motor coaches, the step van segment is secured by step vans and the funeral car segment is secured by hearses and limousines. Risks include lack of well-established mechanisms for disposition of collateral, such as auctions that are key to disposition of autos. Loans in the portfolio generally carry personal guarantees.

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.

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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 had been primarily to the less risky owner-occupied segment although growth in recent years has been in the non-owner-occupied segment which now accounts for slightly less than half of the portfolio. The non-owner-occupied segment 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 June 30, 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	$	72,156	$	147,849	$	98,378	$	42,888	$	38,899	$	24,112	$	393,543	$	—	$	817,825
Grades 7-12	1,540		2,099		145		3,032		2,245		1,127		14,605		—		24,793
Total commercial and agricultural	73,696		149,948		98,523		45,920		41,144		25,239		408,148		—		842,618
Solar
Grades 1-6	35,647		138,283		38,889		73,558		18,780		34,039		—		—		339,196
Grades 7-12	—		—		1,112		5,776		712		3,676		—		—		11,276
Total solar	35,647		138,283		40,001		79,334		19,492		37,715		—		—		350,472
Auto and light truck
Grades 1-6	276,473		237,030		91,065		51,976		16,246		6,426		—		—		679,216
Grades 7-12	3,071		7,085		8,611		3,866		2,933		3,938		—		—		29,504
Total auto and light truck	279,544		244,115		99,676		55,842		19,179		10,364		—		—		708,720
Medium and heavy duty truck
Grades 1-6	76,322		78,628		56,118		44,023		15,835		7,285		—		—		278,211
Grades 7-12	—		—		—		—		—		123		—		—		123
Total medium and heavy duty truck	76,322		78,628		56,118		44,023		15,835		7,408		—		—		278,334
Aircraft
Grades 1-6	211,125		311,833		261,744		67,040		39,515		55,885		4,870		—		952,012
Grades 7-12	1,338		—		608		—		3,984		1,934		—		—		7,864
Total aircraft	212,463		311,833		262,352		67,040		43,499		57,819		4,870		—		959,876
Construction equipment
Grades 1-6	223,116		259,093		142,207		78,532		29,861		10,118		19,831		3,189		765,947
Grades 7-12	22,015		8,034		1,974		3,080		743		16		—		1,925		37,787
Total construction equipment	245,131		267,127		144,181		81,612		30,604		10,134		19,831		5,114		803,734
Commercial real estate
Grades 1-6	135,414		171,977		137,630		131,727		125,010		211,768		350		—		913,876
Grades 7-12	1,435		—		7,744		6,495		48		1,460		—		—		17,182
Total commercial real estate	136,849		171,977		145,374		138,222		125,058		213,228		350		—		931,058
Residential real estate and home equity
Performing	57,047		102,401		104,916		36,048		7,508		90,950		131,762		3,956		534,588
Nonperforming	—		—		—		—		14		653		151		183		1,001
Total residential real estate and home equity	57,047		102,401		104,916		36,048		7,522		91,603		131,913		4,139		535,589
Consumer
Performing	39,856		46,515		17,695		11,267		5,011		1,464		18,853		—		140,661
Nonperforming	—		9		65		37		26		17		—		—		154
Total consumer	$	39,856	$	46,524	$	17,760	$	11,304	$	5,037	$	1,481	$	18,853	$	—	$	140,815

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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, 2021.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	233,512	$	123,947	$	60,744	$	55,231	$	32,545	$	20,184	$	364,460	$	—	$	890,623
Grades 7-12	4,682		194		3,667		2,373		2,004		484		14,685		—		28,089
Total commercial and agricultural	238,194		124,141		64,411		57,604		34,549		20,668		379,145		—		918,712
Solar
Grades 1-6	159,244		42,073		81,593		18,979		34,889		3,780		—		—		340,558
Grades 7-12	—		1,138		5,882		724		—		—		—		—		7,744
Total solar	159,244		43,211		87,475		19,703		34,889		3,780		—		—		348,302
Auto and light truck
Grades 1-6	331,105		122,709		72,580		24,965		11,814		901		—		—		564,074
Grades 7-12	10,828		11,752		7,467		3,859		4,876		919		—		—		39,701
Total auto and light truck	341,933		134,461		80,047		28,824		16,690		1,820		—		—		603,775
Medium and heavy duty truck
Grades 1-6	92,252		68,354		57,967		23,210		12,419		5,265		—		—		259,467
Grades 7-12	—		—		—		—		—		273		—		—		273
Total medium and heavy duty truck	92,252		68,354		57,967		23,210		12,419		5,538		—		—		259,740
Aircraft
Grades 1-6	384,895		290,897		85,916		45,848		47,025		29,435		4,844		—		888,860
Grades 7-12	1,141		649		—		4,670		454		2,627		—		—		9,541
Total aircraft	386,036		291,546		85,916		50,518		47,479		32,062		4,844		—		898,401
Construction equipment
Grades 1-6	314,044		201,032		109,029		47,693		13,501		5,031		18,937		4,594		713,861
Grades 7-12	26,650		8,709		1,983		797		80		—		—		2,193		40,412
Total construction equipment	340,694		209,741		111,012		48,490		13,581		5,031		18,937		6,787		754,273
Commercial real estate
Grades 1-6	230,701		150,144		146,374		141,838		126,642		112,243		391		—		908,333
Grades 7-12	218		5,921		7,159		491		6,208		1,011		—		—		21,008
Total commercial real estate	230,919		156,065		153,533		142,329		132,850		113,254		391		—		929,341
Residential real estate and home equity
Performing	105,345		114,682		41,185		9,706		11,720		89,646		122,281		4,555		499,120
Nonperforming	—		—		—		13		421		655		293		88		1,470
Total residential real estate and home equity	105,345		114,682		41,185		9,719		12,141		90,301		122,574		4,643		500,590
Consumer
Performing	58,866		24,307		17,031		8,284		2,263		697		21,378		—		132,826
Nonperforming	37		107		43		30		33		4		—		—		254
Total consumer	$	58,903	$	24,414	$	17,074	$	8,314	$	2,296	$	701	$	21,378	$	—	$	133,080

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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
June 30, 2022
Commercial and agricultural	$	840,915	$	802	$	—	$	—	$	841,717	$	901	$	842,618
Solar	350,472		—		—		—		350,472		—		350,472
Auto and light truck	687,206		81		—		—		687,287		21,433		708,720
Medium and heavy duty truck	278,211		—		—		—		278,211		123		278,334
Aircraft	957,333		—		1,934		—		959,267		609		959,876
Construction equipment	797,117		111		—		—		797,228		6,506		803,734
Commercial real estate	928,246		—		—		—		928,246		2,812		931,058
Residential real estate and home equity	533,813		494		281		46		534,634		955		535,589
Consumer	140,167		424		69		4		140,664		151		140,815
Total	$	5,513,480	$	1,912	$	2,284	$	50	$	5,517,726	$	33,490	$	5,551,216
December 31, 2021
Commercial and agricultural	$	916,659	$	—	$	—	$	—	$	916,659	$	2,053	$	918,712
Solar	348,302		—		—		—		348,302		—		348,302
Auto and light truck	579,605		—		—		—		579,605		24,170		603,775
Medium and heavy duty truck	259,467		—		—		—		259,467		273		259,740
Aircraft	894,092		1,130		2,530		—		897,752		649		898,401
Construction equipment	745,870		1,313		—		—		747,183		7,090		754,273
Commercial real estate	926,345		—		—		—		926,345		2,996		929,341
Residential real estate and home equity	498,854		212		54		245		499,365		1,225		500,590
Consumer	132,464		332		30		4		132,830		250		133,080
Total	$	5,301,658	$	2,987	$	2,614	$	249	$	5,307,508	$	38,706	$	5,346,214

Accrued interest receivable on loans and leases at June 30, 2022 and December 31, 2021 was $13.08 million and $12.94 million, respectively.

There were no loan and lease modifications classified as a troubled debt restructuring (TDR) during the three and six months ended June 30, 2022 and 2021. 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 and six months ended June 30, 2022 and 2021 that resulted in an interest rate below market rate.

There was one TDR which had a payment default within the twelve months following modification during the three and six months ended June 30, 2022 and no TDRs which had payment defaults within the twelve months following modification during the three and six months ended June 30, 2021. 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 June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022		December 31, 2021
Performing TDRs	$	—	$	319
Nonperforming TDRs	5,204		6,742
Total TDRs	$	5,204	$	7,061

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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 June 30, 2022 and 2021.

(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
June 30, 2022
Balance, beginning of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959
Charge-offs	39		—		32		—		—		—		—		6		157		234
Recoveries	3		—		56		—		161		—		26		127		264		637
Net charge-offs (recoveries)	36		—		(24)		—		(161)		—		(26)		(121)		(107)		(403)
Provision (recovery of provision)	548		235		(488)		660		858		1,130		(856)		440		(24)		2,503
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	15,451	$	5,758	$	29,343	$	6,271	$	35,219	$	16,309	$	24,334	$	5,163	$	1,702	$	139,550
Charge-offs	285		—		367		—		—		—		—		37		105		794
Recoveries	141		—		136		—		241		—		4		10		98		630
Net charge-offs (recoveries)	144		—		231		—		(241)		—		(4)		27		7		164
Provision (recovery of provision)	(475)		109		(1,891)		(383)		(159)		1,599		(1,760)		(70)		5		(3,025)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

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The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the six months ended June 30, 2022 and 2021.

(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
June 30, 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	39		—		32		—		—		48		—		10		322		451
Recoveries	7		—		121		—		477		—		26		128		329		1,088
Net charge-offs (recoveries)	32		—		(89)		—		(477)		48		(26)		(118)		(7)		(637)
Provision (recovery of provision)	733		67		(656)		694		2,882		1,546		(1,301)		577		194		4,736
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	16,680	$	5,549	$	28,926	$	6,400	$	34,053	$	19,166	$	22,758	$	5,374	$	1,748	$	140,654
Charge-offs	286		—		4,653		—		—		8		—		42		257		5,246
Recoveries	518		—		185		—		360		254		19		11		233		1,580
Net charge-offs (recoveries)	(232)		—		4,468		—		(360)		(246)		(19)		31		24		3,666
Provision (recovery of provision)	(2,080)		318		2,763		(512)		888		(1,504)		(199)		(277)		(24)		(627)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

The allowance for credit losses increased during the quarter in response to loan growth along with a forecast adjustment due to increased risk during the forecast period attributable to a weakened domestic GDP outlook, continued geopolitical uncertainty, ongoing supply chain difficulties, and persistent inflation. Credit quality remains on an improving trend as evidenced by declining total special attention credit outstandings and net recoveries during the quarter. This quarter, increases in the allowance for various portfolios were driven by the forecast adjustment and loan growth offset partially by the removal of qualitative adjustments related to COVID-19 in all remaining portfolios other than the bus segment of the auto and light truck portfolio, where it was materially reduced. The Company largely considers the lingering residual impacts from the pandemic to be more suitably addressed in the forecast adjustment. However, pressure on asset values in the bus segment is likely to persist owing to changes in consumer behavior as a result of the pandemic leading to reduced activity in some segments and fewer operators within the industry. The decrease in the auto and light truck portfolio was due to the bus segment’s COVID-19 adjustment as well as continued amortization of special attention credits in this highly reserved segment offset partially by loan growth in the lower reserved auto and light truck segment. Reduced reserves in the commercial real estate portfolio were due to lower loan balances and the removal of qualitative adjustments related to COVID-19.

Commercial and agricultural – the decline in loan balances year-to-date was attributable to PPP debt forgiveness coupled with a modest decline in loans in our core businesses. The small increase in the allowance was principally due to the impact of the forecast adjustment.

Solar – the allowance increased primarily due to loan growth during the quarter. Credit quality is stable to improving.

Auto and light truck – the allowance decreased as a result of lower outstanding loan balances in the higher risk bus segment of the portfolio, which was significantly impacted by the pandemic. The decline in allowance attributable to the bus segment was substantially offset by loan growth in the auto rental and leasing segments, which carry lower loss ratios.

Medium and heavy duty truck – the allowance increased due to higher loan outstandings and an increase in the forecast adjustment. Credit quality metrics continued to be relatively strong for this portfolio. Energy price volatility and driver availability remain a challenge.

Aircraft – the allowance increased due to loan growth in both domestic and foreign segments year-to-date. Domestic aircraft loan balances declined slightly during the quarter. 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 loan growth.

Commercial real estate – the allowance decrease was a result of declines in outstanding loan balances as the removal of COVID-19-related qualitative adjustment factors.

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

Consumer – the allowance increase year-to-date was primarily due to loan growth as well as loan loss recoveries recognized during the quarter.

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Economic Outlook

As of June 30, 2022, the most significant economic factors impacting our loan portfolios are the weakening domestic growth outlook, the ongoing war in Ukraine and resultant increased uncertainty for the U.S. economy, and additional inflationary pressures, further aggravated by supply chain disruptions. Domestically, direct impacts of COVID-19 appear to be waning but the pandemic’s residual impact remains rooted in supply chain and labor market imbalances and ongoing inflationary pressures. The Company remains watchful of COVID-19 surges and new variants. 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 our clients. The Company’s assumption was that economic growth will slow markedly in 2022 and 2023 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 June 30, 2022 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Balance, beginning of period	$	4,924	$	4,593	$	4,196	$	4,499
Provision (recovery of provision)	573		(276)		1,301		(182)
Balance, end of period	$	5,497	$	4,317	$	5,497	$	4,317

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Direct finance leases:
Interest income on lease receivable	$	1,929	$	1,661	$	3,710	$	3,251
Operating leases:
Income related to lease payments	$	3,295	$	4,255	$	6,957	$	8,884
Depreciation expense	2,664		3,550		5,679		7,323

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three months ended June 30, 2022 and 2021 was $0.03 million and $0.14 million, respectively and for the six months ended June 30, 2022 and 2021 was $0.23 million and $0.38 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three months ended June 30, 2022 and 2021 was $0.03 million and $0.14 million, respectively and for the six months ended June 30, 2022 and 2021 was $0.23 million and $0.38 million.

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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 $874.84 million and $883.90 million at June 30, 2022 and December 31, 2021, 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Mortgage servicing rights:
Balance at beginning of period	$	4,625	$	4,787	$	4,671	$	4,616
Additions	173		410		508		1,171
Amortization	(355)		(519)		(736)		(1,109)
Carrying value before valuation allowance at end of period	4,443		4,678		4,443		4,678
Valuation allowance:
Balance at beginning of period	—		(770)		—		(812)
Impairment recoveries	—		547		—		589
Balance at end of period	$	—	$	(223)	$	—	$	(223)
Net carrying value of mortgage servicing rights at end of period	$	4,443	$	4,455	$	4,443	$	4,455
Fair value of mortgage servicing rights at end of period	$	6,784	$	4,885	$	6,784	$	4,885

At June 30, 2022 and 2021, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $2.34 million and $0.43 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 $0.72 million and $0.78 million for the three months ended June 30, 2022 and 2021, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $1.44 million and $1.59 million for the six months ended June 30, 2022 and 2021, 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)	June 30, 2022		December 31, 2021
Amounts of commitments:
Loan commitments to extend credit	$	1,225,927	$	1,148,984
Standby letters of credit	$	19,655	$	24,657
Commercial and similar letters of credit	$	3,793	$	8,531

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
June 30, 2022
Interest rate swap contracts	$	990,000	Other assets	$	13,432	Other liabilities	$	13,686
Loan commitments	6,304		Mortgages held for sale	225		N/A	—
Forward contracts - mortgage loan	7,250		N/A	—		Mortgages held for sale	1
Total	$	1,003,554		$	13,657		$	13,687
December 31, 2021
Interest rate swap contracts	$	1,064,721	Other assets	$	20,735	Other liabilities	$	21,172
Loan commitments	15,086		Mortgages held for sale	452		N/A	—
Forward contracts - mortgage loan	22,000		N/A	—		Mortgages held for sale	11
Total	$	1,101,807		$	21,187		$	21,183

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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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	Statement of Income classification	2022		2021		2022		2021
Interest rate swap contracts	Other expense	$	(54)	$	(14)	$	183	$	319
Interest rate swap contracts	Other income	—		152		—		238
Loan commitments	Mortgage banking	(62)		69		(227)		(629)
Forward contracts - mortgage loan	Mortgage banking	(201)		(311)		10		266
Total		$	(317)	$	(104)	$	(34)	$	194

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
June 30, 2022
Interest rate swaps	$	13,432	$	—	$	13,432	$	—	$	15,795	$	(2,363)
December 31, 2021
Interest rate swaps	$	24,436	$	3,701	$	20,735	$	—	$	—	$	20,735

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
June 30, 2022
Interest rate swaps	$	13,686	$	—	$	13,686	$	—	$	—	$	13,686
Repurchase agreements	162,650		—		162,650		162,650		—		—
Total	$	176,336	$	—	$	176,336	$	162,650	$	—	$	13,686
December 31, 2021
Interest rate swaps	$	24,873	$	3,701	$	21,172	$	20,498	$	—	$	674
Repurchase agreements	194,727		—		194,727		194,727		—		—
Total	$	219,600	$	3,701	$	215,899	$	215,225	$	—	$	674

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 June 30, 2022 and December 31, 2021, repurchase agreements had a remaining contractual maturity of $159.48 million and $191.47 million in overnight and $3.17 million and $3.26 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 $0.53 million and $0.51 million for the three months ended June 30, 2022 and 2021, respectively and $1.03 million and $1.01 million for the six months ended June 30, 2022 and 2021, respectively. The Company also recognized $9.48 million and $1.08 million of investment tax credits for the three months ended June 30, 2022 and 2021, respectively and $9.48 million and $3.00 million for the six months ended June 30, 2022 and 2021, 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 include 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)	June 30, 2022		December 31, 2021
Investment carrying amount	$	20,090	$	35,968
Unfunded capital and other commitments	16,143		29,670
Maximum exposure to loss	52,447		50,319

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 June 30, 2022 and December 31, 2021, approximately $67.12 million and $59.08 million of the Company’s assets and $6.75 million and $0.00 million 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.

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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 therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes in the Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense in the Statements of Income. The common shares issued by the Capital Trust are included in Other Assets in the 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 June 30, 2022.

(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		3.31	%	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 June 30, 2022 and 2021.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 June 30,				Six Months Ended June 30,
(Dollars in thousands - except per share amounts)	2022		2021		2022		2021
Distributed earnings allocated to common stock	$	7,668	$	7,568	$	15,340	$	14,932
Undistributed earnings allocated to common stock	21,402		22,419		40,918		42,950
Net earnings allocated to common stock	29,070		29,987		56,258		57,882
Net earnings allocated to participating securities	244		236		446		446
Net income allocated to common stock and participating securities	$	29,314	$	30,223	$	56,704	$	58,328
Weighted average shares outstanding for basic earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Dilutive effect of stock compensation	—		—		—		—
Weighted average shares outstanding for diluted earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Basic earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29
Diluted earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29

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Note 12 — Stock Based Compensation

As of June 30, 2022, 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, 2021. 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. The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011 but the Company had not made any grants through June 30, 2022.

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 six months ended June 30, 2022 and 2021. As of June 30, 2022 and 2021 there were no outstanding stock options. There were no stock options exercised during the six months ended June 30, 2022 and 2021. All shares issued in connection with stock option exercises are issued from available treasury stock.

As of June 30, 2022, there was $9.20 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 3.38 years.

Note 13 — Accumulated Other Comprehensive Income (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 June 30,				Six Months Ended June 30,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2022		2021		2022		2021
Realized losses included in net income	$	—	$	(680)	$	—	$	(680)	Losses on investment securities available-for-sale
	—		(680)		—		(680)		Income before income taxes
Tax effect	—		164		—		164		Income tax expense
Net of tax	$	—	$	(516)	$	—	$	(516)	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 June 30, 2022 and December 31, 2021. Interest and penalties are recognized through the income tax provision. For the three and six months ended June 30, 2022 and 2021, the Company recognized no interest or penalties. There were no accrued interest and penalties at June 30, 2022 and December 31, 2021.

Tax years that remain open and subject to audit include the federal 2018-2021 years and the Indiana 2018-2021 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.

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•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 June 30, 2022 and December 31, 2021, 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
June 30, 2022
Mortgages held for sale reported at fair value	$	5,525	$	5,174	$	351	(1)
December 31, 2021
Mortgages held for sale reported at fair value	$	13,284	$	12,456	$	828	(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.

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•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.

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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
June 30, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	583,615	$	474,218	$	—	$	1,057,833
U.S. States and political subdivisions securities	—		110,281		4,515		114,796
Mortgage-backed securities — Federal agencies	—		646,867		—		646,867
Corporate debt securities	—		16,309		—		16,309
Foreign government and other securities	—		584		—		584
Total debt securities available-for-sale	583,615		1,248,259		4,515		1,836,389
Mortgages held for sale	—		5,525		—		5,525
Accrued income and other assets (interest rate swap agreements)	—		13,432		—		13,432
Total	$	583,615	$	1,267,216	$	4,515	$	1,855,346
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	13,686	$	—	$	13,686
Total	$	—	$	13,686	$	—	$	13,686
December 31, 2021
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	561,950	$	522,056	$	—	$	1,084,006
U.S. States and political subdivisions securities	—		93,852		1,849		95,701
Mortgage-backed securities — Federal agencies	—		659,727		—		659,727
Corporate debt securities	—		23,009		—		23,009
Foreign government and other securities	—		598		—		598
Total debt securities available-for-sale	561,950		1,299,242		1,849		1,863,041
Mortgages held for sale	—		13,284		—		13,284
Accrued income and other assets (interest rate swap agreements)	—		20,735		—		20,735
Total	$	561,950	$	1,333,261	$	1,849	$	1,897,060
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	21,172	$	—	$	21,172
Total	$	—	$	21,172	$	—	$	21,172

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The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the quarter ended June 30, 2022 and 2021.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance April 1, 2022	$	4,529
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(14)
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	—
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2022	$	4,515
Beginning April 1, 2021	$	1,907
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	33
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	(19)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2021	$	1,921

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 June 30, 2022 or 2021.

