Washington, D.C. 20549
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o | Fee paid previously with preliminary materials. |
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o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of filing. |
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(2)Form, Schedule or Registration Statement No.:
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Notice of Annual Meeting of Shareholders and Proxy Statement
To the Shareholders of 1st Source Corporation:
The Annual Meeting of Shareholders of 1st Source Corporation will be held virtually via live webcast at the 1st Source Center, 4th Floor Boardroom, 100 North Michigan Street, South Bend, Indiana 46601,www.virtualshareholdermeeting.com/SRCE2024, on April 19, 2018,25, 2024, at 10:8:00 a.m. local time,Eastern Daylight Time, for the purpose of considering and voting upon the following matters:
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1. | Election of Directors. Election of four directors for terms expiring in 2021.1.Election of Directors. Election of four directors for terms expiring in 2027. (Pages 3-5) 2. Ratification of the appointment of FORVIS, LLP as 1st Source Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2024. (Page 43) 3.Other Business. Such other matters as may properly come before the meeting or any adjournment thereof. |
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2. | Ratification of the appointment of BKD LLP as 1st Source Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2018. |
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3. | Other Business. Such other matters as may properly come before the meeting or any adjournment thereof.
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Shareholders of record at the close of business on February 16, 20182024, are entitled to vote at the meeting.
By Order of the Board of Directors,
John B. Griffith
Secretary
South Bend, Indiana
March 9, 201815, 2024
Please date and sign the proxy and return it promptly. If you do attend the meeting,
you may, nevertheless, vote in person and revoke a previously submitted proxy.
1st SOURCE CORPORATION
P.O. Box 1602 ● South Bend, Indiana 46634
PROXY STATEMENT
This Proxy Statement is furnished in connection with the 20182024 Annual Meeting of Shareholders of 1st Source Corporation (“1st Source” or “the Company”).
When and where is the Annual Meeting? April 19, 2018,25, 2024, at 10:8:00 a.m. localEastern Daylight Time (“EDT”). The 2024 Annual Meeting will be held virtually via live webcast at www.virtualshareholdermeeting.com/SRCE2024. To participate in the virtual Annual Meeting, you must log-in using the 16-digit control number included on your notice of Internet availability of the proxy materials, on your proxy card, or on the instructions that accompanied your proxy materials. You may begin to log into the meeting platform beginning at 7:30 a.m. EDT on April 25, 2024. Shareholders should give themselves plenty of time atto log in and ensure that they can hear streaming audio prior to the start of the meeting. If you experience any technical difficulties during the meeting, a toll-free number will be available on our virtual shareholder meeting site for assistance.
Shareholders will also be able to vote and submit questions during the virtual meeting using the directions on the meeting website that day. All shareholders will need their control number to vote or ask questions. Whether or not shareholders plan to attend the virtual Annual Meeting, 1st Source Center, 100 North Michigan Street, 4th Floor Boardroom, South Bend, Indiana 46601. Entranceurges all shareholders to vote in advance of the meeting by one of the methods described in these proxy materials for the Annual Meeting is limited to shareholders only. If your shares are held in “street name” (that is, through a broker), you must bring a recent copy of a brokerage statement reflecting your stock ownership as of February 16, 2018, the record date.Meeting.
Who may vote at the meeting? Shareholders of record at the close of business on February 16, 2018,2024, will be eligible to vote at the Annual Meeting. If shares are held in “street name”,name,” shareholders must obtain a legal proxy from their broker to vote in person.
Why did I receive a notice regarding the Internet availability of proxy materials instead of paper copies of the proxy materials? We are using the SEC notice and access rule that allows us to furnish our proxy materials over the Internet to our shareholders instead of mailing paper copies of those materials to each shareholder. As a result, beginning on or about March 15, 2024, we sent our shareholders (other than those who had previously requested to receive only printed copies of our proxy materials) by mail or email a notice containing instructions on how to access our proxy materials over the Internet and vote online. This notice is not a proxy card and cannot be used to vote your shares. If you received a notice this year, you will not receive paper copies of the proxy materials unless you request the materials by following the instructions on the notice or on the website referred to in the notice.