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
June 30, 2022
Debt securities available-for sale
Direct placement municipal securities	$	4,515	Discounted cash flows	Credit spread assumption	0.09% - 4.36%	2.88	%
December 31, 2021
Debt securities available-for sale
Direct placement municipal securities	$	1,849	Discounted cash flows	Credit spread assumption	0.04% - 2.31%	1.58	%

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.

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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 June 30, 2022: 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
June 30, 2022
Collateral-dependent impaired loans	$	—	$	—	$	861	$	861
Accrued income and other assets (mortgage servicing rights)	—		—		4,443		4,443
Accrued income and other assets (repossessions)	—		—		102		102
Total	$	—	$	—	$	5,406	$	5,406
December 31, 2021
Collateral-dependent impaired loans	$	—	$	—	$	571	$	571
Accrued income and other assets (mortgage servicing rights)	—		—		4,671		4,671
Accrued income and other assets (repossessions)	—		—		861		861
Total	$	—	$	—	$	6,103	$	6,103

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
June 30, 2022
Collateral-dependent impaired loans	$	861	$	861	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	36.2	%
Mortgage servicing rights	4,443		6,784		Discounted cash flows	Constant prepayment rate (CPR)	8.5% - 13.8%	12.4	%
						Discount rate	10.9% - 13.7%	11.0	%
Repossessions	102		106		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 13%	4	%
December 31, 2021
Collateral-dependent impaired loans	$	571	$	571	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	43.1	%
Mortgage servicing rights	4,671		5,640		Discounted cash flows	Constant prepayment rate (CPR)	11.8% - 18.5%	16.4	%
						Discount rate	8.6% - 11.5%	8.8	%
Repossessions	861		942		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 21%	2	%

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.

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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
June 30, 2022
Assets:
Cash and due from banks	$	116,915	$	116,915	$	116,915	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	164,848		164,848		164,848		—		—
Investment securities, available-for-sale	1,836,389		1,836,389		583,615		1,248,259		4,515
Other investments	25,538		25,538		25,538		—		—
Mortgages held for sale	5,525		5,525		—		5,525		—
Loans and leases, net of allowance for loan and lease losses	5,418,351		5,369,789		—		—		5,369,789
Mortgage servicing rights	4,443		6,784		—		—		6,784
Accrued interest receivable	18,137		18,137		—		18,137		—
Interest rate swaps	13,432		13,432		—		13,432		—
Liabilities:
Deposits	$	6,744,896	$	6,731,541	$	5,959,947	$	771,594	$	—
Short-term borrowings	167,839		167,839		160,852		6,987		—
Long-term debt and mandatorily redeemable securities	48,459		47,369		—		47,369		—
Subordinated notes	58,764		50,120		—		50,120		—
Accrued interest payable	2,294		2,294		—		2,294		—
Interest rate swaps	13,686		13,686		—		13,686		—
Off-balance-sheet instruments *	—		103		—		103		—
December 31, 2021
Assets:
Cash and due from banks	$	54,420	$	54,420	$	54,420	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	470,767		470,767		470,767		—		—
Investment securities, available-for-sale	1,863,041		1,863,041		561,950		1,299,242		1,849
Other investments	27,189		27,189		27,189		—		—
Mortgages held for sale	13,284		13,284		—		13,284		—
Loans and leases, net of allowance for loan and lease losses	5,218,722		5,269,551		—		—		5,269,551
Mortgage servicing rights	4,671		5,640		—		—		5,640
Accrued interest receivable	17,760		17,760		—		17,760		—
Interest rate swaps	20,735		20,735		—		20,735		—
Liabilities:
Deposits	$	6,679,065	$	6,680,163	$	5,794,928	$	885,235	$	—
Short-term borrowings	200,027		200,027		192,801		7,226		—
Long-term debt and mandatorily redeemable securities	71,251		71,305		—		71,305		—
Subordinated notes	58,764		58,553		—		58,553		—
Accrued interest payable	1,885		1,885		—		1,885		—
Interest rate swaps	21,172		21,172		—		21,172		—
Off-balance-sheet instruments *	—		364		—		364		—

* 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 June 30, 2022, as compared to December 31, 2021, and the results of operations for the three and six months ended June 30, 2022 and 2021. 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 2021 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 2021, 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 June 30, 2022 were $8.03 billion, a decrease of $66.93 million or 0.83% from December 31, 2021. Total investment securities available-for-sale were $1.84 billion, a decrease of $26.65 million or 1.43% from December 31, 2021. The largest contributor to the decrease in investment securities available-for-sale was negative market value adjustments due to temporary, non-credit-related, net unrealized losses as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Federal funds sold and interest bearing deposits with other banks were $164.85 million, a decrease of $305.92 million or 64.98% from December 31, 2021. The decrease in federal funds sold and interest bearing deposits with other banks was due to lower interest bearing deposits at the Federal Reserve Bank mainly from funding loan growth.

Total loans and leases were $5.55 billion, an increase of $205.00 million or 3.83% from December 31, 2021. The largest contributors to the increase in loans and leases was growth in the auto and light truck and aircraft portfolios offset by approximately $66 million of Paycheck Protection Program loans forgiven by the SBA during the during the first half of 2022. As of June 30, 2022, total PPP loans were $9.13 million which is net of unearned fees of $0.21 million and located within the commercial and agricultural portfolio. Our foreign loan and lease balances, all denominated in U.S. dollars were $233.59 million and $193.31 million as of June 30, 2022 and December 31, 2021, respectively. Foreign loans and leases are in aircraft financing. Loan and lease balances to borrowers in Brazil and Mexico were $88.94 million and $124.15 million as of June 30, 2022, respectively, compared to $65.24 million and $117.90 million as of December 31, 2021, respectively. As of June 30, 2022 and December 31, 2021 there was not a significant concentration in any other country.

Equipment owned under operating leases was $36.58 million, a decrease of $11.85 million, or 24.48% compared to December 31, 2021. The largest contributor to the decrease in equipment owned under operating leases was reduced leasing volume primarily due to a change in customer preferences.

Total deposits were $6.74 billion, an increase of $65.83 million or 0.99% from the end of 2021. The largest contributors to the increase in total deposits was rise in interest-bearing public fund deposits offset by decreased time deposits. Short-term borrowings were $167.84 million, a decrease of $32.19 million or 16.09% from December 31, 2021. Long-term debt and mandatorily redeemable securities were $48.46 million, a decrease of $22.79 million or 31.99% from December 31, 2021 due primarily to lower FHLB borrowings. Accrued expenses and other liabilities were $98.73 million, a decrease of $18.98 million or 16.13% from December 31, 2021 primarily due to a decrease in unfunded partnership commitments and the fair value of interest rate swap contracts with customers.

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The following table shows accrued income and other assets.

(Dollars in thousands)	June 30, 2022		December 31, 2021
Accrued income and other assets:
Bank owned life insurance cash surrender value	$	82,027	$	71,466
Operating lease right of use assets	21,055		22,071
Accrued interest receivable	18,137		17,760
Mortgage servicing rights	4,443		4,671
Repossessions	102		861
Partnership investments carrying amount	87,212		95,045
All other assets	83,072		57,595
Total accrued income and other assets	$	296,048	$	269,469

The largest contributor to the increase in accrued income and other assets from December 31, 2021 was an increase in bank owned life insurance cash surrender value, deferred tax assets related to available-for-sale debt securities included in all other assets above offset by a decrease in partnership investments and the fair value of interest rate swap contracts with customers included in all other assets above.

CAPITAL

As of June 30, 2022, total shareholders’ equity was $856.25 million, down $60.00 million, or 6.55% from the $916.26 million at December 31, 2021. In addition to net income of $56.70 million, other significant changes in shareholders’ equity during the first six months of 2022 included $15.39 million of dividends paid and $6.84 million in common stock acquired for treasury. The accumulated other comprehensive loss component of shareholders’ equity increased to $107.01 million at June 30, 2022, compared to $9.86 million at December 31, 2021 due to changes in interest rates, market spreads and market conditions on our available-for-sale investment portfolio. Our shareholders’ equity-to-assets ratio was 10.66% as of June 30, 2022, compared to 11.32% at December 31, 2021. Book value per common share declined to $34.74 at June 30, 2022, from $37.04 at December 31, 2021 primarily due to an increase in accumulated other comprehensive losses.

We declared and paid cash dividends per common share of $0.31 during the second quarter of 2022. The trailing four quarters dividend payout ratio, representing cash dividends per common share divided by diluted earnings per common share, was 26.50%. 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.

The actual capital amounts and ratios of 1st Source Corporation and 1st Source Bank as of June 30, 2022, 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	$	1,075,991	16.79	%	$	512,744	8.00	%	$	672,977	10.50	%	$	640,930	10.00	%
1st Source Bank	1,005,713		15.70		512,369		8.00		672,484		10.50		640,461		10.00
Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	995,156		15.53		384,558		6.00		544,791		8.50		512,744		8.00
1st Source Bank	924,936		14.44		384,277		6.00		544,392		8.50		512,369		8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
1st Source Corporation	883,740		13.79		288,419		4.50		448,651		7.00		416,605		6.50
1st Source Bank	870,520		13.59		288,207		4.50		448,323		7.00		416,300		6.50
Tier 1 Capital (to Average Assets):
1st Source Corporation	995,156		12.21		325,920		4.00		N/A		N/A		407,400		5.00
1st Source Bank	924,936		11.36		325,778		4.00		N/A		N/A		407,222		5.00

PPP loan balances have been assigned a zero percent risk weight and therefore had no impact on our total risk-weighted assets at June 30, 2022.

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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 have borrowing sources available to supplement deposits and meet our funding needs. 1st Source Bank has established relationships with several banks to provide short term borrowings in the form of federal funds purchased. At June 30, 2022, we had no borrowings in the federal funds market. We could borrow $245.00 million in additional funds for a short time from these banks on a collective basis. As of June 30, 2022, we had $23.18 million outstanding in FHLB advances and could borrow an additional $515.15 million contingent on the FHLB activity-based stock ownership requirement. We also had no outstandings with the FRB and could borrow $448.21 million as of June 30, 2022.

Our loan to asset ratio was 69.14% at June 30, 2022 compared to 66.03% at December 31, 2021 and 71.04% at June 30, 2021. Cash and cash equivalents totaled $281.76 million at June 30, 2022 compared to $525.19 million at December 31, 2021 and $469.45 million at June 30, 2021. The decrease in cash and cash equivalents was primarily due to a reduction in excess liquidity from fewer PPP loan forgiveness proceeds and positive loan growth. At June 30, 2022, the Consolidated Statements of Financial Condition was rate sensitive by $51.27 million more liabilities than assets scheduled to reprice within one year, or approximately 0.98%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

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 and six month period ended June 30, 2022 was $29.31 million and $56.70 million, compared to $30.22 million and $58.33 million for the same periods in 2021. Diluted net income per common share was $1.18 and $2.28 for the three and six month periods ended June 30, 2022, compared to $1.19 and $2.29 earned for the same periods in 2021. Return on average common shareholders’ equity was 12.91% for the six months ended June 30, 2022, compared to 13.12% in 2021. The return on total average assets was 1.42% for the six months ended June 30, 2022, compared to 1.57% in 2021.

Net income decreased for the six months ended June 30, 2022 compared to the first six months of 2021. The provision for credit losses increased and noninterest income decreased offset by an increase to net interest income. 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
	June 30, 2022						March 31, 2022						June 30, 2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	1,805,044	$	6,289	1.40	%	$	1,857,557	$	6,344	1.39	%	$	1,305,988	$	4,156	1.28	%
Tax exempt(1)	30,930		195		2.53	%	29,498		165		2.27	%	33,563		192		2.29	%
Mortgages held for sale	4,889		52		4.27	%	8,791		67		3.09	%	7,208		54		3.00	%
Loans and leases, net of unearned discount(1)	5,467,808		60,448		4.43	%	5,324,344		55,218		4.21	%	5,515,387		57,169		4.16	%
Other investments	376,960		1,168		1.24	%	400,058		363		0.37	%	402,740		317		0.32	%
Total earning assets(1)	7,685,631		68,152		3.56	%	7,620,248		62,157		3.31	%	7,264,886		61,888		3.42	%
Cash and due from banks	90,101						77,063						76,198
Allowance for loan and lease losses	(132,020)						(128,647)						(142,056)
Other assets	448,604						440,074						458,248
Total assets	$	8,092,316					$	8,008,738					$	7,657,276
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	4,753,331	$	3,553	0.30	%	$	4,587,242	$	2,376	0.21	%	$	4,458,915	$	3,202	0.29	%
Short-term borrowings:
Securities sold under agreements to repurchase	176,994		23		0.05	%	192,108		23		0.05	%	180,613		28		0.06	%
Other short-term borrowings	5,394		—		—	%	5,372		1		0.08	%	5,992		1		0.07	%
Subordinated notes	58,764		851		5.81	%	58,764		823		5.68	%	58,764		814		5.56	%
Long-term debt and mandatorily redeemable securities	54,662		140		1.03	%	69,967		(792)		(4.59)	%	81,516		790		3.89	%
Total interest-bearing liabilities	5,049,145		4,567		0.36	%	4,913,453		2,431		0.20	%	4,785,800		4,835		0.41	%
Noninterest-bearing deposits	2,042,462						2,029,627						1,819,739
Other liabilities	84,995						101,502						108,916
Shareholders’ equity	861,134						910,793						898,388
Noncontrolling interests	54,580						53,363						44,433
Total liabilities and equity	$	8,092,316					$	8,008,738					$	7,657,276
Less: Fully tax-equivalent adjustments			(123)						(108)						(118)
Net interest income/margin (GAAP-derived)(1)			$	63,462	3.31	%			$	59,618	3.17	%			$	56,935	3.14	%
Fully tax-equivalent adjustments			123						108						118
Net interest income/margin - FTE(1)			$	63,585	3.32	%			$	59,726	3.18	%			$	57,053	3.15	%
(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio.

Quarter Ended June 30, 2022 compared to the Quarter Ended June 30, 2021

The taxable-equivalent net interest income for the three months ended June 30, 2022 was $63.59 million, an increase of 11.45% over the same period in 2021. The net interest margin on a fully taxable-equivalent basis was 3.32% for the three months ended June 30, 2022, compared to 3.15% for the three months ended June 30, 2021.

During the three month period ended June 30, 2022, average earning assets increased $420.75 million, up 5.79% over the comparable period in 2021. Average interest-bearing liabilities increased $263.35 million or 5.50%. The yield on average earning assets increased 14 basis points to 3.56% from 3.42% 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 decreased five basis points to 0.36% from 0.41% as a result of the lower interest expense on 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 17 basis points.

35

The largest contributors to the improved yield on average earning assets for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was an increase in yields on net loans and leases and taxable investment securities. The yield on net loans and leases grew 27 basis points primarily from rising interest rates and higher net interest recoveries of $0.77 million which had a positive six basis points impact. During the quarter, PPP loans had a positive seven basis point impact from the recognition of fees on PPP loans forgiven by the SBA compared to a one basis point impact in second quarter 2021. Average net loans and leases decreased $47.58 million or 0.86% primarily due to PPP loan forgiveness in the commercial and agricultural loan portfolio. Average loans and leases net PPP loans increased $335.87 million, up 6.58% compared to the second quarter of 2021. Average investment securities increased $496.42 million or 37.06% with the largest increases in U.S. treasury and federal agency securities and mortgage-backed securities. Average other investments, primarily held at the Federal Reserve Bank, decreased $25.78 million or 6.40%.

Average interest-bearing deposits increased $294.42 million or 6.60% for the second quarter of 2022 over the same period in 2021 primarily due to public fund deposits and savings account balances. The effective rate paid on average interest-bearing deposits increased one basis point to 0.30% from 0.29%. Average noninterest-bearing deposits grew $222.72 million or 12.24% for the second quarter of 2022 over the same period in 2021 primarily due to business customers remaining cautious with their funds and spending.

Average short-term borrowings decreased $4.22 million or 2.26% for the second quarter of 2022 compared to the same period in 2021. Interest paid on short-term borrowings decreased one basis point. Interest paid on subordinated notes increased 25 basis points during the second quarter of 2022 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 $26.85 million or 32.94%. Interest paid on long-term debt and mandatorily redeemable securities decreased 286 basis points during the second quarter of 2022 from the same period in 2021 primarily due to lower rates on mandatorily redeemable securities from a reduction 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.

36

	Six Months Ended
	June 30, 2022						June 30, 2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/ Rate		Average Balance		Interest Income/Expense		Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	1,831,156	$	12,633	1.39	%	$	1,250,096	$	8,143	1.31	%
Tax exempt(1)	30,218		360		2.40	%	35,468		406		2.31	%
Mortgages held for sale	6,829		119		3.51	%	10,727		140		2.63	%
Loans and leases, net of unearned discount(1)	5,396,472		115,666		4.32	%	5,507,243		115,029		4.21	%
Other investments	388,445		1,531		0.79	%	310,025		583		0.38	%
Total earning assets(1)	7,653,120		130,309		3.43	%	7,113,559		124,301		3.52	%
Cash and due from banks	83,618						75,691
Allowance for loan and lease losses	(130,343)						(142,628)
Other assets	444,363						458,070
Total assets	$	8,050,758					$	7,504,692
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	4,670,746	$	5,929	0.26	%	$	4,360,607	$	6,728	0.31	%
Short-term borrowings:
Securities sold under agreements to repurchase	184,509		46		0.05	%	174,928		63		0.07	%
Other short-term borrowings	5,383		1		0.04	%	6,765		2		0.06	%
Subordinated notes	58,764		1,674		5.74	%	58,764		1,632		5.60	%
Long-term debt and mandatorily redeemable securities	62,273		(652)		(2.11)	%	81,243		1,290		3.20	%
Total interest-bearing liabilities	4,981,675		6,998		0.28	%	4,682,307		9,715		0.42	%
Noninterest-bearing deposits	2,036,080						1,769,779
Other liabilities	93,202						111,958
Shareholders’ equity	885,826						896,481
Noncontrolling interests	53,975						44,167
Total liabilities and equity	$	8,050,758					$	7,504,692
Less: Fully tax-equivalent adjustments			(231)						(239)
Net interest income/margin (GAAP-derived)(1)			$	123,080	3.24	%			$	114,347	3.24	%
Fully tax-equivalent adjustments			231						239
Net interest income/margin - FTE(1)			$	123,311	3.25	%			$	114,586	3.25	%
(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this section for additional information on this performance measure/ratio.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

The taxable-equivalent net interest income for the six months ended June 30, 2022 was $123.31 million, an increase of 7.61% over the same period in 2021. The net interest margin on a fully taxable-equivalent basis was 3.25% unchanged from the net interest margin for the same period in 2021.

During the six month period ended June 30, 2022, average earning assets increased $539.56 million, up 7.58% over the comparable period in 2021. Average interest-bearing liabilities increased $299.37 million or 6.39%. The yield on average earning assets decreased nine basis points to 3.43% from 3.52% primarily due to higher average balances in 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 decreased 14 basis points to 0.28% from 0.42% as a result of repricing of time deposits and lower interest expense on mandatorily redeemable securities. The result to the net interest margin, or the ratio of net interest income to average earning assets, was a net zero basis point impact.

37

The average earning assets yield declined compared to the same period last year as significant excess liquidity shifted the earning assets mix towards lower yielding instruments. Average investment securities increased $575.81 million or 44.79% with the largest increases in U.S. treasury and federal agency securities and mortgage-backed securities. Average other investments, primarily held at the Federal Reserve Bank, increased $78.42 million or 25.29%. The yield on net loans and leases increased 11 basis points partially from higher interest recoveries on loans and leases which had a positive five basis points impact. The yield on net loans and leases was also positively impacted by seven basis points due to recognition of unearned fees on PPP loans which have been forgiven by the SBA compared to a positive five basis point impact during 2021 offset by PPP loan balances outstanding which earn interest at 1.00%. Average net loans and leases decreased $110.77 million or 2.01% primarily due to average PPP loans of $37.14 million compared to average PPP loans of $408.17 million in 2021 in the commercial and agricultural loan portfolio. Average loans and leases net PPP loans increased $261.18 million, up 5.12%. Average mortgages held for sale decreased $3.90 million or 36.34%.

Average interest-bearing deposits increased $310.14 million or 7.11% for the first six months of 2022 over the same period in 2021 primarily due to the increased public fund deposits and higher savings account balances. The effective rate paid on average interest-bearing deposits decreased five basis points to 0.26% from 0.31%. Average noninterest-bearing deposits grew $266.30 million or 15.05% for the first six months of 2022 over the same period in 2021 primarily due to business customers remaining cautious with their funds and spending.

Average short-term borrowings increased $8.20 million or 4.51% for the first six months of 2022 compared to the same period in 2021. Interest paid on short-term borrowings decreased two basis points. Interest paid on subordinated notes increased 14 basis points due to a variable rate on one tranche. Average long-term debt and mandatorily redeemable securities balances decreased $18.97 million or 23.35%. Interest paid on long-term debt and mandatorily redeemable securities decreased 531 basis points due to lower rates on mandatorily redeemable securities from a reduction in book value per share during the first half of 2022. 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									Six Months Ended
(Dollars in thousands)		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	68,029		$	62,049		$	61,770		$	130,078		$	124,062
	Fully tax-equivalent adjustments:
(B)	- Loans and leases	85			77			80			162			161
(C)	- Tax-exempt investment securities	38			31			38			69			78
(D)	Interest income - FTE (A+B+C)	68,152			62,157			61,888			130,309			124,301
(E)	Interest expense (GAAP)	4,567			2,431			4,835			6,998			9,715
(F)	Net interest income (GAAP) (A–E)	63,462			59,618			56,935			123,080			114,347
(G)	Net interest income - FTE (D–E)	63,585			59,726			57,053			123,311			114,586
(H)	Annualization factor	4.011			4.056			4.011			2.017			2.017
(I)	Total earning assets	$	7,685,631		$	7,620,248		$	7,264,886		$	7,653,120		$	7,113,559
	Net interest margin (GAAP-derived) (F*H)/I	3.31		%	3.17		%	3.14		%	3.24		%	3.24		%
	Net interest margin - FTE (G*H)/I	3.32		%	3.18		%	3.15		%	3.25		%	3.25		%

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PROVISION AND ALLOWANCE FOR CREDIT LOSSES

The provision for credit losses for the three and six months ended June 30, 2022 was $2.50 million and $4.74 million compared to a recovery of $3.03 million and $0.63 million during the three and six months ended June 30, 2021. Net recoveries of $0.40 million or 0.03% of average loans and leases were recorded for the second quarter 2022, compared to net charge-offs of $0.16 million or 0.01% of average loans and leases for the same quarter a year ago. Year-to-date net recoveries of $0.64 million or 0.02% of average loans and leases have been recorded in 2022, compared to net charge-offs of $3.67 million or 0.13% of average loans and leases through June 30, 2021. Net recoveries in 2022 were principally in the aircraft and residential real estate portfolios.

The provision for credit losses for the three months ended June 30, 2022 was principally driven by an upward revision to the forecast adjustment due primarily to a weakened domestic GDP outlook and increased risks for stagnant growth or contraction during the forecast period along with loan growth during the second quarter of 2022. We remain concerned about the long-term prospects for our bus segment and potential risks in our small business portfolio as financial relief provided by government programs afforded to our lending clients dissipates and the return to normal revenue and employment levels slows. The $157.21 million increase in outstanding loan balances this quarter was attributable to a $186.02 million increase in our core loan products offset by a $28.81 million decrease in PPP loans. At June 30, 2022, PPP loans totaled $9.13 million and necessitated minimal reserves as the program carries a 100% SBA guarantee and a debt forgiveness component. Impairment reserves for assets individually evaluated were minimally changed this quarter and 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 exacerbated by the current hostilities in Ukraine and resulting increased uncertainty characterized by persistent inflation and the potential for further disruptions of an already tenuous supply chain. The direct impacts of the pandemic and related economic disruptions which previously dominated our risk analysis over the past nine quarters, have somewhat lessened in the U.S. with the elimination of domestic lockdowns. Concerns remain abroad, particularly in China. Pandemic-related economic disruption remains a concern, particularly the availability of raw materials and extreme price volatility across the supply chain. We remain concerned that geopolitical events and persistently high inflation with weakening growth prospects raise the potential for adverse impacts to the U.S. economy. Congressional spending initiatives face multiple challenges and an uncompromising partisanship. Additional current concerns include slower growth projections in the U.S. and abroad and the potential for raw material shortages and prolonged interruption in global trade as a result of trade restrictions related to the war in Ukraine and the pandemic-related responses of our trade partners. Political uncertainty continues in Latin America, with governments facing increased pressures from escalating social tensions, persistently high unemployment, and double-digit inflation. Corruption scandals persist, fueling U.S. border concerns. Globally, concerns continue to be heightened due to actual and potential terrorist attacks.

Another area of concern continues to be our aircraft portfolio where we have a collateral concentration and $234 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 in an effort to limit collateral exposure. We continue to monitor individual customer performance and assess risks in the portfolio as a whole.

On June 30, 2022, 30 day and over loan and lease delinquency as a percentage of loan and lease balances was 0.08%, compared to 0.09% on June 30, 2021. The allowance for loan and lease losses as a percentage of loans and leases outstanding at the end of the period was 2.39% compared to 2.49% one year ago. The allowance as a percentage of loans and leases outstanding, net of PPP loans, was 2.40% compared to 2.42% at December 31, 2021 and 2.63% at June 30, 2021. A summary of loan and lease loss experience during the three and six months ended June 30, 2022 and 2021 is located in Note 5 of the Consolidated Financial Statements.

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NONPERFORMING ASSETS

The following table shows nonperforming assets.

(Dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2021
Loans and leases past due 90 days or more	$	50	$	249	$	44
Nonaccrual loans and leases	33,490		38,706		55,864
Repossessions	102		861		1,213
Equipment owned under operating leases	43		1,518		1,728
Total nonperforming assets	$	33,685	$	41,334	$	58,849

Nonperforming assets as a percentage of loans and leases were 0.60% at June 30, 2022, 0.77% at December 31, 2021, and 1.06% at June 30, 2021. Excluding PPP loans, nonperforming assets as a percentage of loan and leases were 0.60% at June 30, 2022, 0.78% at December 31, 2021, and 1.13% at June 30, 2021. Nonperforming assets totaled $33.69 million at June 30, 2022, a decrease of 18.51% from the $41.33 million reported at December 31, 2021, and a 42.76% decrease from the $58.85 million reported at June 30, 2021. The decrease in nonperforming assets during the first six months of 2022 was related to continued recovery from the pandemic which has led to lower nonaccrual loans and leases and a decrease in equipment owned under operating leases. The decrease in nonperforming assets at June 30, 2022 from June 30, 2021 was related to a decrease in nonaccrual loans and leases, lower repossessions and decreased equipment owned under operating leases.

The decrease in nonaccrual loans and leases at June 30, 2022 from December 31, 2021 and June 30, 2021 occurred primarily in the bus segment of the auto and light truck portfolio and to a lesser extent in the construction equipment portfolio. A summary of nonaccrual loans and leases and past due aging for the period ended June 30, 2022 and December 31, 2021 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 no properties held in other real estate assets.

Repossessions consisted mainly of consumer loans as of June 30, 2022. 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 decrease in repossession balances at June 30, 2022 compared to June 30, 2021 was primarily the result of the sale of repossessed buses in the auto and light truck portfolio.

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

(Dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2021
Commercial and agricultural	$	—	$	—	$	—
Solar	—		—		—
Auto and light truck	26		75		1,175
Medium and heavy duty truck	—		—		—
Aircraft	—		—		—
Construction equipment	—		757		—
Commercial real estate	—		—		—
Residential real estate and home equity	—		—		—
Consumer	76		29		38
Total	$	102	$	861	$	1,213

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.

40

NONINTEREST INCOME

The following table shows the details of noninterest income.

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2022		2021		$ Change	% Change		2022		2021		$ Change	% Change
Noninterest income:
Trust and wealth advisory	$	6,087	$	6,466	(379)	(5.86)	%	$	12,001	$	11,947	54	0.45	%
Service charges on deposit accounts	2,942		2,508		434	17.30	%	5,734		4,955		779	15.72	%
Debit card	4,561		4,754		(193)	(4.06)	%	8,755		8,936		(181)	(2.03)	%
Mortgage banking	1,062		2,859		(1,797)	(62.85)	%	2,439		6,760		(4,321)	(63.92)	%
Insurance commissions	1,568		1,684		(116)	(6.89)	%	3,473		3,836		(363)	(9.46)	%
Equipment rental	3,295		4,255		(960)	(22.56)	%	6,957		8,884		(1,927)	(21.69)	%
Losses on investment securities available-for-sale	—		(680)		680	NM		—		(680)		680	NM
Other	3,315		3,052		263	8.62	%	6,616		6,129		487	7.95	%
Total noninterest income	$	22,830	$	24,898	(2,068)	(8.31)	%	$	45,975	$	50,767	(4,792)	(9.44)	%

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 June 30, 2022 but was flat during the six months ended June 30, 2022 compared with the same periods 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 June 30, 2022, December 31, 2021, and June 30, 2021 was $4.65 billion, $5.33 billion, and $5.11 billion, respectively. Strong stock market performance and new business results in 2021 helped improve the value of trust assets under management, however, the stock and bond market correction in the first half of 2022 has resulted in a decline in the market value of trust assets under management compared to December 31, 2021.

Service charges on deposit accounts increased for the three and six months ended June 30, 2022 over the comparable periods in 2021. The increase in service charges on deposit accounts primarily reflects a higher volume of business and consumer nonsufficient fund transactions.

Debit card income declined in the three and six months ended June 30, 2022 over the same periods a year ago. The majority of the decrease in debit card income was the result of a lower volume of debit card transactions.

Mortgage banking income decreased in the three and six months ended June 30, 2022 as compared to the same periods in 2021. Demand for mortgages declined as refinancing slowed and inventory of homes for sale remained low which led to a lower volume of sales of loans originated for the secondary market as well as a lower margin on those sales. Additionally, we recognized $0.55 million and $0.59 million, respectively in impairment recoveries on our mortgage servicing assets during the three and six months ended June 30, 2021.

Insurance commissions were lower during the three and six months ended June 30, 2022 compared to the same periods a year ago. The reduction during the second quarter of 2022 was mainly due to fewer seasonal contingent commissions received and a reduction in the book of business.

Equipment rental income decreased for the three and six months ended June 30, 2022 over the comparable periods in 2021. The decline was the result of a reduction in the construction equipment and auto and light truck portfolios resulting in the average equipment rental portfolio decreasing by 24% over the same periods a year ago due to changing customer preferences.

There were no sales of investment securities available-for-sale during the three and six months ended June 30, 2022. During the second quarter of 2021, losses on investment securities available-for-sale were the result of repositioning the portfolio.

Other income increased for the three and six months ended June 30, 2022 compared to the comparable periods in 2021. The increase was primarily a result of increased partnership investment gains, a rise in bank owned life insurance policy claims and higher brokerage fees and commissions offset by a decrease in customer interest rate swap fees.

41

NONINTEREST EXPENSE

The following table shows the details of noninterest expense.

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2022		2021		$ Change	% Change		2022		2021		$ Change	% Change
Noninterest expense:
Salaries and employee benefits	$	25,562	$	25,510	52	0.20	%	$	51,029	$	50,706	323	0.64	%
Net occupancy	2,524		2,527		(3)	(0.12)	%	5,335		5,246		89	1.70	%
Furniture and equipment	1,384		1,420		(36)	(2.54)	%	2,679		2,894		(215)	(7.43)	%
Data processing	5,402		4,917		485	9.86	%	10,610		9,901		709	7.16	%
Depreciation – leased equipment	2,664		3,550		(886)	(24.96)	%	5,679		7,323		(1,644)	(22.45)	%
Professional fees	2,094		2,146		(52)	(2.42)	%	3,702		3,759		(57)	(1.52)	%
FDIC and other insurance	893		772		121	15.67	%	1,743		1,437		306	21.29	%
Business development and marketing	1,669		1,351		318	23.54	%	2,937		2,348		589	25.09	%
Loan and lease collection and repossession	(265)		486		(751)	NM		(131)		615		(746)	NM
Other	3,728		2,519		1,209	48.00	%	7,408		5,109		2,299	45.00	%
Total noninterest expense	$	45,655	$	45,198	457	1.01	%	$	90,991	$	89,338	1,653	1.85	%

NM = Not Meaningful

Salaries and employee benefits were relatively flat during the three months ended June 30, 2022 and increased slightly during the six months ended June 30, 2022 compared to the same periods in 2021. Higher base salaries as a result of normal merit increases offset by a slight decline in staffing levels.

Net occupancy expense was flat during the three months ended June 30, 2022 compared to the same period in 2021 and was slightly higher during the six months ended June 30, 2022 compared to the same period a year ago. The year-to-date increase was primarily due to increased snow removal costs during the first quarter of this year offset by lower common area maintenance expense in our leased properties.

Furniture and equipment expense, including depreciation, declined during the three and six months ended June 30, 2022 compared to the same periods a year ago mainly due to reduced equipment depreciation.

Data processing expense increased during the second quarter and first half of 2022 compared to the same periods a year ago due primarily to higher computer processing charges for technology projects.

Depreciation on leased equipment decreased for the three and six months ended June 30, 2022 compared to the same periods in 2021. Depreciation on leased equipment correlates with the decrease in equipment rental income.

Professional fees were slightly lower during the second quarter and first half of 2022 compared to the same periods a year ago. Reduced legal expenses were offset by increased professional consulting fees.

FDIC and other insurance was higher during the three and six months ended June 30, 2022 compared to the same periods in 2021. The increase was mainly due to higher assessments for FDIC premiums from a larger asset base.

Business development and marketing expense rose during the second quarter and first half of 2022 compared to the same periods a year ago. The increase was mainly due to increased business meals, entertainment and travel opportunities tied to fewer COVID-19 restrictions and higher marketing promotions.

Loan and lease collection and repossession expense decreased during the three and six months ended June 30, 2022 compared to the same periods in 2021. The decrease was mainly due to higher gains on the sale of repossessed assets, fewer negative valuation adjustments and a decline in general collection and repossession charges.

Other expenses were higher during the three and six months ended June 30, 2022 compared to the same periods in 2021. The increase was primarily the result of a rise in the loan loss provision for unfunded loan commitments and increased postage and printing costs.

42

INCOME TAXES

The provision for income taxes for the three and six month period ended June 30, 2022 was $8.80 million and $16.60 million compared to $9.43 million and $18.06 million for the same periods in 2021. The effective tax rate was 23.09% and 23.76% for the quarter ended June 30, 2022 and 2021, respectively and 22.63% and 23.64% for the six months ended June 30, 2022 and 2021, respectively. The decrease in the year-to-date effective tax rate was due to a slight decrease in the tax provision for state income taxes during the first six months of 2022 in comparison to the first six months of 2021.

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, 2021. For information regarding our market risk, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 June 30, 2022, 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 second fiscal quarter of 2022 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.

There have been no material changes in risks faced by 1st Source since December 31, 2021. For information regarding our risk factors, refer to 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2021.

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
April 01 - 30, 2022	—	$	—	—	1,680,665
May 01 - 31, 2022	84,086	43.78		84,086	1,596,579
June 01 - 30, 2022	20,314	48.21		20,314	1,576,265

* 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 423,735 shares.

ITEM 3.        Defaults Upon Senior Securities.

None

43

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)

44

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	July 21, 2022	/s/ CHRISTOPHER J. MURPHY III
		Christopher J. Murphy III Chairman of the Board, President and CEO
DATE	July 21, 2022	/s/ BRETT A. BAUER
		Brett A. Bauer Treasurer and Chief Financial Officer Principal Accounting Officer

45

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: July 21, 2022

/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: July 21, 2022

/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 June 30, 2022, 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: July 21, 2022

/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 June 30, 2022, 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: July 21, 2022

/s/ BRETT A. BAUER

Brett A. Bauer

Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2022	Jul. 15, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2022
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		24,655,727
Entity Registrant Name	1st Source Corp
Entity Central Index Key	0000034782
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
ASSETS
Cash and due from banks	$ 116,915	$ 54,420
Federal funds sold and interest bearing deposits with other banks	164,848	470,767
Investment securities available-for-sale	1,836,389	1,863,041
Other investments	25,538	27,189
Mortgages held for sale	5,525	13,284
Loans and leases - net of unearned discount
Loans and leases	5,551,216	5,346,214
Allowance for loan and lease losses	(132,865)	(127,492)
Net loans and leases	5,418,351	5,218,722
Equipment owned under operating leases, net	36,579	48,433
Net premises and equipment	45,250	47,038
Goodwill and intangible assets	83,916	83,926
Accrued income and other assets	296,048	269,469
Total assets	8,029,359	8,096,289
Deposits:
Noninterest-bearing demand	2,032,566	2,052,981
Interest-bearing deposits:
Interest-bearing demand	2,644,590	2,455,580
Savings	1,282,791	1,286,367
Time	784,949	884,137
Total interest-bearing deposits	4,712,330	4,626,084
Total deposits	6,744,896	6,679,065
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	162,649	194,727
Other short-term borrowings	5,190	5,300
Total short-term borrowings	167,839	200,027
Long-term debt and mandatorily redeemable securities	48,459	71,251
Subordinated notes	58,764	58,764
Accrued expenses and other liabilities	98,734	117,718
Total liabilities	7,118,692	7,126,825
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, 2022 and December 31, 2021	436,538	436,538
Retained earnings	646,600	603,787
Cost of common stock in treasury (3,555,267 shares at June 30, 2022 and 3,466,162 shares at December 31, 2021)	(119,876)	(114,209)
Accumulated other comprehensive loss	(107,011)	(9,861)
Total shareholders’ equity	856,251	916,255
Noncontrolling interests	54,416	53,209
Total equity	910,667	969,464
Total liabilities and equity	$ 8,029,359	$ 8,096,289
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	3,555,267	3,466,162
Commercial and agricultural
Loans and leases - net of unearned discount
Loans and leases	$ 842,618	$ 918,712
Allowance for loan and lease losses	(16,110)	(15,409)
Solar
Loans and leases - net of unearned discount
Loans and leases	350,472	348,302
Allowance for loan and lease losses	(6,652)	(6,585)
Auto and light truck
Loans and leases - net of unearned discount
Loans and leases	708,720	603,775
Allowance for loan and lease losses	(19,057)	(19,624)
Medium and heavy duty truck
Loans and leases - net of unearned discount
Loans and leases	278,334	259,740
Allowance for loan and lease losses	(6,709)	(6,015)
Aircraft
Loans and leases - net of unearned discount
Loans and leases	959,876	898,401
Allowance for loan and lease losses	(36,987)	(33,628)
Construction equipment
Loans and leases - net of unearned discount
Loans and leases	803,734	754,273
Allowance for loan and lease losses	(21,171)	(19,673)
Commercial real estate
Loans and leases - net of unearned discount
Loans and leases	931,058	929,341
Allowance for loan and lease losses	(18,416)	(19,691)
Residential real estate and home equity
Loans and leases - net of unearned discount
Loans and leases	535,589	500,590
Allowance for loan and lease losses	(5,779)	(5,084)
Consumer
Loans and leases - net of unearned discount
Loans and leases	140,815	133,080
Allowance for loan and lease losses	$ (1,984)	$ (1,783)

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Interest income:
Loans and leases	$ 60,415	$ 57,144	$ 115,623	$ 115,008
Investment securities, taxable	6,289	4,155	12,633	8,143
Investment securities, tax-exempt	157	154	291	328
Other	1,168	317	1,531	583
Total interest income	68,029	61,770	130,078	124,062
Interest expense:
Deposits	3,553	3,202	5,929	6,728
Short-term borrowings	23	29	47	65
Subordinated notes	851	814	1,674	1,632
Long-term debt and mandatorily redeemable securities	140	790	(652)	1,290
Total interest expense	4,567	4,835	6,998	9,715
Net interest income	63,462	56,935	123,080	114,347
Provision (recovery of provision) for credit losses	2,503	(3,025)	4,736	(627)
Net interest income after provision for loan and lease losses	60,959	59,960	118,344	114,974
Noninterest income:
Mortgage banking	1,062	2,859	2,439	6,760
Insurance commissions	1,568	1,684	3,473	3,836
Equipment rental	3,295	4,255	6,957	8,884
Losses on investment securities available-for-sale	0	(680)	0	(680)
Other	3,315	3,052	6,616	6,129
Total noninterest income	22,830	24,898	45,975	50,767
Noninterest expense:
Salaries and employee benefits	25,562	25,510	51,029	50,706
Net occupancy	2,524	2,527	5,335	5,246
Furniture and equipment	1,384	1,420	2,679	2,894
Information Technology and Data Processing	5,402	4,917	10,610	9,901
Depreciation - leased equipment	2,664	3,550	5,679	7,323
Professional fees	2,094	2,146	3,702	3,759
FDIC and other insurance	893	772	1,743	1,437
Business development and marketing	1,669	1,351	2,937	2,348
Loan and lease collection and repossession	(265)	486	(131)	615
Other	3,728	2,519	7,408	5,109
Total noninterest expense	45,655	45,198	90,991	89,338
Income before income taxes	38,134	39,660	73,328	76,403
Income tax expense	8,804	9,425	16,597	18,062
Net income	29,330	30,235	56,731	58,341
Net (income) loss attributable to noncontrolling interests	(16)	(12)	(27)	(13)
Net income available to common shareholders	$ 29,314	$ 30,223	$ 56,704	$ 58,328
Per common share:
Basic net income per common share (in dollars per share)	$ 1.18	$ 1.19	$ 2.28	$ 2.29
Diluted net income per common share (in dollars per share)	1.18	1.19	2.28	2.29
Cash dividends (in dollars per share)	$ 0.31	$ 0.30	$ 0.62	$ 0.59
Basic weighted average common shares outstanding (in shares)	24,691,747	25,143,712	24,717,625	25,231,789
Diluted weighted average common shares outstanding (in shares)	24,691,747	25,143,712	24,717,625	25,231,789
Trust and wealth advisory
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	$ 6,087	$ 6,466	$ 12,001	$ 11,947
Service charges on deposit accounts
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	2,942	2,508	5,734	4,955
Debit card
Noninterest income:
Trust and wealth advisory, service charges on deposit accounts, and debit card income	$ 4,561	$ 4,754	$ 8,755	$ 8,936

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Statement of Comprehensive Income [Abstract]
Net income	$ 29,330	$ 30,235	$ 56,731	$ 58,341
Other comprehensive income (loss):
Unrealized depreciation of available-for-sale securities	(34,692)	(204)	(127,786)	(14,862)
Reclassification adjustment for realized losses included in net income	0	680	0	680
Income tax effect	8,218	(115)	30,636	3,415
Other comprehensive (loss) income, net of tax	(26,474)	361	(97,150)	(10,767)
Comprehensive income (loss)	2,856	30,596	(40,419)	47,574
Comprehensive (income) loss attributable to noncontrolling interests	(16)	(12)	(27)	(13)
Comprehensive income (loss) available to common shareholders	$ 2,840	$ 30,584	$ (40,446)	$ 47,561