If I am the record holder of my shares, how do I vote? You may vote by:
•Internet: Go to www.proxyvote.com to transmit your voting instructions.
•Telephone: Use any touch-tone telephone to call 1-800-690-6903 and follow the instructions to transmit your voting instructions.
•Mail: Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided.
•Voting in person at the meeting.
Although you may vote by mail, we ask that you vote instead by Internet or telephone, which saves us postage and processing costs.
If you are a beneficial owner and a broker or other fiduciary is the record holder, then you received access to these proxy materials from the record holder. The record holder should have given you instructions for directing how the record holder should vote your shares. It will then be the record holder’s responsibility to vote your shares for you in the manner you direct.
How many shares are outstanding? There were 26,889,57825,294,197 shares of our common stock outstanding on the record date. The voting securities of 1st Source consist only of Common Stock. Each shareholder is entitled to one vote for each share. Cumulative voting is not authorized.
What is the required vote? Director nominees will be elected upon receipt of a majorityplurality of the votes cast in the election at the Annual Meeting. Ratificationcast. The ratification of the appointment of the independent auditors will be approved if the votes cast in favor exceed those cast against. The Company knows of no other proposals expected to be presented at the meeting other than the two proposals described herein. Additional proposals, if any, would be approved if votes in favor of such proposal exceed those cast against.
How are abstentions and “non-votes” counted? Abstentions on properly executed proxy cards and shares not voted by brokers and other entities holding shares on behalf of beneficial owners (“broker non-votes”) will be counted for determining a quorum at the meeting. However, abstentions and broker non-votes will not affect the voting results on those matters for which the shareholder has abstained or the broker has not voted.
Who is soliciting proxies? This solicitation is being made by the Board of Directors of 1st Source. The cost of solicitation of proxies will be borne by 1st Source.
How will proxies be solicited? In addition to the use of mails, proxies may be solicited through personal interview, electronic media, telephone, and facsimile by directors, officers and regular employees of 1st Source without additional remuneration therefor.
How may I revoke my proxy? Shareholders may revoke their proxies at any time prior to the meeting by giving written notice to John B. Griffith, Secretary, 1st Source Corporation, Post Office Box 1602, South Bend, Indiana 46634, or by voting in person at the meeting. If you hold your shares in the name of your broker or other fiduciary and desire to change your instructions on how to vote your shares, you will need to contact that party.
When were these materials provided? The approximate date for making available this Proxy Statement and the form of proxy to shareholders is March 9, 2018.15, 2024.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Beneficial owners of more than 5% of the Common Stock outstanding at February 16, 2018:2024:
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| | Voting Authority | | Investment Authority | | Total Beneficial Ownership |
| Name and Address | Sole | Shared | None | | Sole | Shared | None | | Amount | % of Class |
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1st Source Bank (1)(2) 100 North Michigan Street
South Bend, IN 46601 | 694,117 |
| 5,303,113 |
| 4,080,438 |
| | 1,305,722 |
| 5,307,476 |
| 3,464,470 |
| | 6,613,198 |
| 24.59 | % |
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Christopher J. Murphy III (2)(3) Carmen Murphy(2)(4)
100 North Michigan Street
South Bend, IN 46601 | 1,634,495 |
| — |
| — |
| | 1,634,495 |
| 75,129 |
| — |
| | 4,878,509 |
| 18.14 | % |
| 699,022 |
| — |
| — |
| | 699,022 |
| 2,544,492 |
| | | 4,878,509 |
| 18.14 | % |
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O.C. Carmichael III (2)(5) 3212 W End Avenue Suite 500 Nashville, TN 37203 | 63,372 |
| — |
| — |
| | 63,372 |
| 1,448,118 |
| — |
| | 1,511,490 |
| 5.62 | % |
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Stanley C. Carmichael (2)(6) 1510 71st St. Fennville, MI 49408 | 3,915 |
| — |
| — |
| | 3,915 |
| 678,289 |
| — |
| | 682,204 |
| 2.54 | % |
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Ernestine C. Nickle (2)(6) 560 Sea Oak Drive Vero Beach, FL 32963 | 94,319 |
| — |
| — |
| | 94,319 |
| 708,289 |
| — |
| | 802,608 |
| 2.98 | % |
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Dimensional Fund Advisors LP (7)
Palisades West, Building One,
6300 Bee Cave Road
Austin, TX 78746 | 2,109,014 |
| — |
| — |
| | 2,177,897 |
| — |
| — |
| | 2,177,897 |
| 8.10 | % |
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| Voting Authority | | Investment Authority | | Total Beneficial Ownership |
| Name and Address | Sole | Shared | None | | Sole | Shared | None | | Amount | % of Class |
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1st Source Bank (1)(2) 100 North Michigan Street South Bend, IN 46601 | 312,375 | | 2,501,351 | | 6,077,576 | | | — | | 2,501,714 | | 6,392,647 | | | 2,501,714 | | 9.89 | % |
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Christopher J. Murphy III (2)(3) Carmen C. Murphy (2)(4) 100 North Michigan Street South Bend, IN 46601 | 1,176,029 | | — | | — | | | 1,176,029 | | 56,806 | | — | | | 4,351,447 | | 17.20 | % |
| 1,357,038 | | — | | — | | | 1,357,038 | | 1,818,380 | | | | 4,351,447 | | 17.20 | % |
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O.C. Carmichael III (2)(5)
3212 W End Avenue
Suite 500
Nashville, TN 37203 | 653,900 | | — | | — | | | 653,900 | | 739,777 | | — | | | 1,393,677 | | 5.51 | % |
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Dimensional Fund Advisors LP (6) 6300 Bee Cave Road, Building One Austin, TX, 78746 | 1,550,651 | | — | | — | | | 1,579,147 | | — | | — | | | 1,579,147 | | 6.24 | % |
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BlackRock, Inc. (7)
50 Hudson Yards
New York, NY 10001 | 1,451,892 | | — | | — | | | 1,494,425 | | — | | — | | | 1,494,425 | | 5.91 | % |
(1)1st Source Bank (“1st Source Bank” or “the Bank”), 1st Source’s subsidiary bank, owns no securities for its own account. These shares are registered in 1st Source Bank’s name or its nominee as fiduciary or agent. The amounts shown as “Shared” in the above table include 5,303,1132,501,351 shares held in trusts (referred to herein as the “Morris Trusts”) for the benefit of the children of Ernestine M. Raclin, her children, her grandchildren, her great-grand childrengreat-grandchildren and their spouses, of which 1st Source Bank is the trustee, as further described in Note 2 below. Ms. Raclin, who is now deceased, was the retired Chairman of the Board of 1st Source, the mother of Carmen C. Murphy and the mother-in-law of Christopher J. Murphy III, Ms. Murphy’s husband.
The amounts shown as “None” in the above table include 2,229,2352,533,935 shares held by 1st Source Bank as trustee in various trusts or held by 1st Source Bank as agent for shares held by other entities which are included in the totals of Mr. Murphy and Ms. Murphy as described further in Notes 3 and 4 below. 1st Source Bank has no voting or dispositive power over such shares and accordingly disclaims beneficial ownership. These amounts also include 1,116,847728,988 shares held by participants in the 1st Source Corporation Employee Stock Ownership and Profit Sharing Trust for which the Bank has no voting or investment authority except to the extent imputed by ERISA. The remaining amounts shown as “None” include shares held by 1st Source Bank as trustee in various trusts or held by 1st Source Bank as agent for shares held by other entities. 1st Source Bank has no voting or dispositive power over such shares and accordingly disclaims beneficial ownership.