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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, 2020	$ 930,670	$ 436,538	$ 514,176	$ (82,240)	$ 18,371	$ 886,845	$ 43,825
Increase (Decrease) in Shareholders' Equity
Net income	58,341		58,328			58,328	13
Other comprehensive (loss) income	(10,767)				(10,767)	(10,767)
Issuance of 22,272 and 15,799 common shares under stock based compensation awards for the three months ended June 30, 2022 and 2021, respectively and 60,714 and 50,826 common shares under stock based compensation awards for the six months ended June 30, 2022 and 2021, respectively	2,198		1,271	927		2,198
Cost of 104,400 and 283,759 shares of common stock acquired for treasury for the three months ended June 30, 2022 and 2021, respectively and 149,819 and 439,216 shares of common stock acquired for treasury for the six months ended June 30, 2022 and 2021, respectively	(20,398)			(20,398)		(20,398)
Common stock dividend ($0.31 and $0.30 per share for the three months ended June 30, 2022 and 2021, respectively and $0.62 and $0.59 per share for the six months ended June 30, 2022 and 2021, respectively)	(14,980)		(14,980)			(14,980)
Contributions from noncontrolling interests	887					0	887
Distributions to noncontrolling interests	$ (494)					0	(494)
Issuance of common shares under stock based compensation awards (in shares)	50,826
Common stock acquired for treasury (in shares)	439,216
Cash dividends (in dollars per share)	$ 0.59
Balance at Jun. 30, 2021	$ 945,457	436,538	558,795	(101,711)	7,604	901,226	44,231
Balance at Mar. 31, 2021	935,759	436,538	535,737	(88,223)	7,243	891,295	44,464
Increase (Decrease) in Shareholders' Equity
Net income	30,235		30,223			30,223	12
Other comprehensive (loss) income	361				361	361
Issuance of 22,272 and 15,799 common shares under stock based compensation awards for the three months ended June 30, 2022 and 2021, respectively and 60,714 and 50,826 common shares under stock based compensation awards for the six months ended June 30, 2022 and 2021, respectively	716		427	289		716
Cost of 104,400 and 283,759 shares of common stock acquired for treasury for the three months ended June 30, 2022 and 2021, respectively and 149,819 and 439,216 shares of common stock acquired for treasury for the six months ended June 30, 2022 and 2021, respectively	(13,777)			(13,777)		(13,777)
Common stock dividend ($0.31 and $0.30 per share for the three months ended June 30, 2022 and 2021, respectively and $0.62 and $0.59 per share for the six months ended June 30, 2022 and 2021, respectively)	(7,592)		(7,592)			(7,592)
Distributions to noncontrolling interests	$ (245)					0	(245)
Issuance of common shares under stock based compensation awards (in shares)	15,799
Common stock acquired for treasury (in shares)	283,759
Cash dividends (in dollars per share)	$ 0.30
Balance at Jun. 30, 2021	$ 945,457	436,538	558,795	(101,711)	7,604	901,226	44,231
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	56,731		56,704			56,704	27
Other comprehensive (loss) income	(97,150)				(97,150)	(97,150)
Issuance of 22,272 and 15,799 common shares under stock based compensation awards for the three months ended June 30, 2022 and 2021, respectively and 60,714 and 50,826 common shares under stock based compensation awards for the six months ended June 30, 2022 and 2021, respectively	2,667		1,498	1,169		2,667
Cost of 104,400 and 283,759 shares of common stock acquired for treasury for the three months ended June 30, 2022 and 2021, respectively and 149,819 and 439,216 shares of common stock acquired for treasury for the six months ended June 30, 2022 and 2021, respectively	(6,836)			(6,836)		(6,836)
Common stock dividend ($0.31 and $0.30 per share for the three months ended June 30, 2022 and 2021, respectively and $0.62 and $0.59 per share for the six months ended June 30, 2022 and 2021, respectively)	(15,389)		(15,389)			(15,389)
Contributions from noncontrolling interests	1,627					0	1,627
Distributions to noncontrolling interests	$ (447)					0	(447)
Issuance of common shares under stock based compensation awards (in shares)	60,714
Common stock acquired for treasury (in shares)	149,819
Cash dividends (in dollars per share)	$ 0.62
Balance at Jun. 30, 2022	$ 910,667	436,538	646,600	(119,876)	(107,011)	856,251	54,416
Balance at Mar. 31, 2022	919,470	436,538	624,503	(115,654)	(80,537)	864,850	54,620
Increase (Decrease) in Shareholders' Equity
Net income	29,330		29,314			29,314	16
Other comprehensive (loss) income	(26,474)				(26,474)	(26,474)
Issuance of 22,272 and 15,799 common shares under stock based compensation awards for the three months ended June 30, 2022 and 2021, respectively and 60,714 and 50,826 common shares under stock based compensation awards for the six months ended June 30, 2022 and 2021, respectively	913		474	439		913
Cost of 104,400 and 283,759 shares of common stock acquired for treasury for the three months ended June 30, 2022 and 2021, respectively and 149,819 and 439,216 shares of common stock acquired for treasury for the six months ended June 30, 2022 and 2021, respectively	(4,661)			(4,661)		(4,661)
Common stock dividend ($0.31 and $0.30 per share for the three months ended June 30, 2022 and 2021, respectively and $0.62 and $0.59 per share for the six months ended June 30, 2022 and 2021, respectively)	(7,691)		(7,691)			(7,691)
Distributions to noncontrolling interests	$ (220)					0	(220)
Issuance of common shares under stock based compensation awards (in shares)	22,272
Common stock acquired for treasury (in shares)	104,400
Cash dividends (in dollars per share)	$ 0.31
Balance at Jun. 30, 2022	$ 910,667	$ 436,538	$ 646,600	$ (119,876)	$ (107,011)	$ 856,251	$ 54,416

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Statement of Cash Flows [Abstract]
Net income	$ 56,731	$ 58,341
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (recovery of provision) for credit losses	4,736	(627)
Depreciation of premises and equipment	2,322	2,675
Depreciation of equipment owned and leased to others	5,679	7,323
Stock-based compensation	1,619	1,726
Amortization of investment securities premiums and accretion of discounts, net	2,110	3,372
Amortization of mortgage servicing rights	736	1,109
Mortgage servicing rights impairment recoveries	0	(589)
Amortization of right of use assets	1,577	1,545
Deferred income taxes	(3,259)	8,343
Losses on investment securities available-for-sale	0	680
Originations of loans held for sale, net of principal collected	(55,752)	(135,647)
Proceeds from the sales of loans held for sale	64,533	146,251
Net gain on sale of loans held for sale	(1,022)	(4,172)
Net gain on sale of other real estate and repossessions	(269)	(303)
Purchases of bank owned life insurance policies	(10,000)	0
Change in interest receivable	(377)	1,104
Change in interest payable	409	(1,224)
Change in other assets	(729)	3,113
Change in other liabilities	9,788	(6,697)
Other	(1,879)	233
Net Cash Provided by (Used in) Operating Activities	76,953	86,556
Investing activities:
Proceeds from sales of investment securities available-for-sale	0	99,208
Proceeds from maturities and paydowns of investment securities available-for-sale	102,979	182,499
Purchases of investment securities available-for-sale	(206,223)	(515,496)
Net change in partnership investments	(10,081)	(13,756)
Net change in other investments	1,651	0
Loans sold or participated to others	10,223	15,903
Proceeds from principal payments on direct finance leases	21,358	20,086
Net change in loans and leases	(237,225)	(34,519)
Net change in equipment owned under operating leases	6,175	1,706
Purchases of premises and equipment	(552)	(947)
Proceeds from disposal of premises and equipment	18	28
Proceeds from sales of other real estate and repossessions	2,305	2,240
Net Cash Provided by (Used in) Investing Activities	(309,372)	(243,048)
Financing activities:
Net change in demand deposits and savings accounts	165,019	574,114
Net change in time deposits	(99,188)	(174,732)
Net change in short-term borrowings	(32,188)	21,703
Payments on long-term debt	(23,414)	(2,870)
Stock issued under stock purchase plans	252	90
Acquisition of treasury stock	(6,836)	(20,398)
Net contributions from (distributions to) noncontrolling interests	1,180	393
Cash dividends paid on common stock	(15,830)	(15,408)
Net change in financing activities	(11,005)	382,892
Net change in cash and cash equivalents	(243,424)	226,400
Cash and cash equivalents, beginning of year	525,187	243,047
Cash and cash equivalents, end of period	281,763	469,447
Non-cash transactions:
Loans transferred to other real estate and repossessed assets	1,279	1,120
Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan	683	715
Right of use assets obtained in exchange for lease obligations	$ 561	$ 615

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Accounting Policies

6 Months Ended

Jun. 30, 2022

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 (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.

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.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2022

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Fair Value Measurements: In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

Financial Instruments–Credit Losses: In March 2022, the FASB issued 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.

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Investment Securities

6 Months Ended

Jun. 30, 2022

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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	1,126,483	$	14	$	(68,664)	$	1,057,833
U.S. States and political subdivisions securities	120,814		89		(6,107)		114,796
Mortgage-backed securities — Federal agencies	712,762		123		(66,018)		646,867
Corporate debt securities	16,506		11		(208)		16,309
Foreign government and other securities	600		—		(16)		584
Total debt securities available-for-sale	$	1,977,165	$	237	$	(141,013)	$	1,836,389
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 securities	95,700		1,130		(1,129)		95,701
Mortgage-backed securities — Federal agencies	663,441		4,745		(8,459)		659,727
Corporate debt securities	22,510		499		—		23,009
Foreign government and other securities	600		—		(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 June 30, 2022 and December 31, 2021, accrued interest receivable on investment securities available-for-sale was $5.04 million and $4.80 million, respectively.

At June 30, 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 June 30, 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 Cost		Fair Value
Due in one year or less	$	101,001	$	100,811
Due after one year through five years	1,099,005		1,029,214
Due after five years through ten years	41,543		36,840
Due after ten years	22,854		22,657
Mortgage-backed securities	712,762		646,867
Total debt securities available-for-sale	$	1,977,165	$	1,836,389

The following table summarizes gross unrealized losses and fair value by investment category and age. At June 30, 2022, the Company’s available-for-sale securities portfolio consisted of 740 securities, 634 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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	777,875	$	(45,966)	$	254,062	$	(22,698)	$	1,031,937	$	(68,664)
U.S. States and political subdivisions securities	73,108		(3,493)		20,896		(2,614)		94,004		(6,107)
Mortgage-backed securities - Federal agencies	486,755		(45,677)		139,509		(20,341)		626,264		(66,018)
Corporate debt securities	11,309		(208)		—		—		11,309		(208)
Foreign government and other securities	584		(16)		—		—		584		(16)
Total debt securities available-for-sale	$	1,349,631	$	(95,360)	$	414,467	$	(45,653)	$	1,764,098	$	(141,013)
December 31, 2021
U.S. Treasury and Federal agencies securities	$	789,536	$	(10,728)	$	84,191	$	(2,290)	$	873,727	$	(13,018)
U.S. States and political subdivisions securities	39,585		(980)		4,875		(149)		44,460		(1,129)
Mortgage-backed securities - Federal agencies	454,413		(7,312)		35,232		(1,147)		489,645		(8,459)
Corporate debt securities	—		—		—		—		—		—
Foreign government and other securities	598		(2)		—		—		598		(2)
Total debt securities available-for-sale	$	1,284,132	$	(19,022)	$	124,298	$	(3,586)	$	1,408,430	$	(22,608)

The Company does not consider available-for-sale securities with unrealized losses at June 30, 2022 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Gross realized gains	$	—	$	221	$	—	$	221
Gross realized losses	—		(901)		—		(901)
Net realized gains (losses)	$	—	$	(680)	$	—	$	(680)

At June 30, 2022 and December 31, 2021, investment securities available-for-sale with carrying values of $298.02 million and $351.13 million, respectively, were pledged as collateral for security repurchase agreements and for other purposes.

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Loan and Lease Financings

6 Months Ended

Jun. 30, 2022

Receivables [Abstract]

Loan and Lease Financings

Loan and Lease FinancingsThe 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. This portfolio sector also includes PPP loans, which are fully guaranteed by the SBA. As of June 30, 2022, PPP loan balances were $9.13 million which is net of unearned fees of $0.21 million.

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 consists of multiple industries: auto rental, auto leasing and specialty vehicle which includes bus, funeral car and step van. 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. The bus segment is secured primarily by shuttle buses and motor coaches, the step van segment is secured by step vans and the funeral car segment is secured by hearses and limousines. Risks include lack of well-established mechanisms for disposition of collateral, such as auctions that are key to disposition of autos. Loans in the portfolio generally carry personal guarantees.

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 had been primarily to the less risky owner-occupied segment although growth in recent years has been in the non-owner-occupied segment which now accounts for slightly less than half of the portfolio. The non-owner-occupied segment 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 June 30, 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	$	72,156	$	147,849	$	98,378	$	42,888	$	38,899	$	24,112	$	393,543	$	—	$	817,825
Grades 7-12	1,540		2,099		145		3,032		2,245		1,127		14,605		—		24,793
Total commercial and agricultural	73,696		149,948		98,523		45,920		41,144		25,239		408,148		—		842,618
Solar
Grades 1-6	35,647		138,283		38,889		73,558		18,780		34,039		—		—		339,196
Grades 7-12	—		—		1,112		5,776		712		3,676		—		—		11,276
Total solar	35,647		138,283		40,001		79,334		19,492		37,715		—		—		350,472
Auto and light truck
Grades 1-6	276,473		237,030		91,065		51,976		16,246		6,426		—		—		679,216
Grades 7-12	3,071		7,085		8,611		3,866		2,933		3,938		—		—		29,504
Total auto and light truck	279,544		244,115		99,676		55,842		19,179		10,364		—		—		708,720
Medium and heavy duty truck
Grades 1-6	76,322		78,628		56,118		44,023		15,835		7,285		—		—		278,211
Grades 7-12	—		—		—		—		—		123		—		—		123
Total medium and heavy duty truck	76,322		78,628		56,118		44,023		15,835		7,408		—		—		278,334
Aircraft
Grades 1-6	211,125		311,833		261,744		67,040		39,515		55,885		4,870		—		952,012
Grades 7-12	1,338		—		608		—		3,984		1,934		—		—		7,864
Total aircraft	212,463		311,833		262,352		67,040		43,499		57,819		4,870		—		959,876
Construction equipment
Grades 1-6	223,116		259,093		142,207		78,532		29,861		10,118		19,831		3,189		765,947
Grades 7-12	22,015		8,034		1,974		3,080		743		16		—		1,925		37,787
Total construction equipment	245,131		267,127		144,181		81,612		30,604		10,134		19,831		5,114		803,734
Commercial real estate
Grades 1-6	135,414		171,977		137,630		131,727		125,010		211,768		350		—		913,876
Grades 7-12	1,435		—		7,744		6,495		48		1,460		—		—		17,182
Total commercial real estate	136,849		171,977		145,374		138,222		125,058		213,228		350		—		931,058
Residential real estate and home equity
Performing	57,047		102,401		104,916		36,048		7,508		90,950		131,762		3,956		534,588
Nonperforming	—		—		—		—		14		653		151		183		1,001
Total residential real estate and home equity	57,047		102,401		104,916		36,048		7,522		91,603		131,913		4,139		535,589
Consumer
Performing	39,856		46,515		17,695		11,267		5,011		1,464		18,853		—		140,661
Nonperforming	—		9		65		37		26		17		—		—		154
Total consumer	$	39,856	$	46,524	$	17,760	$	11,304	$	5,037	$	1,481	$	18,853	$	—	$	140,815

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, 2021.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	233,512	$	123,947	$	60,744	$	55,231	$	32,545	$	20,184	$	364,460	$	—	$	890,623
Grades 7-12	4,682		194		3,667		2,373		2,004		484		14,685		—		28,089
Total commercial and agricultural	238,194		124,141		64,411		57,604		34,549		20,668		379,145		—		918,712
Solar
Grades 1-6	159,244		42,073		81,593		18,979		34,889		3,780		—		—		340,558
Grades 7-12	—		1,138		5,882		724		—		—		—		—		7,744
Total solar	159,244		43,211		87,475		19,703		34,889		3,780		—		—		348,302
Auto and light truck
Grades 1-6	331,105		122,709		72,580		24,965		11,814		901		—		—		564,074
Grades 7-12	10,828		11,752		7,467		3,859		4,876		919		—		—		39,701
Total auto and light truck	341,933		134,461		80,047		28,824		16,690		1,820		—		—		603,775
Medium and heavy duty truck
Grades 1-6	92,252		68,354		57,967		23,210		12,419		5,265		—		—		259,467
Grades 7-12	—		—		—		—		—		273		—		—		273
Total medium and heavy duty truck	92,252		68,354		57,967		23,210		12,419		5,538		—		—		259,740
Aircraft
Grades 1-6	384,895		290,897		85,916		45,848		47,025		29,435		4,844		—		888,860
Grades 7-12	1,141		649		—		4,670		454		2,627		—		—		9,541
Total aircraft	386,036		291,546		85,916		50,518		47,479		32,062		4,844		—		898,401
Construction equipment
Grades 1-6	314,044		201,032		109,029		47,693		13,501		5,031		18,937		4,594		713,861
Grades 7-12	26,650		8,709		1,983		797		80		—		—		2,193		40,412
Total construction equipment	340,694		209,741		111,012		48,490		13,581		5,031		18,937		6,787		754,273
Commercial real estate
Grades 1-6	230,701		150,144		146,374		141,838		126,642		112,243		391		—		908,333
Grades 7-12	218		5,921		7,159		491		6,208		1,011		—		—		21,008
Total commercial real estate	230,919		156,065		153,533		142,329		132,850		113,254		391		—		929,341
Residential real estate and home equity
Performing	105,345		114,682		41,185		9,706		11,720		89,646		122,281		4,555		499,120
Nonperforming	—		—		—		13		421		655		293		88		1,470
Total residential real estate and home equity	105,345		114,682		41,185		9,719		12,141		90,301		122,574		4,643		500,590
Consumer
Performing	58,866		24,307		17,031		8,284		2,263		697		21,378		—		132,826
Nonperforming	37		107		43		30		33		4		—		—		254
Total consumer	$	58,903	$	24,414	$	17,074	$	8,314	$	2,296	$	701	$	21,378	$	—	$	133,080

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
June 30, 2022
Commercial and agricultural	$	840,915	$	802	$	—	$	—	$	841,717	$	901	$	842,618
Solar	350,472		—		—		—		350,472		—		350,472
Auto and light truck	687,206		81		—		—		687,287		21,433		708,720
Medium and heavy duty truck	278,211		—		—		—		278,211		123		278,334
Aircraft	957,333		—		1,934		—		959,267		609		959,876
Construction equipment	797,117		111		—		—		797,228		6,506		803,734
Commercial real estate	928,246		—		—		—		928,246		2,812		931,058
Residential real estate and home equity	533,813		494		281		46		534,634		955		535,589
Consumer	140,167		424		69		4		140,664		151		140,815
Total	$	5,513,480	$	1,912	$	2,284	$	50	$	5,517,726	$	33,490	$	5,551,216
December 31, 2021
Commercial and agricultural	$	916,659	$	—	$	—	$	—	$	916,659	$	2,053	$	918,712
Solar	348,302		—		—		—		348,302		—		348,302
Auto and light truck	579,605		—		—		—		579,605		24,170		603,775
Medium and heavy duty truck	259,467		—		—		—		259,467		273		259,740
Aircraft	894,092		1,130		2,530		—		897,752		649		898,401
Construction equipment	745,870		1,313		—		—		747,183		7,090		754,273
Commercial real estate	926,345		—		—		—		926,345		2,996		929,341
Residential real estate and home equity	498,854		212		54		245		499,365		1,225		500,590
Consumer	132,464		332		30		4		132,830		250		133,080
Total	$	5,301,658	$	2,987	$	2,614	$	249	$	5,307,508	$	38,706	$	5,346,214

Accrued interest receivable on loans and leases at June 30, 2022 and December 31, 2021 was $13.08 million and $12.94 million, respectively.

There were no loan and lease modifications classified as a troubled debt restructuring (TDR) during the three and six months ended June 30, 2022 and 2021. 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 and six months ended June 30, 2022 and 2021 that resulted in an interest rate below market rate.

There was one TDR which had a payment default within the twelve months following modification during the three and six months ended June 30, 2022 and no TDRs which had payment defaults within the twelve months following modification during the three and six months ended June 30, 2021. 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 June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022		December 31, 2021
Performing TDRs	$	—	$	319
Nonperforming TDRs	5,204		6,742
Total TDRs	$	5,204	$	7,061

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Allowance for Credit Losses

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and 2021.

(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
June 30, 2022
Balance, beginning of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959
Charge-offs	39		—		32		—		—		—		—		6		157		234
Recoveries	3		—		56		—		161		—		26		127		264		637
Net charge-offs (recoveries)	36		—		(24)		—		(161)		—		(26)		(121)		(107)		(403)
Provision (recovery of provision)	548		235		(488)		660		858		1,130		(856)		440		(24)		2,503
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	15,451	$	5,758	$	29,343	$	6,271	$	35,219	$	16,309	$	24,334	$	5,163	$	1,702	$	139,550
Charge-offs	285		—		367		—		—		—		—		37		105		794
Recoveries	141		—		136		—		241		—		4		10		98		630
Net charge-offs (recoveries)	144		—		231		—		(241)		—		(4)		27		7		164
Provision (recovery of provision)	(475)		109		(1,891)		(383)		(159)		1,599		(1,760)		(70)		5		(3,025)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the six months ended June 30, 2022 and 2021.

(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
June 30, 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	39		—		32		—		—		48		—		10		322		451
Recoveries	7		—		121		—		477		—		26		128		329		1,088
Net charge-offs (recoveries)	32		—		(89)		—		(477)		48		(26)		(118)		(7)		(637)
Provision (recovery of provision)	733		67		(656)		694		2,882		1,546		(1,301)		577		194		4,736
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	16,680	$	5,549	$	28,926	$	6,400	$	34,053	$	19,166	$	22,758	$	5,374	$	1,748	$	140,654
Charge-offs	286		—		4,653		—		—		8		—		42		257		5,246
Recoveries	518		—		185		—		360		254		19		11		233		1,580
Net charge-offs (recoveries)	(232)		—		4,468		—		(360)		(246)		(19)		31		24		3,666
Provision (recovery of provision)	(2,080)		318		2,763		(512)		888		(1,504)		(199)		(277)		(24)		(627)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

The allowance for credit losses increased during the quarter in response to loan growth along with a forecast adjustment due to increased risk during the forecast period attributable to a weakened domestic GDP outlook, continued geopolitical uncertainty, ongoing supply chain difficulties, and persistent inflation. Credit quality remains on an improving trend as evidenced by declining total special attention credit outstandings and net recoveries during the quarter. This quarter, increases in the allowance for various portfolios were driven by the forecast adjustment and loan growth offset partially by the removal of qualitative adjustments related to COVID-19 in all remaining portfolios other than the bus segment of the auto and light truck portfolio, where it was materially reduced. The Company largely considers the lingering residual impacts from the pandemic to be more suitably addressed in the forecast adjustment. However, pressure on asset values in the bus segment is likely to persist owing to changes in consumer behavior as a result of the pandemic leading to reduced activity in some segments and fewer operators within the industry. The decrease in the auto and light truck portfolio was due to the bus segment’s COVID-19 adjustment as well as continued amortization of special attention credits in this highly reserved segment offset partially by loan growth in the lower reserved auto and light truck segment. Reduced reserves in the commercial real estate portfolio were due to lower loan balances and the removal of qualitative adjustments related to COVID-19.

Commercial and agricultural – the decline in loan balances year-to-date was attributable to PPP debt forgiveness coupled with a modest decline in loans in our core businesses. The small increase in the allowance was principally due to the impact of the forecast adjustment.

Solar – the allowance increased primarily due to loan growth during the quarter. Credit quality is stable to improving.

Auto and light truck – the allowance decreased as a result of lower outstanding loan balances in the higher risk bus segment of the portfolio, which was significantly impacted by the pandemic. The decline in allowance attributable to the bus segment was substantially offset by loan growth in the auto rental and leasing segments, which carry lower loss ratios.

Medium and heavy duty truck – the allowance increased due to higher loan outstandings and an increase in the forecast adjustment. Credit quality metrics continued to be relatively strong for this portfolio. Energy price volatility and driver availability remain a challenge.

Aircraft – the allowance increased due to loan growth in both domestic and foreign segments year-to-date. Domestic aircraft loan balances declined slightly during the quarter. 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 loan growth.

Commercial real estate – the allowance decrease was a result of declines in outstanding loan balances as the removal of COVID-19-related qualitative adjustment factors.

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

Consumer – the allowance increase year-to-date was primarily due to loan growth as well as loan loss recoveries recognized during the quarter.

Economic Outlook

As of June 30, 2022, the most significant economic factors impacting our loan portfolios are the weakening domestic growth outlook, the ongoing war in Ukraine and resultant increased uncertainty for the U.S. economy, and additional inflationary pressures, further aggravated by supply chain disruptions. Domestically, direct impacts of COVID-19 appear to be waning but the pandemic’s residual impact remains rooted in supply chain and labor market imbalances and ongoing inflationary pressures. The Company remains watchful of COVID-19 surges and new variants. 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 our clients. The Company’s assumption was that economic growth will slow markedly in 2022 and 2023 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 June 30, 2022 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Balance, beginning of period	$	4,924	$	4,593	$	4,196	$	4,499
Provision (recovery of provision)	573		(276)		1,301		(182)
Balance, end of period	$	5,497	$	4,317	$	5,497	$	4,317

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Lease Investments

6 Months Ended

Jun. 30, 2022

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Direct finance leases:
Interest income on lease receivable	$	1,929	$	1,661	$	3,710	$	3,251
Operating leases:
Income related to lease payments	$	3,295	$	4,255	$	6,957	$	8,884
Depreciation expense	2,664		3,550		5,679		7,323

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three months ended June 30, 2022 and 2021 was $0.03 million and $0.14 million, respectively and for the six months ended June 30, 2022 and 2021 was $0.23 million and $0.38 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three months ended June 30, 2022 and 2021 was $0.03 million and $0.14 million, respectively and for the six months ended June 30, 2022 and 2021 was $0.23 million and $0.38 million.

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Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2022

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 $874.84 million and $883.90 million at June 30, 2022 and December 31, 2021, 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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Mortgage servicing rights:
Balance at beginning of period	$	4,625	$	4,787	$	4,671	$	4,616
Additions	173		410		508		1,171
Amortization	(355)		(519)		(736)		(1,109)
Carrying value before valuation allowance at end of period	4,443		4,678		4,443		4,678
Valuation allowance:
Balance at beginning of period	—		(770)		—		(812)
Impairment recoveries	—		547		—		589
Balance at end of period	$	—	$	(223)	$	—	$	(223)
Net carrying value of mortgage servicing rights at end of period	$	4,443	$	4,455	$	4,443	$	4,455
Fair value of mortgage servicing rights at end of period	$	6,784	$	4,885	$	6,784	$	4,885

At June 30, 2022 and 2021, the fair value of MSRs exceeded the carrying value reported in the Consolidated Statements of Financial Condition by $2.34 million and $0.43 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 $0.72 million and $0.78 million for the three months ended June 30, 2022 and 2021, respectively. Mortgage loan contractual servicing fees, including late fees and ancillary income, were $1.44 million and $1.59 million for the six months ended June 30, 2022 and 2021, 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

6 Months Ended

Jun. 30, 2022

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)	June 30, 2022		December 31, 2021
Amounts of commitments:
Loan commitments to extend credit	$	1,225,927	$	1,148,984
Standby letters of credit	$	19,655	$	24,657
Commercial and similar letters of credit	$	3,793	$	8,531

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

6 Months Ended

Jun. 30, 2022

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
June 30, 2022
Interest rate swap contracts	$	990,000	Other assets	$	13,432	Other liabilities	$	13,686
Loan commitments	6,304		Mortgages held for sale	225		N/A	—
Forward contracts - mortgage loan	7,250		N/A	—		Mortgages held for sale	1
Total	$	1,003,554		$	13,657		$	13,687
December 31, 2021
Interest rate swap contracts	$	1,064,721	Other assets	$	20,735	Other liabilities	$	21,172
Loan commitments	15,086		Mortgages held for sale	452		N/A	—
Forward contracts - mortgage loan	22,000		N/A	—		Mortgages held for sale	11
Total	$	1,101,807		$	21,187		$	21,183

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

		Gain (loss)
		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	Statement of Income classification	2022		2021		2022		2021
Interest rate swap contracts	Other expense	$	(54)	$	(14)	$	183	$	319
Interest rate swap contracts	Other income	—		152		—		238
Loan commitments	Mortgage banking	(62)		69		(227)		(629)
Forward contracts - mortgage loan	Mortgage banking	(201)		(311)		10		266
Total		$	(317)	$	(104)	$	(34)	$	194

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
June 30, 2022
Interest rate swaps	$	13,432	$	—	$	13,432	$	—	$	15,795	$	(2,363)
December 31, 2021
Interest rate swaps	$	24,436	$	3,701	$	20,735	$	—	$	—	$	20,735

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
June 30, 2022
Interest rate swaps	$	13,686	$	—	$	13,686	$	—	$	—	$	13,686
Repurchase agreements	162,650		—		162,650		162,650		—		—
Total	$	176,336	$	—	$	176,336	$	162,650	$	—	$	13,686
December 31, 2021
Interest rate swaps	$	24,873	$	3,701	$	21,172	$	20,498	$	—	$	674
Repurchase agreements	194,727		—		194,727		194,727		—		—
Total	$	219,600	$	3,701	$	215,899	$	215,225	$	—	$	674

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 June 30, 2022 and December 31, 2021, repurchase agreements had a remaining contractual maturity of $159.48 million and $191.47 million in overnight and $3.17 million and $3.26 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

6 Months Ended

Jun. 30, 2022

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 $0.53 million and $0.51 million for the three months ended June 30, 2022 and 2021, respectively and $1.03 million and $1.01 million for the six months ended June 30, 2022 and 2021, respectively. The Company also recognized $9.48 million and $1.08 million of investment tax credits for the three months ended June 30, 2022 and 2021, respectively and $9.48 million and $3.00 million for the six months ended June 30, 2022 and 2021, 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 include 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)	June 30, 2022		December 31, 2021
Investment carrying amount	$	20,090	$	35,968
Unfunded capital and other commitments	16,143		29,670
Maximum exposure to loss	52,447		50,319

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 June 30, 2022 and December 31, 2021, approximately $67.12 million and $59.08 million of the Company’s assets and $6.75 million and $0.00 million 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 therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes in the Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense in the Statements of Income. The common shares issued by the Capital Trust are included in Other Assets in the 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 June 30, 2022.

(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		3.31	%	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

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and 2021.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 June 30,				Six Months Ended June 30,
(Dollars in thousands - except per share amounts)	2022		2021		2022		2021
Distributed earnings allocated to common stock	$	7,668	$	7,568	$	15,340	$	14,932
Undistributed earnings allocated to common stock	21,402		22,419		40,918		42,950
Net earnings allocated to common stock	29,070		29,987		56,258		57,882
Net earnings allocated to participating securities	244		236		446		446
Net income allocated to common stock and participating securities	$	29,314	$	30,223	$	56,704	$	58,328
Weighted average shares outstanding for basic earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Dilutive effect of stock compensation	—		—		—		—
Weighted average shares outstanding for diluted earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Basic earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29
Diluted earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29

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Stock Based Compensation

6 Months Ended

Jun. 30, 2022

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

Stock Based Compensation

As of June 30, 2022, 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, 2021. 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. The 2011 Stock Option Plan was approved by the shareholders on April 21, 2011 but the Company had not made any grants through June 30, 2022.

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 six months ended June 30, 2022 and 2021. As of June 30, 2022 and 2021 there were no outstanding stock options. There were no stock options exercised during the six months ended June 30, 2022 and 2021. All shares issued in connection with stock option exercises are issued from available treasury stock.

As of June 30, 2022, there was $9.20 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 3.38 years.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2022

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

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (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 June 30,				Six Months Ended June 30,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2022		2021		2022		2021
Realized losses included in net income	$	—	$	(680)	$	—	$	(680)	Losses on investment securities available-for-sale
	—		(680)		—		(680)		Income before income taxes
Tax effect	—		164		—		164		Income tax expense
Net of tax	$	—	$	(516)	$	—	$	(516)	Net income

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Income Taxes

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021. Interest and penalties are recognized through the income tax provision. For the three and six months ended June 30, 2022 and 2021, the Company recognized no interest or penalties. There were no accrued interest and penalties at June 30, 2022 and December 31, 2021.

Tax years that remain open and subject to audit include the federal 2018-2021 years and the Indiana 2018-2021 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

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021, 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
June 30, 2022
Mortgages held for sale reported at fair value	$	5,525	$	5,174	$	351	(1)
December 31, 2021
Mortgages held for sale reported at fair value	$	13,284	$	12,456	$	828	(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
June 30, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	583,615	$	474,218	$	—	$	1,057,833
U.S. States and political subdivisions securities	—		110,281		4,515		114,796
Mortgage-backed securities — Federal agencies	—		646,867		—		646,867
Corporate debt securities	—		16,309		—		16,309
Foreign government and other securities	—		584		—		584
Total debt securities available-for-sale	583,615		1,248,259		4,515		1,836,389
Mortgages held for sale	—		5,525		—		5,525
Accrued income and other assets (interest rate swap agreements)	—		13,432		—		13,432
Total	$	583,615	$	1,267,216	$	4,515	$	1,855,346
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	13,686	$	—	$	13,686
Total	$	—	$	13,686	$	—	$	13,686
December 31, 2021
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	561,950	$	522,056	$	—	$	1,084,006
U.S. States and political subdivisions securities	—		93,852		1,849		95,701
Mortgage-backed securities — Federal agencies	—		659,727		—		659,727
Corporate debt securities	—		23,009		—		23,009
Foreign government and other securities	—		598		—		598
Total debt securities available-for-sale	561,950		1,299,242		1,849		1,863,041
Mortgages held for sale	—		13,284		—		13,284
Accrued income and other assets (interest rate swap agreements)	—		20,735		—		20,735
Total	$	561,950	$	1,333,261	$	1,849	$	1,897,060
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	21,172	$	—	$	21,172
Total	$	—	$	21,172	$	—	$	21,172

The following table shows changes in Level 3 assets measured at fair value on a recurring basis for the quarter ended June 30, 2022 and 2021.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance April 1, 2022	$	4,529
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(14)
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	—
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2022	$	4,515
Beginning April 1, 2021	$	1,907
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	33
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	(19)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2021	$	1,921

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 June 30, 2022 or 2021.

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
June 30, 2022
Debt securities available-for sale
Direct placement municipal securities	$	4,515	Discounted cash flows	Credit spread assumption	0.09% - 4.36%	2.88	%
December 31, 2021
Debt securities available-for sale
Direct placement municipal securities	$	1,849	Discounted cash flows	Credit spread assumption	0.04% - 2.31%	1.58	%

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 June 30, 2022: 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
June 30, 2022
Collateral-dependent impaired loans	$	—	$	—	$	861	$	861
Accrued income and other assets (mortgage servicing rights)	—		—		4,443		4,443
Accrued income and other assets (repossessions)	—		—		102		102
Total	$	—	$	—	$	5,406	$	5,406
December 31, 2021
Collateral-dependent impaired loans	$	—	$	—	$	571	$	571
Accrued income and other assets (mortgage servicing rights)	—		—		4,671		4,671
Accrued income and other assets (repossessions)	—		—		861		861
Total	$	—	$	—	$	6,103	$	6,103

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
June 30, 2022
Collateral-dependent impaired loans	$	861	$	861	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	36.2	%
Mortgage servicing rights	4,443		6,784		Discounted cash flows	Constant prepayment rate (CPR)	8.5% - 13.8%	12.4	%
						Discount rate	10.9% - 13.7%	11.0	%
Repossessions	102		106		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 13%	4	%
December 31, 2021
Collateral-dependent impaired loans	$	571	$	571	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	43.1	%
Mortgage servicing rights	4,671		5,640		Discounted cash flows	Constant prepayment rate (CPR)	11.8% - 18.5%	16.4	%
						Discount rate	8.6% - 11.5%	8.8	%
Repossessions	861		942		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 21%	2	%

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
June 30, 2022
Assets:
Cash and due from banks	$	116,915	$	116,915	$	116,915	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	164,848		164,848		164,848		—		—
Investment securities, available-for-sale	1,836,389		1,836,389		583,615		1,248,259		4,515
Other investments	25,538		25,538		25,538		—		—
Mortgages held for sale	5,525		5,525		—		5,525		—
Loans and leases, net of allowance for loan and lease losses	5,418,351		5,369,789		—		—		5,369,789
Mortgage servicing rights	4,443		6,784		—		—		6,784
Accrued interest receivable	18,137		18,137		—		18,137		—
Interest rate swaps	13,432		13,432		—		13,432		—
Liabilities:
Deposits	$	6,744,896	$	6,731,541	$	5,959,947	$	771,594	$	—
Short-term borrowings	167,839		167,839		160,852		6,987		—
Long-term debt and mandatorily redeemable securities	48,459		47,369		—		47,369		—
Subordinated notes	58,764		50,120		—		50,120		—
Accrued interest payable	2,294		2,294		—		2,294		—
Interest rate swaps	13,686		13,686		—		13,686		—
Off-balance-sheet instruments *	—		103		—		103		—
December 31, 2021
Assets:
Cash and due from banks	$	54,420	$	54,420	$	54,420	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	470,767		470,767		470,767		—		—
Investment securities, available-for-sale	1,863,041		1,863,041		561,950		1,299,242		1,849
Other investments	27,189		27,189		27,189		—		—
Mortgages held for sale	13,284		13,284		—		13,284		—
Loans and leases, net of allowance for loan and lease losses	5,218,722		5,269,551		—		—		5,269,551
Mortgage servicing rights	4,671		5,640		—		—		5,640
Accrued interest receivable	17,760		17,760		—		17,760		—
Interest rate swaps	20,735		20,735		—		20,735		—
Liabilities:
Deposits	$	6,679,065	$	6,680,163	$	5,794,928	$	885,235	$	—
Short-term borrowings	200,027		200,027		192,801		7,226		—
Long-term debt and mandatorily redeemable securities	71,251		71,305		—		71,305		—
Subordinated notes	58,764		58,553		—		58,553		—
Accrued interest payable	1,885		1,885		—		1,885		—
Interest rate swaps	21,172		21,172		—		21,172		—
Off-balance-sheet instruments *	—		364		—		364		—

* 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)

6 Months Ended

Jun. 30, 2022

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 (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

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. 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.

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.

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2022

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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	1,126,483	$	14	$	(68,664)	$	1,057,833
U.S. States and political subdivisions securities	120,814		89		(6,107)		114,796
Mortgage-backed securities — Federal agencies	712,762		123		(66,018)		646,867
Corporate debt securities	16,506		11		(208)		16,309
Foreign government and other securities	600		—		(16)		584
Total debt securities available-for-sale	$	1,977,165	$	237	$	(141,013)	$	1,836,389
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 securities	95,700		1,130		(1,129)		95,701
Mortgage-backed securities — Federal agencies	663,441		4,745		(8,459)		659,727
Corporate debt securities	22,510		499		—		23,009
Foreign government and other securities	600		—		(2)		598
Total debt securities available-for-sale	$	1,876,031	$	9,618	$	(22,608)	$	1,863,041

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 June 30, 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 Cost		Fair Value
Due in one year or less	$	101,001	$	100,811
Due after one year through five years	1,099,005		1,029,214
Due after five years through ten years	41,543		36,840
Due after ten years	22,854		22,657
Mortgage-backed securities	712,762		646,867
Total debt securities available-for-sale	$	1,977,165	$	1,836,389

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 June 30, 2022, the Company’s available-for-sale securities portfolio consisted of 740 securities, 634 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
June 30, 2022
U.S. Treasury and Federal agencies securities	$	777,875	$	(45,966)	$	254,062	$	(22,698)	$	1,031,937	$	(68,664)
U.S. States and political subdivisions securities	73,108		(3,493)		20,896		(2,614)		94,004		(6,107)
Mortgage-backed securities - Federal agencies	486,755		(45,677)		139,509		(20,341)		626,264		(66,018)
Corporate debt securities	11,309		(208)		—		—		11,309		(208)
Foreign government and other securities	584		(16)		—		—		584		(16)
Total debt securities available-for-sale	$	1,349,631	$	(95,360)	$	414,467	$	(45,653)	$	1,764,098	$	(141,013)
December 31, 2021
U.S. Treasury and Federal agencies securities	$	789,536	$	(10,728)	$	84,191	$	(2,290)	$	873,727	$	(13,018)
U.S. States and political subdivisions securities	39,585		(980)		4,875		(149)		44,460		(1,129)
Mortgage-backed securities - Federal agencies	454,413		(7,312)		35,232		(1,147)		489,645		(8,459)
Corporate debt securities	—		—		—		—		—		—
Foreign government and other securities	598		(2)		—		—		598		(2)
Total debt securities available-for-sale	$	1,284,132	$	(19,022)	$	124,298	$	(3,586)	$	1,408,430	$	(22,608)

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Gross realized gains	$	—	$	221	$	—	$	221
Gross realized losses	—		(901)		—		(901)
Net realized gains (losses)	$	—	$	(680)	$	—	$	(680)

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Loan and Lease Financings (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30, 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	$	72,156	$	147,849	$	98,378	$	42,888	$	38,899	$	24,112	$	393,543	$	—	$	817,825
Grades 7-12	1,540		2,099		145		3,032		2,245		1,127		14,605		—		24,793
Total commercial and agricultural	73,696		149,948		98,523		45,920		41,144		25,239		408,148		—		842,618
Solar
Grades 1-6	35,647		138,283		38,889		73,558		18,780		34,039		—		—		339,196
Grades 7-12	—		—		1,112		5,776		712		3,676		—		—		11,276
Total solar	35,647		138,283		40,001		79,334		19,492		37,715		—		—		350,472
Auto and light truck
Grades 1-6	276,473		237,030		91,065		51,976		16,246		6,426		—		—		679,216
Grades 7-12	3,071		7,085		8,611		3,866		2,933		3,938		—		—		29,504
Total auto and light truck	279,544		244,115		99,676		55,842		19,179		10,364		—		—		708,720
Medium and heavy duty truck
Grades 1-6	76,322		78,628		56,118		44,023		15,835		7,285		—		—		278,211
Grades 7-12	—		—		—		—		—		123		—		—		123
Total medium and heavy duty truck	76,322		78,628		56,118		44,023		15,835		7,408		—		—		278,334
Aircraft
Grades 1-6	211,125		311,833		261,744		67,040		39,515		55,885		4,870		—		952,012
Grades 7-12	1,338		—		608		—		3,984		1,934		—		—		7,864
Total aircraft	212,463		311,833		262,352		67,040		43,499		57,819		4,870		—		959,876
Construction equipment
Grades 1-6	223,116		259,093		142,207		78,532		29,861		10,118		19,831		3,189		765,947
Grades 7-12	22,015		8,034		1,974		3,080		743		16		—		1,925		37,787
Total construction equipment	245,131		267,127		144,181		81,612		30,604		10,134		19,831		5,114		803,734
Commercial real estate
Grades 1-6	135,414		171,977		137,630		131,727		125,010		211,768		350		—		913,876
Grades 7-12	1,435		—		7,744		6,495		48		1,460		—		—		17,182
Total commercial real estate	136,849		171,977		145,374		138,222		125,058		213,228		350		—		931,058
Residential real estate and home equity
Performing	57,047		102,401		104,916		36,048		7,508		90,950		131,762		3,956		534,588
Nonperforming	—		—		—		—		14		653		151		183		1,001
Total residential real estate and home equity	57,047		102,401		104,916		36,048		7,522		91,603		131,913		4,139		535,589
Consumer
Performing	39,856		46,515		17,695		11,267		5,011		1,464		18,853		—		140,661
Nonperforming	—		9		65		37		26		17		—		—		154
Total consumer	$	39,856	$	46,524	$	17,760	$	11,304	$	5,037	$	1,481	$	18,853	$	—	$	140,815

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, 2021.