(2)1st Source Bank is the trustee of all the Morris Trusts (described in Note 1) with voting power and shared power of disposition over shares in the trusts. Ms. Carmen C. Murphy, Mr. O.C. Carmichael III, Ms. Ernestine C. Nickle and Mr. Stanley ClarkC. Carmichael (each a “family designated representative”) serve as representatives to certain trusts for the benefit of their respective family lines. Beneficial ownership of certain shares previously reported for Ms. Murphy, Mr. O.C. Carmichael, Ms. Nickle, and Mr. S. C. Carmichael have been transferred to each of them as a result of Mrs. Raclin’s death. 1st Source Bank no longer has voting power or shared power of disposition over these shares. The shares in each group of respective trusts over which each family designated representative now shares dispositive power are as follows:
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| Ms. Murphy | 1,761,574 | |
Ms. Murphy | 2,469,863 |
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| Mr. O.C. Carmichael III | 1,448,066739,777 | |
| Ms. Nickle | 708,289— | |
| Mr. S.C. Carmichael | 676,895— | |
| Total | 5,303,1132,501,351 | |
The terms of the respective trusts allow the respective family designated representative, as applicable, to direct the trustee to (or appoint a special trustee to) diversify the 1st Source Corporation common stock holdings in the Morris Trusts. The family designated representatives may also (i) direct the trustee to engage an independent proxy service to provide voting recommendations to the trustee, in which case the trustee has agreed to vote the 1st Source Corporation common stock held by the applicable trusts in accordance with the recommendations of such independent proxy service, unless to do so would be contrary to applicable Securities and Exchange Commission (“SEC”) legal and regulatory guidelines and requirements or violate the trustee’s fiduciary obligations, or, (ii) appoint a special trustee, which special trustee would have the power to vote the 1st Source Corporation common stock held by the applicable Morris Trusts. The inclusion of the shares held in the Morris Trusts does not constitute an admission of beneficial ownership by the designated family line representatives for purposes of Section 13(d) or Section 13(g) of the Exchange Act, or for any other purpose.
(3)Mr. Murphy has sole voting and dispositive power over (i) 513,712486,033 shares held in a revocable trust;trust or held directly by Mr. Murphy; (ii) 6,352 shares held by Mr. Murphy in an IRA; (iii) 125,893 shares held in a corporation for which Mr. Murphy serves as president; (iv) 53,51860,862 shares held by Mr. Murphy in the Company’s 401(k) Plan; and (v) 935,020496,889 shares held in threetwo limited partnerships for which Mr. Murphy serves as the general partner. Mr. Murphy and Carmen C. Murphy also share voting and dispositive power over 75,12956,806 shares held in a family foundation. In addition to the shares set forth in the above table, 699,0221,357,038 shares for which Ms. Murphy has sole voting and dispositive power and 2,469,8631,761,574 shares held in the Morris Trusts as to which Ms. Murphy shares dispositive power as described above may be attributed to Mr. Murphy as her spouse. Mr. Murphy disclaims beneficial ownership of such shares, and the inclusion of such shares does not constitute an admission of beneficial ownership by Mr. Murphy for purposes of Section 13(d) or Section 13(g) of the Exchange Act, or for any other purpose.
(4)Ms. Murphy has sole voting and dispositive power over (i) 114,422772,438 shares held in a revocable trust; and (ii) 584,600 shares held in a limited liability company for which Ms. Murphy serves as the president and voting member. Ms. Murphy also shares dispositive power over 2,469,8631,761,574 shares held in the Morris Trusts and Christopher J. Murphy III and Ms. Murphy share voting and dispositive power over 75,12956,806 shares held in a family foundation. In addition to the shares set forth in the above table, 1,634,4951,176,029 shares for which Mr. Murphy has sole voting and dispositive power may be attributed to Ms. Murphy as his spouse. Ms. Murphy disclaims beneficial ownership of such shares, and the inclusion of such shares does not constitute an admission of beneficial ownership by Ms. Murphy for purposes of Section 13(d) or Section 13(g) of the Exchange Act, or for any other purpose.