	Term Loans and Leases by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and agricultural
Grades 1-6	$	233,512	$	123,947	$	60,744	$	55,231	$	32,545	$	20,184	$	364,460	$	—	$	890,623
Grades 7-12	4,682		194		3,667		2,373		2,004		484		14,685		—		28,089
Total commercial and agricultural	238,194		124,141		64,411		57,604		34,549		20,668		379,145		—		918,712
Solar
Grades 1-6	159,244		42,073		81,593		18,979		34,889		3,780		—		—		340,558
Grades 7-12	—		1,138		5,882		724		—		—		—		—		7,744
Total solar	159,244		43,211		87,475		19,703		34,889		3,780		—		—		348,302
Auto and light truck
Grades 1-6	331,105		122,709		72,580		24,965		11,814		901		—		—		564,074
Grades 7-12	10,828		11,752		7,467		3,859		4,876		919		—		—		39,701
Total auto and light truck	341,933		134,461		80,047		28,824		16,690		1,820		—		—		603,775
Medium and heavy duty truck
Grades 1-6	92,252		68,354		57,967		23,210		12,419		5,265		—		—		259,467
Grades 7-12	—		—		—		—		—		273		—		—		273
Total medium and heavy duty truck	92,252		68,354		57,967		23,210		12,419		5,538		—		—		259,740
Aircraft
Grades 1-6	384,895		290,897		85,916		45,848		47,025		29,435		4,844		—		888,860
Grades 7-12	1,141		649		—		4,670		454		2,627		—		—		9,541
Total aircraft	386,036		291,546		85,916		50,518		47,479		32,062		4,844		—		898,401
Construction equipment
Grades 1-6	314,044		201,032		109,029		47,693		13,501		5,031		18,937		4,594		713,861
Grades 7-12	26,650		8,709		1,983		797		80		—		—		2,193		40,412
Total construction equipment	340,694		209,741		111,012		48,490		13,581		5,031		18,937		6,787		754,273
Commercial real estate
Grades 1-6	230,701		150,144		146,374		141,838		126,642		112,243		391		—		908,333
Grades 7-12	218		5,921		7,159		491		6,208		1,011		—		—		21,008
Total commercial real estate	230,919		156,065		153,533		142,329		132,850		113,254		391		—		929,341
Residential real estate and home equity
Performing	105,345		114,682		41,185		9,706		11,720		89,646		122,281		4,555		499,120
Nonperforming	—		—		—		13		421		655		293		88		1,470
Total residential real estate and home equity	105,345		114,682		41,185		9,719		12,141		90,301		122,574		4,643		500,590
Consumer
Performing	58,866		24,307		17,031		8,284		2,263		697		21,378		—		132,826
Nonperforming	37		107		43		30		33		4		—		—		254
Total consumer	$	58,903	$	24,414	$	17,074	$	8,314	$	2,296	$	701	$	21,378	$	—	$	133,080

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
June 30, 2022
Commercial and agricultural	$	840,915	$	802	$	—	$	—	$	841,717	$	901	$	842,618
Solar	350,472		—		—		—		350,472		—		350,472
Auto and light truck	687,206		81		—		—		687,287		21,433		708,720
Medium and heavy duty truck	278,211		—		—		—		278,211		123		278,334
Aircraft	957,333		—		1,934		—		959,267		609		959,876
Construction equipment	797,117		111		—		—		797,228		6,506		803,734
Commercial real estate	928,246		—		—		—		928,246		2,812		931,058
Residential real estate and home equity	533,813		494		281		46		534,634		955		535,589
Consumer	140,167		424		69		4		140,664		151		140,815
Total	$	5,513,480	$	1,912	$	2,284	$	50	$	5,517,726	$	33,490	$	5,551,216
December 31, 2021
Commercial and agricultural	$	916,659	$	—	$	—	$	—	$	916,659	$	2,053	$	918,712
Solar	348,302		—		—		—		348,302		—		348,302
Auto and light truck	579,605		—		—		—		579,605		24,170		603,775
Medium and heavy duty truck	259,467		—		—		—		259,467		273		259,740
Aircraft	894,092		1,130		2,530		—		897,752		649		898,401
Construction equipment	745,870		1,313		—		—		747,183		7,090		754,273
Commercial real estate	926,345		—		—		—		926,345		2,996		929,341
Residential real estate and home equity	498,854		212		54		245		499,365		1,225		500,590
Consumer	132,464		332		30		4		132,830		250		133,080
Total	$	5,301,658	$	2,987	$	2,614	$	249	$	5,307,508	$	38,706	$	5,346,214

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 June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022		December 31, 2021
Performing TDRs	$	—	$	319
Nonperforming TDRs	5,204		6,742
Total TDRs	$	5,204	$	7,061

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Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and 2021.

(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
June 30, 2022
Balance, beginning of period	$	15,598	$	6,417	$	19,521	$	6,049	$	35,968	$	20,041	$	19,246	$	5,218	$	1,901	$	129,959
Charge-offs	39		—		32		—		—		—		—		6		157		234
Recoveries	3		—		56		—		161		—		26		127		264		637
Net charge-offs (recoveries)	36		—		(24)		—		(161)		—		(26)		(121)		(107)		(403)
Provision (recovery of provision)	548		235		(488)		660		858		1,130		(856)		440		(24)		2,503
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	15,451	$	5,758	$	29,343	$	6,271	$	35,219	$	16,309	$	24,334	$	5,163	$	1,702	$	139,550
Charge-offs	285		—		367		—		—		—		—		37		105		794
Recoveries	141		—		136		—		241		—		4		10		98		630
Net charge-offs (recoveries)	144		—		231		—		(241)		—		(4)		27		7		164
Provision (recovery of provision)	(475)		109		(1,891)		(383)		(159)		1,599		(1,760)		(70)		5		(3,025)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the six months ended June 30, 2022 and 2021.

(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
June 30, 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	39		—		32		—		—		48		—		10		322		451
Recoveries	7		—		121		—		477		—		26		128		329		1,088
Net charge-offs (recoveries)	32		—		(89)		—		(477)		48		(26)		(118)		(7)		(637)
Provision (recovery of provision)	733		67		(656)		694		2,882		1,546		(1,301)		577		194		4,736
Balance, end of period	$	16,110	$	6,652	$	19,057	$	6,709	$	36,987	$	21,171	$	18,416	$	5,779	$	1,984	$	132,865
June 30, 2021
Balance, beginning of period	$	16,680	$	5,549	$	28,926	$	6,400	$	34,053	$	19,166	$	22,758	$	5,374	$	1,748	$	140,654
Charge-offs	286		—		4,653		—		—		8		—		42		257		5,246
Recoveries	518		—		185		—		360		254		19		11		233		1,580
Net charge-offs (recoveries)	(232)		—		4,468		—		(360)		(246)		(19)		31		24		3,666
Provision (recovery of provision)	(2,080)		318		2,763		(512)		888		(1,504)		(199)		(277)		(24)		(627)
Balance, end of period	$	14,832	$	5,867	$	27,221	$	5,888	$	35,301	$	17,908	$	22,578	$	5,066	$	1,700	$	136,361

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Balance, beginning of period	$	4,924	$	4,593	$	4,196	$	4,499
Provision (recovery of provision)	573		(276)		1,301		(182)
Balance, end of period	$	5,497	$	4,317	$	5,497	$	4,317

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Lease Investments (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Direct finance leases:
Interest income on lease receivable	$	1,929	$	1,661	$	3,710	$	3,251
Operating leases:
Income related to lease payments	$	3,295	$	4,255	$	6,957	$	8,884
Depreciation expense	2,664		3,550		5,679		7,323

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Mortgage Servicing Rights (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Mortgage servicing rights:
Balance at beginning of period	$	4,625	$	4,787	$	4,671	$	4,616
Additions	173		410		508		1,171
Amortization	(355)		(519)		(736)		(1,109)
Carrying value before valuation allowance at end of period	4,443		4,678		4,443		4,678
Valuation allowance:
Balance at beginning of period	—		(770)		—		(812)
Impairment recoveries	—		547		—		589
Balance at end of period	$	—	$	(223)	$	—	$	(223)
Net carrying value of mortgage servicing rights at end of period	$	4,443	$	4,455	$	4,443	$	4,455
Fair value of mortgage servicing rights at end of period	$	6,784	$	4,885	$	6,784	$	4,885

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

6 Months Ended

Jun. 30, 2022

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)	June 30, 2022		December 31, 2021
Amounts of commitments:
Loan commitments to extend credit	$	1,225,927	$	1,148,984
Standby letters of credit	$	19,655	$	24,657
Commercial and similar letters of credit	$	3,793	$	8,531

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2022

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
June 30, 2022
Interest rate swap contracts	$	990,000	Other assets	$	13,432	Other liabilities	$	13,686
Loan commitments	6,304		Mortgages held for sale	225		N/A	—
Forward contracts - mortgage loan	7,250		N/A	—		Mortgages held for sale	1
Total	$	1,003,554		$	13,657		$	13,687
December 31, 2021
Interest rate swap contracts	$	1,064,721	Other assets	$	20,735	Other liabilities	$	21,172
Loan commitments	15,086		Mortgages held for sale	452		N/A	—
Forward contracts - mortgage loan	22,000		N/A	—		Mortgages held for sale	11
Total	$	1,101,807		$	21,187		$	21,183

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 June 30,				Six Months Ended June 30,
(Dollars in thousands)	Statement of Income classification	2022		2021		2022		2021
Interest rate swap contracts	Other expense	$	(54)	$	(14)	$	183	$	319
Interest rate swap contracts	Other income	—		152		—		238
Loan commitments	Mortgage banking	(62)		69		(227)		(629)
Forward contracts - mortgage loan	Mortgage banking	(201)		(311)		10		266
Total		$	(317)	$	(104)	$	(34)	$	194

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
June 30, 2022
Interest rate swaps	$	13,432	$	—	$	13,432	$	—	$	15,795	$	(2,363)
December 31, 2021
Interest rate swaps	$	24,436	$	3,701	$	20,735	$	—	$	—	$	20,735

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
June 30, 2022
Interest rate swaps	$	13,686	$	—	$	13,686	$	—	$	—	$	13,686
Repurchase agreements	162,650		—		162,650		162,650		—		—
Total	$	176,336	$	—	$	176,336	$	162,650	$	—	$	13,686
December 31, 2021
Interest rate swaps	$	24,873	$	3,701	$	21,172	$	20,498	$	—	$	674
Repurchase agreements	194,727		—		194,727		194,727		—		—
Total	$	219,600	$	3,701	$	215,899	$	215,225	$	—	$	674

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Variable Interest Entities (Tables)

6 Months Ended

Jun. 30, 2022

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)	June 30, 2022		December 31, 2021
Investment carrying amount	$	20,090	$	35,968
Unfunded capital and other commitments	16,143		29,670
Maximum exposure to loss	52,447		50,319

Summary of subordinated notes

The following table shows subordinated notes at June 30, 2022.

(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		3.31	%	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)

6 Months Ended

Jun. 30, 2022

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 June 30,				Six Months Ended June 30,
(Dollars in thousands - except per share amounts)	2022		2021		2022		2021
Distributed earnings allocated to common stock	$	7,668	$	7,568	$	15,340	$	14,932
Undistributed earnings allocated to common stock	21,402		22,419		40,918		42,950
Net earnings allocated to common stock	29,070		29,987		56,258		57,882
Net earnings allocated to participating securities	244		236		446		446
Net income allocated to common stock and participating securities	$	29,314	$	30,223	$	56,704	$	58,328
Weighted average shares outstanding for basic earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Dilutive effect of stock compensation	—		—		—		—
Weighted average shares outstanding for diluted earnings per common share	24,691,747		25,143,712		24,717,625		25,231,789
Basic earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29
Diluted earnings per common share	$	1.18	$	1.19	$	2.28	$	2.29

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30,				Six Months Ended June 30,				Affected Line Item in the Statements of Income
(Dollars in thousands)	2022		2021		2022		2021
Realized losses included in net income	$	—	$	(680)	$	—	$	(680)	Losses on investment securities available-for-sale
	—		(680)		—		(680)		Income before income taxes
Tax effect	—		164		—		164		Income tax expense
Net of tax	$	—	$	(516)	$	—	$	(516)	Net income

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2022

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
June 30, 2022
Mortgages held for sale reported at fair value	$	5,525	$	5,174	$	351	(1)
December 31, 2021
Mortgages held for sale reported at fair value	$	13,284	$	12,456	$	828	(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
June 30, 2022
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	583,615	$	474,218	$	—	$	1,057,833
U.S. States and political subdivisions securities	—		110,281		4,515		114,796
Mortgage-backed securities — Federal agencies	—		646,867		—		646,867
Corporate debt securities	—		16,309		—		16,309
Foreign government and other securities	—		584		—		584
Total debt securities available-for-sale	583,615		1,248,259		4,515		1,836,389
Mortgages held for sale	—		5,525		—		5,525
Accrued income and other assets (interest rate swap agreements)	—		13,432		—		13,432
Total	$	583,615	$	1,267,216	$	4,515	$	1,855,346
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	13,686	$	—	$	13,686
Total	$	—	$	13,686	$	—	$	13,686
December 31, 2021
Assets:
Investment securities available-for-sale:
U.S. Treasury and Federal agencies securities	$	561,950	$	522,056	$	—	$	1,084,006
U.S. States and political subdivisions securities	—		93,852		1,849		95,701
Mortgage-backed securities — Federal agencies	—		659,727		—		659,727
Corporate debt securities	—		23,009		—		23,009
Foreign government and other securities	—		598		—		598
Total debt securities available-for-sale	561,950		1,299,242		1,849		1,863,041
Mortgages held for sale	—		13,284		—		13,284
Accrued income and other assets (interest rate swap agreements)	—		20,735		—		20,735
Total	$	561,950	$	1,333,261	$	1,849	$	1,897,060
Liabilities:
Accrued expenses and other liabilities (interest rate swap agreements)	$	—	$	21,172	$	—	$	21,172
Total	$	—	$	21,172	$	—	$	21,172

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 June 30, 2022 and 2021.

(Dollars in thousands)	U.S. States and political subdivisions securities
Beginning balance April 1, 2022	$	4,529
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	(14)
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	—
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2022	$	4,515
Beginning April 1, 2021	$	1,907
Total gains or losses (realized/unrealized):
Included in earnings	—
Included in other comprehensive income (loss)	33
Purchases	—
Issuances	—
Sales	—
Settlements	—
Maturities	(19)
Transfers into Level 3	—
Transfers out of Level 3	—
Ending balance June 30, 2021	$	1,921

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
June 30, 2022
Collateral-dependent impaired loans	$	—	$	—	$	861	$	861
Accrued income and other assets (mortgage servicing rights)	—		—		4,443		4,443
Accrued income and other assets (repossessions)	—		—		102		102
Total	$	—	$	—	$	5,406	$	5,406
December 31, 2021
Collateral-dependent impaired loans	$	—	$	—	$	571	$	571
Accrued income and other assets (mortgage servicing rights)	—		—		4,671		4,671
Accrued income and other assets (repossessions)	—		—		861		861
Total	$	—	$	—	$	6,103	$	6,103

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
June 30, 2022
Assets:
Cash and due from banks	$	116,915	$	116,915	$	116,915	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	164,848		164,848		164,848		—		—
Investment securities, available-for-sale	1,836,389		1,836,389		583,615		1,248,259		4,515
Other investments	25,538		25,538		25,538		—		—
Mortgages held for sale	5,525		5,525		—		5,525		—
Loans and leases, net of allowance for loan and lease losses	5,418,351		5,369,789		—		—		5,369,789
Mortgage servicing rights	4,443		6,784		—		—		6,784
Accrued interest receivable	18,137		18,137		—		18,137		—
Interest rate swaps	13,432		13,432		—		13,432		—
Liabilities:
Deposits	$	6,744,896	$	6,731,541	$	5,959,947	$	771,594	$	—
Short-term borrowings	167,839		167,839		160,852		6,987		—
Long-term debt and mandatorily redeemable securities	48,459		47,369		—		47,369		—
Subordinated notes	58,764		50,120		—		50,120		—
Accrued interest payable	2,294		2,294		—		2,294		—
Interest rate swaps	13,686		13,686		—		13,686		—
Off-balance-sheet instruments *	—		103		—		103		—
December 31, 2021
Assets:
Cash and due from banks	$	54,420	$	54,420	$	54,420	$	—	$	—
Federal funds sold and interest bearing deposits with other banks	470,767		470,767		470,767		—		—
Investment securities, available-for-sale	1,863,041		1,863,041		561,950		1,299,242		1,849
Other investments	27,189		27,189		27,189		—		—
Mortgages held for sale	13,284		13,284		—		13,284		—
Loans and leases, net of allowance for loan and lease losses	5,218,722		5,269,551		—		—		5,269,551
Mortgage servicing rights	4,671		5,640		—		—		5,640
Accrued interest receivable	17,760		17,760		—		17,760		—
Interest rate swaps	20,735		20,735		—		20,735		—
Liabilities:
Deposits	$	6,679,065	$	6,680,163	$	5,794,928	$	885,235	$	—
Short-term borrowings	200,027		200,027		192,801		7,226		—
Long-term debt and mandatorily redeemable securities	71,251		71,305		—		71,305		—
Subordinated notes	58,764		58,553		—		58,553		—
Accrued interest payable	1,885		1,885		—		1,885		—
Interest rate swaps	21,172		21,172		—		21,172		—
Off-balance-sheet instruments *	—		364		—		364		—

* 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
June 30, 2022
Debt securities available-for sale
Direct placement municipal securities	$	4,515	Discounted cash flows	Credit spread assumption	0.09% - 4.36%	2.88	%
December 31, 2021
Debt securities available-for sale
Direct placement municipal securities	$	1,849	Discounted cash flows	Credit spread assumption	0.04% - 2.31%	1.58	%

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
June 30, 2022
Collateral-dependent impaired loans	$	861	$	861	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	36.2	%
Mortgage servicing rights	4,443		6,784		Discounted cash flows	Constant prepayment rate (CPR)	8.5% - 13.8%	12.4	%
						Discount rate	10.9% - 13.7%	11.0	%
Repossessions	102		106		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 13%	4	%
December 31, 2021
Collateral-dependent impaired loans	$	571	$	571	Collateral based measurements including appraisals, trade publications, and auction values	Discount for lack of marketability and current conditions	20% - 90%	43.1	%
Mortgage servicing rights	4,671		5,640		Discounted cash flows	Constant prepayment rate (CPR)	11.8% - 18.5%	16.4	%
						Discount rate	8.6% - 11.5%	8.8	%
Repossessions	861		942		Appraisals, trade publications and auction values	Discount for lack of marketability	0% - 21%	2	%

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Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2022
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	Jun. 30, 2022	Dec. 31, 2021
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Due in one year or less	$ 101,001
Due after one year through five years	1,099,005
Due after five years through ten years	41,543
Due after ten years	22,854
Mortgage-backed securities	712,762
Total debt securities available-for-sale	1,977,165	$ 1,876,031
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Due in one year or less	100,811
Due after one year through five years	1,029,214
Due after five years through ten years	36,840
Due after ten years	22,657
Mortgage-backed securities	646,867
Total debt securities available-for-sale	1,836,389	1,863,041
Accrued interest receivable on investment securities available-for-sale	5,040	4,800
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	1,126,483	1,093,780
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	1,057,833	1,084,006
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	120,814	95,700
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	114,796	95,701
Mortgage-backed securities - Federal agencies
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	712,762	663,441
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	646,867	659,727
Corporate debt securities
Contractual maturities of investments in debt securities available-for-sale, Amortized Cost
Total debt securities available-for-sale	16,506	22,510
Contractual maturities of investments in debt securities available-for-sale, Fair Value
Total debt securities available-for-sale	16,309	23,009
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	$ 584	$ 598

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Investment Securities (Details 2) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	$ 1,977,165		$ 1,977,165		$ 1,876,031
Gross Unrealized Gains	237		237		9,618
Gross Unrealized Losses	(141,013)		(141,013)		(22,608)
Investment securities available-for-sale	1,836,389		1,836,389		1,863,041
Fair Value
Less than 12 Months	1,349,631		1,349,631		1,284,132
12 months or Longer	414,467		414,467		124,298
Total fair value	1,764,098		1,764,098		1,408,430
Unrealized Losses
Less than 12 Months	(95,360)		(95,360)		(19,022)
12 months or Longer	(45,653)		(45,653)		(3,586)
Total unrealized losses	(141,013)		(141,013)		(22,608)
Gross realized gains and losses
Gross realized gains	0	$ 221	0	$ 221
Gross realized losses	0	(901)	0	(901)
Net realized (losses) gains	0	$ (680)	0	$ (680)
Investment securities pledged as collateral	$ 298,020		$ 298,020		351,130
Number of available-for-sale debt securities	740		740
Number of available-for-sale debt securities in an unrealized loss position	634		634
U.S. Treasury and Federal agencies securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	$ 1,126,483		$ 1,126,483		1,093,780
Gross Unrealized Gains	14		14		3,244
Gross Unrealized Losses	(68,664)		(68,664)		(13,018)
Investment securities available-for-sale	1,057,833		1,057,833		1,084,006
Fair Value
Less than 12 Months	777,875		777,875		789,536
12 months or Longer	254,062		254,062		84,191
Total fair value	1,031,937		1,031,937		873,727
Unrealized Losses
Less than 12 Months	(45,966)		(45,966)		(10,728)
12 months or Longer	(22,698)		(22,698)		(2,290)
Total unrealized losses	(68,664)		(68,664)		(13,018)
U.S. States and political subdivisions securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	120,814		120,814		95,700
Gross Unrealized Gains	89		89		1,130
Gross Unrealized Losses	(6,107)		(6,107)		(1,129)
Investment securities available-for-sale	114,796		114,796		95,701
Fair Value
Less than 12 Months	73,108		73,108		39,585
12 months or Longer	20,896		20,896		4,875
Total fair value	94,004		94,004		44,460
Unrealized Losses
Less than 12 Months	(3,493)		(3,493)		(980)
12 months or Longer	(2,614)		(2,614)		(149)
Total unrealized losses	(6,107)		(6,107)		(1,129)
Mortgage-backed securities - Federal agencies
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	712,762		712,762		663,441
Gross Unrealized Gains	123		123		4,745
Gross Unrealized Losses	(66,018)		(66,018)		(8,459)
Investment securities available-for-sale	646,867		646,867		659,727
Fair Value
Less than 12 Months	486,755		486,755		454,413
12 months or Longer	139,509		139,509		35,232
Total fair value	626,264		626,264		489,645
Unrealized Losses
Less than 12 Months	(45,677)		(45,677)		(7,312)
12 months or Longer	(20,341)		(20,341)		(1,147)
Total unrealized losses	(66,018)		(66,018)		(8,459)
Corporate debt securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	16,506		16,506		22,510
Gross Unrealized Gains	11		11		499
Gross Unrealized Losses	(208)		(208)		0
Investment securities available-for-sale	16,309		16,309		23,009
Fair Value
Less than 12 Months	11,309		11,309		0
12 months or Longer	0		0		0
Total fair value	11,309		11,309		0
Unrealized Losses
Less than 12 Months	(208)		(208)		0
12 months or Longer	0		0		0
Total unrealized losses	(208)		(208)		0
Foreign government and other securities
Schedule Of Available For Sale Debt Securities [Line Items]
Total debt securities available-for-sale	600		600		600
Gross Unrealized Gains	0		0		0
Gross Unrealized Losses	(16)		(16)		(2)
Investment securities available-for-sale	584		584		598
Fair Value
Less than 12 Months	584		584		598
12 months or Longer	0		0		0
Total fair value	584		584		598
Unrealized Losses
Less than 12 Months	(16)		(16)		(2)
12 months or Longer	0		0		0
Total unrealized losses	$ (16)		$ (16)		$ (2)

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Loan and Lease Financings (Details)	6 Months Ended
	Jun. 30, 2022 USD ($) class item	Dec. 31, 2021 USD ($)
Receivables [Abstract]
Number of methods to assess credit risk | item	2
Loan and Lease Financings
Number of methods to assess credit risk | item	2
PPP loan balance	$ 9,130,000
PPP loans receivable deferred income	$ 210,000
Number of domestic aircraft loan pools | class	2
Amortized cost of loans and leases	$ 5,551,216,000	$ 5,346,214,000
Commercial and agricultural
Loan and Lease Financings
Financing receivable originated during current fiscal year	73,696,000	238,194,000
Financing receivable originated one year prior to current fiscal year	149,948,000	124,141,000
Financing receivable originated two years prior to current fiscal year	98,523,000	64,411,000
Financing receivable originated three years prior to current fiscal year	45,920,000	57,604,000
Financing receivable originated four years prior to current fiscal year	41,144,000	34,549,000
Financing receivable originated five years or more prior to current fiscal year	25,239,000	20,668,000
Revolving Loans	408,148,000	379,145,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 842,618,000	918,712,000
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	$ 35,647,000	159,244,000
Financing receivable originated one year prior to current fiscal year	138,283,000	43,211,000
Financing receivable originated two years prior to current fiscal year	40,001,000	87,475,000
Financing receivable originated three years prior to current fiscal year	79,334,000	19,703,000
Financing receivable originated four years prior to current fiscal year	19,492,000	34,889,000
Financing receivable originated five years or more prior to current fiscal year	37,715,000	3,780,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	350,472,000	348,302,000
Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	279,544,000	341,933,000
Financing receivable originated one year prior to current fiscal year	244,115,000	134,461,000
Financing receivable originated two years prior to current fiscal year	99,676,000	80,047,000
Financing receivable originated three years prior to current fiscal year	55,842,000	28,824,000
Financing receivable originated four years prior to current fiscal year	19,179,000	16,690,000
Financing receivable originated five years or more prior to current fiscal year	10,364,000	1,820,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 708,720,000	603,775,000
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	$ 76,322,000	92,252,000
Financing receivable originated one year prior to current fiscal year	78,628,000	68,354,000
Financing receivable originated two years prior to current fiscal year	56,118,000	57,967,000
Financing receivable originated three years prior to current fiscal year	44,023,000	23,210,000
Financing receivable originated four years prior to current fiscal year	15,835,000	12,419,000
Financing receivable originated five years or more prior to current fiscal year	7,408,000	5,538,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 278,334,000	259,740,000
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	$ 212,463,000	386,036,000
Financing receivable originated one year prior to current fiscal year	311,833,000	291,546,000
Financing receivable originated two years prior to current fiscal year	262,352,000	85,916,000
Financing receivable originated three years prior to current fiscal year	67,040,000	50,518,000
Financing receivable originated four years prior to current fiscal year	43,499,000	47,479,000
Financing receivable originated five years or more prior to current fiscal year	57,819,000	32,062,000
Revolving Loans	4,870,000	4,844,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 959,876,000	898,401,000
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	$ 245,131,000	340,694,000
Financing receivable originated one year prior to current fiscal year	267,127,000	209,741,000
Financing receivable originated two years prior to current fiscal year	144,181,000	111,012,000
Financing receivable originated three years prior to current fiscal year	81,612,000	48,490,000
Financing receivable originated four years prior to current fiscal year	30,604,000	13,581,000
Financing receivable originated five years or more prior to current fiscal year	10,134,000	5,031,000
Revolving Loans	19,831,000	18,937,000
Revolving Loans Converted to Term	5,114,000	6,787,000
Amortized cost of loans and leases	803,734,000	754,273,000
Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	136,849,000	230,919,000
Financing receivable originated one year prior to current fiscal year	171,977,000	156,065,000
Financing receivable originated two years prior to current fiscal year	145,374,000	153,533,000
Financing receivable originated three years prior to current fiscal year	138,222,000	142,329,000
Financing receivable originated four years prior to current fiscal year	125,058,000	132,850,000
Financing receivable originated five years or more prior to current fiscal year	213,228,000	113,254,000
Revolving Loans	350,000	391,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	931,058,000	929,341,000
Residential real estate and home equity
Loan and Lease Financings
Financing receivable originated during current fiscal year	57,047,000	105,345,000
Financing receivable originated one year prior to current fiscal year	102,401,000	114,682,000
Financing receivable originated two years prior to current fiscal year	104,916,000	41,185,000
Financing receivable originated three years prior to current fiscal year	36,048,000	9,719,000
Financing receivable originated four years prior to current fiscal year	7,522,000	12,141,000
Financing receivable originated five years or more prior to current fiscal year	91,603,000	90,301,000
Revolving Loans	131,913,000	122,574,000
Revolving Loans Converted to Term	4,139,000	4,643,000
Amortized cost of loans and leases	535,589,000	500,590,000
Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	39,856,000	58,903,000
Financing receivable originated one year prior to current fiscal year	46,524,000	24,414,000
Financing receivable originated two years prior to current fiscal year	17,760,000	17,074,000
Financing receivable originated three years prior to current fiscal year	11,304,000	8,314,000
Financing receivable originated four years prior to current fiscal year	5,037,000	2,296,000
Financing receivable originated five years or more prior to current fiscal year	1,481,000	701,000
Revolving Loans	18,853,000	21,378,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	140,815,000	133,080,000
Credit Quality Grades 1-6 | Commercial and agricultural
Loan and Lease Financings
Financing receivable originated during current fiscal year	72,156,000	233,512,000
Financing receivable originated one year prior to current fiscal year	147,849,000	123,947,000
Financing receivable originated two years prior to current fiscal year	98,378,000	60,744,000
Financing receivable originated three years prior to current fiscal year	42,888,000	55,231,000
Financing receivable originated four years prior to current fiscal year	38,899,000	32,545,000
Financing receivable originated five years or more prior to current fiscal year	24,112,000	20,184,000
Revolving Loans	393,543,000	364,460,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	817,825,000	890,623,000
Credit Quality Grades 1-6 | Solar
Loan and Lease Financings
Financing receivable originated during current fiscal year	35,647,000	159,244,000
Financing receivable originated one year prior to current fiscal year	138,283,000	42,073,000
Financing receivable originated two years prior to current fiscal year	38,889,000	81,593,000
Financing receivable originated three years prior to current fiscal year	73,558,000	18,979,000
Financing receivable originated four years prior to current fiscal year	18,780,000	34,889,000
Financing receivable originated five years or more prior to current fiscal year	34,039,000	3,780,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	339,196,000	340,558,000
Credit Quality Grades 1-6 | Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	276,473,000	331,105,000
Financing receivable originated one year prior to current fiscal year	237,030,000	122,709,000
Financing receivable originated two years prior to current fiscal year	91,065,000	72,580,000
Financing receivable originated three years prior to current fiscal year	51,976,000	24,965,000
Financing receivable originated four years prior to current fiscal year	16,246,000	11,814,000
Financing receivable originated five years or more prior to current fiscal year	6,426,000	901,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	679,216,000	564,074,000
Credit Quality Grades 1-6 | Medium and heavy duty truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	76,322,000	92,252,000
Financing receivable originated one year prior to current fiscal year	78,628,000	68,354,000
Financing receivable originated two years prior to current fiscal year	56,118,000	57,967,000
Financing receivable originated three years prior to current fiscal year	44,023,000	23,210,000
Financing receivable originated four years prior to current fiscal year	15,835,000	12,419,000
Financing receivable originated five years or more prior to current fiscal year	7,285,000	5,265,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	278,211,000	259,467,000
Credit Quality Grades 1-6 | Aircraft
Loan and Lease Financings
Financing receivable originated during current fiscal year	211,125,000	384,895,000
Financing receivable originated one year prior to current fiscal year	311,833,000	290,897,000
Financing receivable originated two years prior to current fiscal year	261,744,000	85,916,000
Financing receivable originated three years prior to current fiscal year	67,040,000	45,848,000
Financing receivable originated four years prior to current fiscal year	39,515,000	47,025,000
Financing receivable originated five years or more prior to current fiscal year	55,885,000	29,435,000
Revolving Loans	4,870,000	4,844,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	952,012,000	888,860,000
Credit Quality Grades 1-6 | Construction equipment
Loan and Lease Financings
Financing receivable originated during current fiscal year	223,116,000	314,044,000
Financing receivable originated one year prior to current fiscal year	259,093,000	201,032,000
Financing receivable originated two years prior to current fiscal year	142,207,000	109,029,000
Financing receivable originated three years prior to current fiscal year	78,532,000	47,693,000
Financing receivable originated four years prior to current fiscal year	29,861,000	13,501,000
Financing receivable originated five years or more prior to current fiscal year	10,118,000	5,031,000
Revolving Loans	19,831,000	18,937,000
Revolving Loans Converted to Term	3,189,000	4,594,000
Amortized cost of loans and leases	765,947,000	713,861,000
Credit Quality Grades 1-6 | Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	135,414,000	230,701,000
Financing receivable originated one year prior to current fiscal year	171,977,000	150,144,000
Financing receivable originated two years prior to current fiscal year	137,630,000	146,374,000
Financing receivable originated three years prior to current fiscal year	131,727,000	141,838,000
Financing receivable originated four years prior to current fiscal year	125,010,000	126,642,000
Financing receivable originated five years or more prior to current fiscal year	211,768,000	112,243,000
Revolving Loans	350,000	391,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	913,876,000	908,333,000
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	1,540,000	4,682,000
Financing receivable originated one year prior to current fiscal year	2,099,000	194,000
Financing receivable originated two years prior to current fiscal year	145,000	3,667,000
Financing receivable originated three years prior to current fiscal year	3,032,000	2,373,000
Financing receivable originated four years prior to current fiscal year	2,245,000	2,004,000
Financing receivable originated five years or more prior to current fiscal year	1,127,000	484,000
Revolving Loans	14,605,000	14,685,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	24,793,000	28,089,000
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	1,138,000
Financing receivable originated two years prior to current fiscal year	1,112,000	5,882,000
Financing receivable originated three years prior to current fiscal year	5,776,000	724,000
Financing receivable originated four years prior to current fiscal year	712,000	0
Financing receivable originated five years or more prior to current fiscal year	3,676,000	0
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	11,276,000	7,744,000
Credit Quality Grades 7-12 | Auto and light truck
Loan and Lease Financings
Financing receivable originated during current fiscal year	3,071,000	10,828,000
Financing receivable originated one year prior to current fiscal year	7,085,000	11,752,000
Financing receivable originated two years prior to current fiscal year	8,611,000	7,467,000
Financing receivable originated three years prior to current fiscal year	3,866,000	3,859,000
Financing receivable originated four years prior to current fiscal year	2,933,000	4,876,000
Financing receivable originated five years or more prior to current fiscal year	3,938,000	919,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	29,504,000	39,701,000
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	123,000	273,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	123,000	273,000
Credit Quality Grades 7-12 | Aircraft
Loan and Lease Financings
Financing receivable originated during current fiscal year	1,338,000	1,141,000
Financing receivable originated one year prior to current fiscal year	0	649,000
Financing receivable originated two years prior to current fiscal year	608,000	0
Financing receivable originated three years prior to current fiscal year	0	4,670,000
Financing receivable originated four years prior to current fiscal year	3,984,000	454,000
Financing receivable originated five years or more prior to current fiscal year	1,934,000	2,627,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	7,864,000	9,541,000
Credit Quality Grades 7-12 | Construction equipment
Loan and Lease Financings
Financing receivable originated during current fiscal year	22,015,000	26,650,000
Financing receivable originated one year prior to current fiscal year	8,034,000	8,709,000
Financing receivable originated two years prior to current fiscal year	1,974,000	1,983,000
Financing receivable originated three years prior to current fiscal year	3,080,000	797,000
Financing receivable originated four years prior to current fiscal year	743,000	80,000
Financing receivable originated five years or more prior to current fiscal year	16,000	0
Revolving Loans	0	0
Revolving Loans Converted to Term	1,925,000	2,193,000
Amortized cost of loans and leases	37,787,000	40,412,000
Credit Quality Grades 7-12 | Commercial real estate
Loan and Lease Financings
Financing receivable originated during current fiscal year	1,435,000	218,000
Financing receivable originated one year prior to current fiscal year	0	5,921,000
Financing receivable originated two years prior to current fiscal year	7,744,000	7,159,000
Financing receivable originated three years prior to current fiscal year	6,495,000	491,000
Financing receivable originated four years prior to current fiscal year	48,000	6,208,000
Financing receivable originated five years or more prior to current fiscal year	1,460,000	1,011,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	17,182,000	21,008,000
Performing | Residential real estate and home equity
Loan and Lease Financings
Financing receivable originated during current fiscal year	57,047,000	105,345,000
Financing receivable originated one year prior to current fiscal year	102,401,000	114,682,000
Financing receivable originated two years prior to current fiscal year	104,916,000	41,185,000
Financing receivable originated three years prior to current fiscal year	36,048,000	9,706,000
Financing receivable originated four years prior to current fiscal year	7,508,000	11,720,000
Financing receivable originated five years or more prior to current fiscal year	90,950,000	89,646,000
Revolving Loans	131,762,000	122,281,000
Revolving Loans Converted to Term	3,956,000	4,555,000
Amortized cost of loans and leases	534,588,000	499,120,000
Performing | Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	39,856,000	58,866,000
Financing receivable originated one year prior to current fiscal year	46,515,000	24,307,000
Financing receivable originated two years prior to current fiscal year	17,695,000	17,031,000
Financing receivable originated three years prior to current fiscal year	11,267,000	8,284,000
Financing receivable originated four years prior to current fiscal year	5,011,000	2,263,000
Financing receivable originated five years or more prior to current fiscal year	1,464,000	697,000
Revolving Loans	18,853,000	21,378,000
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 140,661,000	132,826,000
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	0
Financing receivable originated two years prior to current fiscal year	0	0
Financing receivable originated three years prior to current fiscal year	0	13,000
Financing receivable originated four years prior to current fiscal year	14,000	421,000
Financing receivable originated five years or more prior to current fiscal year	653,000	655,000
Revolving Loans	151,000	293,000
Revolving Loans Converted to Term	183,000	88,000
Amortized cost of loans and leases	1,001,000	1,470,000
Nonperforming | Consumer
Loan and Lease Financings
Financing receivable originated during current fiscal year	0	37,000
Financing receivable originated one year prior to current fiscal year	9,000	107,000
Financing receivable originated two years prior to current fiscal year	65,000	43,000
Financing receivable originated three years prior to current fiscal year	37,000	30,000
Financing receivable originated four years prior to current fiscal year	26,000	33,000
Financing receivable originated five years or more prior to current fiscal year	17,000	4,000
Revolving Loans	0	0
Revolving Loans Converted to Term	0	0
Amortized cost of loans and leases	$ 154,000	$ 254,000

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Loan and Lease Financings (Details 2) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
90 Days or More Past Due and Accruing	$ 50	$ 249
Total Accruing Loans	5,517,726	5,307,508
Nonaccrual	33,490	38,706
Total loans and leases	5,551,216	5,346,214
Accrued interest receivable on loans and leases	13,080	12,940
Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	5,513,480	5,301,658
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	1,912	2,987
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	2,284	2,614
Commercial and agricultural
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	841,717	916,659
Nonaccrual	901	2,053
Total loans and leases	842,618	918,712
Commercial and agricultural | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	840,915	916,659
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	802	0
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	350,472	348,302
Nonaccrual	0	0
Total loans and leases	350,472	348,302
Solar | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	350,472	348,302
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	687,287	579,605
Nonaccrual	21,433	24,170
Total loans and leases	708,720	603,775
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	687,206	579,605
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	81	0
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	0
Medium and heavy duty truck
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	278,211	259,467
Nonaccrual	123	273
Total loans and leases	278,334	259,740
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	278,211	259,467
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	0
Aircraft
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	959,267	897,752
Nonaccrual	609	649
Total loans and leases	959,876	898,401
Aircraft | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	957,333	894,092
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	1,130
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	1,934	2,530
Construction equipment
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total Accruing Loans	797,228	747,183
Nonaccrual	6,506	7,090
Total loans and leases	803,734	754,273
Construction equipment | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	797,117	745,870
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	111	1,313
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	928,246	926,345
Nonaccrual	2,812	2,996
Total loans and leases	931,058	929,341
Commercial real estate | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	928,246	926,345
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	0	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	46	245
Total Accruing Loans	534,634	499,365
Nonaccrual	955	1,225
Total loans and leases	535,589	500,590
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	533,813	498,854
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	494	212
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	281	54
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	4	4
Total Accruing Loans	140,664	132,830
Nonaccrual	151	250
Total loans and leases	140,815	133,080
Consumer | Current
Amortized cost of loans and leases, segregated by portfolio segment, with delinquency aging and nonaccrual status
Total loans and leases	140,167	132,464
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	424	332
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	$ 69	$ 30

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Loan and Lease Financings (Details 3) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022 USD ($) item default	Jun. 30, 2021 default item	Jun. 30, 2022 USD ($) item default	Jun. 30, 2021 item default	Dec. 31, 2021 USD ($)
Loans and leases classified as TDR
Number of Modifications | item	0	0	0	0
Number of Defaults | default	1	0	1	0
Loans and leases classified as troubled debt restructuring	$ 5,204		$ 5,204		$ 7,061
Troubled debt restructured loans and leases which had payment defaults within twelve months following modification
Default threshold			90 days
Performing
Loans and leases classified as TDR
Loans and leases classified as troubled debt restructuring	0		$ 0		319
Nonperforming
Loans and leases classified as TDR
Loans and leases classified as troubled debt restructuring	$ 5,204		$ 5,204		$ 6,742
Interest Rate Below Market Reduction [Member]
Loans and leases classified as TDR
Number of Modifications | item	0	0	0	0