(5)As reported in Form 13G filed February 29, 2016.
(6)Information for Ernestine C. Nickle, Andrew Nickle, and Stanley C. Carmichael is as reported in their grouphis most recent Form 13G filed January 22, 2018. Shares reported27, 2016, updated to reflect changes resulting from trust distributions in 2023 following Ms. Raclin’s passing of which the bank is aware as owned by Ms. Nickle include 18,406 shares held directly by Andrew Nickle, Ms. Nickle’s spouse.trustee.
(7)(6)As reported in Form 13G filed February 9, 2018,2024, Dimensional Fund Advisors LP, in its role as investment advisor for various clients, had sole dispositive and/or voting power of the shares.
(7)As reported in Form 13G filed January 29, 2024, BlackRock, Inc., in its role as a parent holding company, has sole dispositive and/or voting power of the shares.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Board of Directors knows of no matters to come before the Annual Meeting other than the matters referred to in this Proxy Statement. However, if any other matters should properly come before the meeting, the persons named in the enclosed proxy intend to vote in accordance with their best judgment. No director, nominee for election as director, or executive officer of 1st Source has any special interest in any matter to be voted upon other than election to the Board of Directors. Directors have indicated that they intend to vote for all directors as listed in Proposal Number 1 and for Proposal Number 2.
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three (3) groups of directors whose terms expire at different times. At the 20182024 Annual Meeting, four directors are to be elected for terms expiring in 20212027 or until the qualification and election of a successor. Director nomineesIn accordance with the Indiana Business Corporation Law, directors will be elected upon receivingby a majorityplurality of the votes cast, in the election of directors. A majority of votes castwhich means that the director nominees who receive the highest number of votes cast “for” their election are elected. Instructions to withhold authority will result in a nominee receiving fewer votes but will not count as votes “against” the election of a director must exceed the number of votes cast “against” that director.nominee. Abstentions and shares not voted by brokers are not considered “votes cast”.cast.”
Our bylaws provide that a nominee for reelection who fails to receive a majority of the votes cast shall tender his or her resignation for the Board’s consideration. The Board of Directors, in its sole discretion, will then decide whether or not it is appropriate to accept the resignation.
The following information is submitted for each nominee as well as each director and each non-director executive officer continuing in office. Allison N. Egidi and Craig A. Kapson are not standing for re-election to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF EACH NOMINEE.
AllThe four director nominees named herein are incumbent directors and the Board has determined that the continued service of the incumbent nominees and of the remaining incumbent directors whose terms expire in later years is in the best interests of the Company. The Board has also determined that all directors have demonstrated the ability and willingness to participate in and contribute to the Board and its committee activities. Each is actively involved in civic, community and business affairs. Such involvement is noted below with a representative sample of the boards or organizations with which they are involved.