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Allowance for Credit Losses (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022 USD ($) item	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($) item	Jun. 30, 2021 USD ($)
Allowance for credit losses
Number of classes existing in loan and lease portfolio | item	9		9
Changes in allowance for loan and lease losses
Balance at the beginning of the period	$ 129,959	$ 139,550	$ 127,492	$ 140,654
Charge-offs	234	794	451	5,246
Recoveries	637	630	1,088	1,580
Net charge-offs (recoveries)	(403)	164	(637)	3,666
Provision (recovery of provision)	2,503	(3,025)	4,736	(627)
Balance at the end of the period	132,865	136,361	132,865	136,361
Commercial and agricultural
Changes in allowance for loan and lease losses
Balance at the beginning of the period	15,598	15,451	15,409	16,680
Charge-offs	39	285	39	286
Recoveries	3	141	7	518
Net charge-offs (recoveries)	36	144	32	(232)
Provision (recovery of provision)	548	(475)	733	(2,080)
Balance at the end of the period	16,110	14,832	16,110	14,832
Solar
Changes in allowance for loan and lease losses
Balance at the beginning of the period	6,417	5,758	6,585	5,549
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Net charge-offs (recoveries)	0	0	0	0
Provision (recovery of provision)	235	109	67	318
Balance at the end of the period	6,652	5,867	6,652	5,867
Auto and light truck
Changes in allowance for loan and lease losses
Balance at the beginning of the period	19,521	29,343	19,624	28,926
Charge-offs	32	367	32	4,653
Recoveries	56	136	121	185
Net charge-offs (recoveries)	(24)	231	(89)	4,468
Provision (recovery of provision)	(488)	(1,891)	(656)	2,763
Balance at the end of the period	19,057	27,221	19,057	27,221
Medium and heavy duty truck
Changes in allowance for loan and lease losses
Balance at the beginning of the period	6,049	6,271	6,015	6,400
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Net charge-offs (recoveries)	0	0	0	0
Provision (recovery of provision)	660	(383)	694	(512)
Balance at the end of the period	6,709	5,888	6,709	5,888
Aircraft
Changes in allowance for loan and lease losses
Balance at the beginning of the period	35,968	35,219	33,628	34,053
Charge-offs	0	0	0	0
Recoveries	161	241	477	360
Net charge-offs (recoveries)	(161)	(241)	(477)	(360)
Provision (recovery of provision)	858	(159)	2,882	888
Balance at the end of the period	36,987	35,301	36,987	35,301
Construction equipment
Changes in allowance for loan and lease losses
Balance at the beginning of the period	20,041	16,309	19,673	19,166
Charge-offs	0	0	48	8
Recoveries	0	0	0	254
Net charge-offs (recoveries)	0	0	48	(246)
Provision (recovery of provision)	1,130	1,599	1,546	(1,504)
Balance at the end of the period	21,171	17,908	21,171	17,908
Commercial real estate
Changes in allowance for loan and lease losses
Balance at the beginning of the period	19,246	24,334	19,691	22,758
Charge-offs	0	0	0	0
Recoveries	26	4	26	19
Net charge-offs (recoveries)	(26)	(4)	(26)	(19)
Provision (recovery of provision)	(856)	(1,760)	(1,301)	(199)
Balance at the end of the period	18,416	22,578	18,416	22,578
Residential real estate and home equity
Changes in allowance for loan and lease losses
Balance at the beginning of the period	5,218	5,163	5,084	5,374
Charge-offs	6	37	10	42
Recoveries	127	10	128	11
Net charge-offs (recoveries)	(121)	27	(118)	31
Provision (recovery of provision)	440	(70)	577	(277)
Balance at the end of the period	5,779	5,066	5,779	5,066
Consumer
Changes in allowance for loan and lease losses
Balance at the beginning of the period	1,901	1,702	1,783	1,748
Charge-offs	157	105	322	257
Recoveries	264	98	329	233
Net charge-offs (recoveries)	(107)	7	(7)	24
Provision (recovery of provision)	(24)	5	194	(24)
Balance at the end of the period	$ 1,984	$ 1,700	$ 1,984	$ 1,700

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Allowance for Credit Losses (Details 2) - Unfunded Loan Commitment - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Allowance for credit losses
Balance, beginning of period	$ 4,924	$ 4,593	$ 4,196	$ 4,499
Provision (recovery of provision)	573	(276)	1,301	(182)
Balance, end of period	$ 5,497	$ 4,317	$ 5,497	$ 4,317

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Lease Investments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Leases [Abstract]
Interest income on lease receivable	$ 1,929	$ 1,661	$ 3,710	$ 3,251
Income related to lease payments	3,295	4,255	6,957	8,884
Depreciation - leased equipment	2,664	3,550	5,679	7,323
Income from reimbursements for personal property tax payments on operating leased equipment	30	140	230	380
Expense for payments of personal property taxes on operating leased equipment	$ 30	$ 140	$ 230	$ 380

XML

Mortgage Servicing Rights (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Residential mortgage loans
Mortgage Servicing Rights
Unpaid principal balance	$ 874,840	$ 883,900

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Mortgage Servicing Rights (Details 2) - Residential mortgage loans - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Changes in mortgage servicing assets
Balance at the beginning of the period	$ 4,625	$ 4,787	$ 4,671	$ 4,616
Additions	173	410	508	1,171
Amortization	(355)	(519)	(736)	(1,109)
Carrying value before valuation allowance at end of period	4,443	4,678	4,443	4,678
Changes in valuation allowance
Balance at the beginning of the period	0	(770)	0	(812)
Impairment recoveries	0	547	0	589
Balance at the end of the period	0	(223)	0	(223)
Net carrying value of mortgage servicing rights at end of period	4,443	4,455	4,443	4,455
Fair value of mortgage servicing rights at end of period	6,784	4,885	6,784	4,885
Fair value of mortgage servicing rights exceeding the carrying value	2,340	430	2,340	430
Mortgage loan contractual servicing fees, including late fees and ancillary income	$ 720	$ 780	$ 1,440	$ 1,590

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Commitments and Financial Instruments with Off-Balance-Sheet Risk (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Loan commitments to extend credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance-sheet instruments	$ 1,225,927	$ 1,148,984
Standby letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance-sheet instruments	$ 19,655	24,657
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	$ 3,793	$ 8,531
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

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Derivative Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	$ 1,003,554	$ 1,101,807
Asset derivatives, Fair value	13,657	21,187
Liability derivatives, Fair value	13,687	21,183
Interest rate swap contracts
Derivative Financial Instruments
Asset derivatives, Fair value	13,432	24,436
Interest rate swap contracts | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	990,000	1,064,721
Asset derivatives, Fair value	13,432	20,735
Liability derivatives, Fair value	13,686	21,172
Loan commitments | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	6,304	15,086
Asset derivatives, Fair value	225	452
Liability derivatives, Fair value	0	0
Forward contracts - mortgage loan | Non-hedging derivative financial instruments
Derivative Financial Instruments
Notional or contractual amount	7,250	22,000
Asset derivatives, Fair value	0	0
Liability derivatives, Fair value	$ 1	$ 11

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Derivative Financial Instruments (Details 2) - Non-hedging derivative financial instruments - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Derivative Financial Instruments
Gain (loss)	$ (317)	$ (104)	$ (34)	$ 194
Interest rate swap contracts | Other expense
Derivative Financial Instruments
Gain (loss)	(54)	(14)	183	319
Interest rate swap contracts | Other income
Derivative Financial Instruments
Gain (loss)	0	152	0	238
Loan commitments | Mortgage banking income
Derivative Financial Instruments
Gain (loss)	(62)	69	(227)	(629)
Forward contracts - mortgage loan | Mortgage banking income
Derivative Financial Instruments
Gain (loss)	$ (201)	$ (311)	$ 10	$ 266

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Derivative Financial Instruments (Details 3) - Interest rate swaps - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Offsetting Assets
Asset derivatives, Fair value	$ 13,432	$ 24,436
Gross Amounts Offset in the Statement of Financial Position	0	3,701
Net Amounts of Assets Presented in the Statement of Financial Position	13,432	20,735
Derivative Asset, Fair Value, Amount Offset Against Collateral [Abstract]
Financial instruments	0	0
Cash collateral received	15,795	0
Net Amount	$ (2,363)	$ 20,735

XML

Derivative Financial Instruments (Details 4) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	$ 176,336	$ 219,600
Gross Amounts Offset in the Statement of Financial Position	0	3,701
Net Amounts of Liabilities Presented in the Statement of Financial Position	176,336	215,899
Gross amounts Not Offset in the Statement of Financial Position
Financial Instruments	162,650	215,225
Cash Collateral Pledged	0	0
Net Amount	13,686	674
Interest rate swaps
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	13,686	24,873
Gross Amounts Offset in the Statement of Financial Position	0	3,701
Net Amounts of Liabilities Presented in the Statement of Financial Position	13,686	21,172
Derivative, Collateral, Right to Reclaim Securities	0	20,498
Gross amounts Not Offset in the Statement of Financial Position
Cash Collateral Pledged	0	0
Net Amount	13,686	674
Repurchase agreements
Offsetting of financial liabilities and derivative liabilities
Derivative Liability, Fair Value, Gross Liability Including Not Subject to Master Netting Arrangement	162,650	194,727
Net Amounts of Liabilities Presented in the Statement of Financial Position	162,650	194,727
Gross amounts Not Offset in the Statement of Financial Position
Financial Instruments	$ 162,650	$ 194,727

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Derivative Financial Instruments (Details 5) - U.S. Treasury and Federal agencies securities - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements	$ 159,480	$ 191,470
Up to 30 Days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements	$ 3,170	$ 3,260

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Variable Interest Entities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Subordinated Borrowing [Line Items]
Federal tax credits recognized in tax expense	$ 530	$ 510	$ 1,030	$ 1,010
Investment tax credits	9,480	$ 1,080	9,480	$ 3,000
Investment carrying amount	8,029,359		8,029,359		$ 8,096,289
Unfunded capital and other commitments	7,118,692		7,118,692		7,126,825
Maximum exposure to loss, unconsolidated VIEs	52,447		52,447		50,319
Variable interest entity, primary beneficiary
Subordinated Borrowing [Line Items]
Investment carrying amount	67,120		67,120		59,080
Unfunded capital and other commitments	6,750		6,750		0
Variable interest entity, not primary beneficiary
Subordinated Borrowing [Line Items]
Investment carrying amount	20,090		20,090		35,968
Unfunded capital and other commitments	$ 16,143		$ 16,143		$ 29,670

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Variable Interest Entities (Details 2) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($) trust	Dec. 31, 2021 USD ($)
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)	3.31%
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%

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Earnings Per Share [Abstract]
Outstanding stock options (in shares)	0	0	0	0
Distributed earnings allocated to common stock	$ 7,668	$ 7,568	$ 15,340	$ 14,932
Undistributed earnings allocated to common stock	21,402	22,419	40,918	42,950
Net earnings allocated to common stock	29,070	29,987	56,258	57,882
Net earnings allocated to participating securities	244	236	446	446
Net income available to common shareholders	$ 29,314	$ 30,223	$ 56,704	$ 58,328
Weighted average shares outstanding for basic earnings per common share	24,691,747	25,143,712	24,717,625	25,231,789
Dilutive effect of stock compensation (in shares)	0	0	0	0
Weighted average shares outstanding for diluted earnings per common share	24,691,747	25,143,712	24,717,625	25,231,789
Basic earnings per common share (in dollars per share)	$ 1.18	$ 1.19	$ 2.28	$ 2.29
Diluted earnings per common share (in dollars per share)	$ 1.18	$ 1.19	$ 2.28	$ 2.29

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Stock Based Compensation (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($) item shares	Jun. 30, 2021 USD ($) 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 | $	$ 9,200
Weighted-average period over which unrecognized compensation cost is expected to be recognized	3 years 4 months 17 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

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Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Reclassifications out of accumulated other comprehensive income
Losses on investment securities available-for-sale	$ 0	$ (680)	$ 0	$ (680)
Income tax expense	(8,804)	(9,425)	(16,597)	(18,062)
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	0	(680)	0	(680)
Income before income taxes	0	(680)	0	(680)
Income tax expense	0	164	0	164
Net income	$ 0	$ (516)	$ 0	$ (516)

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Income Tax Disclosure [Abstract]
Unrecognized tax benefits that would affect the effective tax rate if recognized	$ 0		$ 0		$ 0
Interest and penalties net of tax recognized	0	$ 0	0	$ 0
Accrued interest and penalties	$ 0		$ 0		$ 0

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Fair Value Measurements (Details) - USD ($) $ in Thousands		Jun. 30, 2022	Dec. 31, 2021
Fair value measurements
Fair value carrying amount		$ 5,525	$ 13,284
Mortgages held for sale reported at fair value
Fair value measurements
Fair value carrying amount		5,525	13,284
Aggregate unpaid principal		5,174	12,456
Excess of fair value carrying amount over (under) unpaid principal	[1]	$ 351	$ 828

[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	Jun. 30, 2022	Dec. 31, 2021
Fair value measurements
Investment securities available-for-sale	$ 1,836,389	$ 1,863,041
Assets:
Mortgages held for sale	5,525	13,284
U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	1,057,833	1,084,006
U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	114,796	95,701
Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	646,867	659,727
Corporate debt securities
Fair value measurements
Investment securities available-for-sale	16,309	23,009
Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	584	598
Total
Fair value measurements
Investment securities available-for-sale	1,836,389	1,863,041
Assets:
Mortgages held for sale	5,525	13,284
Level 1
Fair value measurements
Investment securities available-for-sale	583,615	561,950
Assets:
Mortgages held for sale	0	0
Level 2
Fair value measurements
Investment securities available-for-sale	1,248,259	1,299,242
Assets:
Mortgages held for sale	5,525	13,284
Level 3
Fair value measurements
Investment securities available-for-sale	4,515	1,849
Assets:
Mortgages held for sale	0	0
Recurring basis | Total
Fair value measurements
Investment securities available-for-sale	1,836,389	1,863,041
Assets:
Mortgages held for sale	5,525	13,284
Total	1,855,346	1,897,060
Liabilities:
Total	13,686	21,172
Recurring basis | Total | Interest rate swap contracts
Assets:
Accrued income and other assets	13,432	20,735
Liabilities:
Accrued expenses and other liabilities	13,686	21,172
Recurring basis | Total | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	1,057,833	1,084,006
Recurring basis | Total | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	114,796	95,701
Recurring basis | Total | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	646,867	659,727
Recurring basis | Total | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	16,309	23,009
Recurring basis | Total | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	584	598
Recurring basis | Level 1
Fair value measurements
Investment securities available-for-sale	583,615	561,950
Assets:
Mortgages held for sale	0	0
Total	583,615	561,950
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	583,615	561,950
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	1,248,259	1,299,242
Assets:
Mortgages held for sale	5,525	13,284
Total	1,267,216	1,333,261
Liabilities:
Total	13,686	21,172
Recurring basis | Level 2 | Interest rate swap contracts
Assets:
Accrued income and other assets	13,432	20,735
Liabilities:
Accrued expenses and other liabilities	13,686	21,172
Recurring basis | Level 2 | U.S. Treasury and Federal agencies securities
Fair value measurements
Investment securities available-for-sale	474,218	522,056
Recurring basis | Level 2 | U.S. States and political subdivisions securities
Fair value measurements
Investment securities available-for-sale	110,281	93,852
Recurring basis | Level 2 | Mortgage-backed securities - Federal agencies
Fair value measurements
Investment securities available-for-sale	646,867	659,727
Recurring basis | Level 2 | Corporate debt securities
Fair value measurements
Investment securities available-for-sale	16,309	23,009
Recurring basis | Level 2 | Foreign government and other securities
Fair value measurements
Investment securities available-for-sale	584	598
Recurring basis | Level 3
Fair value measurements
Investment securities available-for-sale	4,515	1,849
Assets:
Mortgages held for sale	0	0
Total	4,515	1,849
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	4,515	1,849
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		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2021
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	4,529	$ 1,907
Total gains or losses (realized/unrealized): included in earnings	0	0
Total gains or losses (realized/unrealized): included in other comprehensive income (loss)	(14)	33
Purchases	0	0
Issuances	0	0
Sales	0	0
Settlements	0	0
Maturities	0	(19)
Transfers into Level 3	0	0
Transfers out of Level 3	0	0
Balance at the end of the period	$ 4,515	$ 1,921	$ 1,921

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Fair Value Measurements (Details 4) $ in Thousands	Jun. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Valuation Methodology
Investment securities, available-for-sale	$ 1,836,389	$ 1,863,041
Level 3
Valuation Methodology
Investment securities, available-for-sale	4,515	1,849
Recurring | Level 3
Valuation Methodology
Investment securities, available-for-sale	4,515	1,849
Recurring | Level 3 | Discounted cash flows | Direct placement municipal securities
Valuation Methodology
Investment securities, available-for-sale	$ 4,515	$ 1,849
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)	0.0009	0.0004
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)	0.0436	0.0231
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)	0.0288	0.0158
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
	Jun. 30, 2022	Dec. 31, 2021
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	861	$ 571
Assets measured at fair value	5,406	6,103
Total | Mortgage servicing rights
Fair value measurements
Accrued income and other assets	4,443	4,671
Total | Repossessions
Fair value measurements
Accrued income and other assets	102	861
Level 3
Fair value measurements
Impaired loans - collateral based	861	571
Assets measured at fair value	5,406	6,103
Level 3 | Mortgage servicing rights
Fair value measurements
Accrued income and other assets	4,443	4,671
Level 3 | Repossessions
Fair value measurements
Accrued income and other assets	$ 102	$ 861

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Fair Value Measurements (Details 6) - Non-recurring $ in Thousands	Jun. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Level 3
Valuation Methodology
Assets measured at fair value	$ 5,406	$ 6,103
Carrying Value | Level 3 | Collateral based measurements | Impaired loans
Valuation Methodology
Assets measured at fair value	861	571
Carrying Value | Level 3 | Discounted cash flows | Mortgage servicing rights
Valuation Methodology
Assets measured at fair value	4,443	4,671
Carrying Value | Level 3 | Appraisals trade publications and auction values | Repossessions
Valuation Methodology
Assets measured at fair value	102	861
Fair Value
Valuation Methodology
Assets measured at fair value	5,406	6,103
Fair Value | Level 3 | Collateral based measurements | Impaired loans
Valuation Methodology
Assets measured at fair value	861	571
Fair Value | Level 3 | Discounted cash flows | Mortgage servicing rights
Valuation Methodology
Assets measured at fair value	6,784	5,640
Fair Value | Level 3 | Appraisals trade publications and auction values | Repossessions
Valuation Methodology
Assets measured at fair value	$ 106	$ 942
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)	0.20	0.20
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)	0.90	0.90
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)	0.362	0.431
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Minimum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.085	0.118
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Maximum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.138	0.185
Constant prepayment rate (CPR) | Level 3 | Discounted cash flows | Mortgage servicing rights | Weighted Average
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.124	0.164
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Minimum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.109	0.086
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Maximum
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.137	0.115
Discount rate | Level 3 | Discounted cash flows | Mortgage servicing rights | Weighted Average
Unobservable Inputs
Mortgage servicing rights unobservable inputs (as a percent)	0.110	0.088
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Minimum
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0	0
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Maximum
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0.13	0.21
Discount for lack of marketability | Level 3 | Appraisals trade publications and auction values | Repossessions | Weighted Average
Unobservable Inputs
Repossessions unobservable inputs (as a percent)	0.04	0.02

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Fair Value Measurements (Details 7) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Assets:
Cash and due from banks	$ 116,915	$ 54,420
Federal funds sold and interest bearing deposits with other banks	164,848	470,767
Investment securities available-for-sale	1,836,389	1,863,041
Other investments	25,538	27,189
Mortgages held for sale	5,525	13,284
Loans and leases, net of allowance for loan and lease losses	5,418,351	5,218,722
Liabilities:
Long-term debt and mandatorily redeemable securities	48,459	71,251
Subordinated notes	58,764	58,764
Carrying or Contract Value
Assets:
Cash and due from banks	116,915	54,420
Federal funds sold and interest bearing deposits with other banks	164,848	470,767
Investment securities available-for-sale	1,836,389	1,863,041
Other investments	25,538	27,189
Mortgages held for sale	5,525	13,284
Loans and leases, net of allowance for loan and lease losses	5,418,351	5,218,722
Mortgage servicing rights	4,443	4,671
Accrued interest receivable	18,137	17,760
Interest rate swaps	13,432	20,735
Liabilities:
Deposits	6,744,896	6,679,065
Short-term borrowings	167,839	200,027
Long-term debt and mandatorily redeemable securities	48,459	71,251
Subordinated notes	58,764	58,764
Accrued interest payable	2,294	1,885
Interest rate swaps	13,686	21,172
Off-balance-sheet instruments	0	0
Fair Value
Assets:
Cash and due from banks	116,915	54,420
Federal funds sold and interest bearing deposits with other banks	164,848	470,767
Investment securities available-for-sale	1,836,389	1,863,041
Other investments	25,538	27,189
Mortgages held for sale	5,525	13,284
Loans and leases, net of allowance for loan and lease losses	5,369,789	5,269,551
Mortgage servicing rights	6,784	5,640
Accrued interest receivable	18,137	17,760
Interest rate swaps	13,432	20,735
Liabilities:
Deposits	6,731,541	6,680,163
Short-term borrowings	167,839	200,027
Long-term debt and mandatorily redeemable securities	47,369	71,305
Subordinated notes	50,120	58,553
Accrued interest payable	2,294	1,885
Interest rate swaps	13,686	21,172
Off-balance-sheet instruments	103	364
Level 1
Assets:
Cash and due from banks	116,915	54,420
Federal funds sold and interest bearing deposits with other banks	164,848	470,767
Investment securities available-for-sale	583,615	561,950
Other investments	25,538	27,189
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	5,959,947	5,794,928
Short-term borrowings	160,852	192,801
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	1,248,259	1,299,242
Other investments	0	0
Mortgages held for sale	5,525	13,284
Loans and leases, net of allowance for loan and lease losses	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	18,137	17,760
Interest rate swaps	13,432	20,735
Liabilities:
Deposits	771,594	885,235
Short-term borrowings	6,987	7,226
Long-term debt and mandatorily redeemable securities	47,369	71,305
Subordinated notes	50,120	58,553
Accrued interest payable	2,294	1,885
Interest rate swaps	13,686	21,172
Off-balance-sheet instruments	103	364
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	4,515	1,849
Other investments	0	0
Mortgages held for sale	0	0
Loans and leases, net of allowance for loan and lease losses	5,369,789	5,269,551
Mortgage servicing rights	6,784	5,640
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