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| DIRECTOR NOMINEES | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Principal Occupation(1) | Year in Which Directorship Assumed | Common Stock | % of Class |
| | | | | | | |
| Terms Expiring in April, 2021 |
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Melody Birmingham-Byrd
| 46 | President, Duke Energy Indiana (electric utility); prior thereto, Senior Vice President, Midwest Delivery Operations, Duke Energy (electric distribution)
| — | 194 | « |
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| ● | 23 years of leadership and managerial experience in the electric and automotive manufacturing industries. Ms. Byrd contributes long-term perspective, current knowledge and extensive contacts in the state in which the Company is located. |
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| ● | Expertise in managing construction, maintenance, operations, engineering, resource and project management as well as managing regulatory affairs, government relations and community affairs. |
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| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
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| ● | Currently serves on the boards of directors of the Indiana Electric Association, the Indiana Chamber of Commerce, Special Olympics Indiana, Central Indiana Corporate Partnership, American Association of Blacks in Energy and United Way of Indiana. Also serves on the Financial Research Institute advisory board, Robert J. Trulaske, Sr. College of Business, University of Missouri. |
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| ● | B.S. in Organizational Leadership and Supervision from Purdue University, an M.B.A. from Strayer University, an Honorary Doctorate in Humane Letters from Saint Mary of the Woods College and successful completion of the Advanced Management Program at Harvard University. |
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| Lisa W. Hershman | 54 | pending, Deputy Chief Management Officer, Department of Defense; currently Interim CEO, Scrum Alliance (global training and certification organization for Agile management practices) and Founder and CEO, the DeNovo Group (consulting, training and research) | — | 200 | « |
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| ● | 31 years of leadership and management experience in consulting, turnarounds, business process management, and operational management and engineering. Ms. Hershman contributes long-term perspective, current knowledge and extensive contacts in the state in which the Company is located and lives in a city in which the Company has banking centers. |
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| ● | Expertise in process management innovation and redesign, managing mergers and acquisitions, and leadership training and education with Hammer and Company, Avnet, Inc., Brightpoint, Inc., ICON Transportation, Wilkes Innovative Technologies and other firms. |
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| ● | Qualifies as an audit committee financial expert under the SEC guidelines. |
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| ● | Currently serves as Secretary (Commissioner), Indiana Higher Education Commission. Previously served as Chairwoman, Avnet’s Executive Women’s Forum; National Secretary, Business and Professional Women’s Foundation (BPW USA); Commissioner, Indiana Commission for Women; and board member for Center of Interactive Learning and Collaboration (CICL); Entrepreneurship Center, Miller College of Business, Ball State University; Consortium for Advanced Management International (CAM-I), and Richard G. Lugar Excellence in Public Service Series. |
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| ● | B.S. in Industrial Distribution (Engineering and Management) from Clarkson University, Executive Certificate in Innovation, IMD/MIT and Executive Certificate in Finance, Cornell University. |
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| DIRECTOR NOMINEES |
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| Terms Expiring in April, 2024 (April, 2027 if reelected) |
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| | Name: Melody Birmingham
Age: 52
Principal Occupation(1): Executive Vice President and Group President, NiSource Utilities (natural gas and electric distribution); prior thereto, Executive Vice President and Chief Innovation Officer, NiSource Inc.; Senior Vice President and Chief Administrative Officer, Duke Energy; and Senior Vice President and Chief Procurement Officer, Duke Energy.
Year In Which Directorship Assumed: 2018
Beneficial Ownership of Equity Securities(2) Common Stock: 7,484 % of Class: « |
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| ● | Over 30 years of management and executive experience in the electric, natural gas and automotive manufacturing industries. As EVP NiSource Inc., and Group President, NiSource Utilities. Ms. Birmingham leads NiSource’s electric generation fleet and is driving the long-term sustainability of its gas segment. Additionally, Ms. Birmingham leads the profit and loss, strategy, planning, operations, maintenance, emergency response, regulatory, legislative and public affairs areas for the six NiSource Operating companies. |
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| ● | Expertise in managing field and plant operations, customer experience, design engineering, work management, supply chain operations, project management, information technology, data and analytics, enterprise security, real estate, facilities as well as managing rates and regulatory affairs, legislative affairs and public relations. |
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| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
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| ● | Member of the Executive Leadership Council, an organization committed to increasing the number of global Black executives. Serves on the board of directors for the United Way of Central Ohio and also on the board of directors for Columbus Symphony and Orchestra. Ms. Birmingham had previously served on the board of trustees for Marian University, and also the board of directors for American Association of Blacks in Energy, Indiana Electric Association, Indiana Chamber of Commerce, Special Olympics Indiana, Central Indiana Corporate Partnership and United Way of Indiana. |
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| ● | B.S. in Organizational Leadership and Supervision from Purdue University, an M.B.A. from Strayer University, an Honorary Doctorate in Humane Letters from Saint Mary of the Woods College and successful completion of the Advanced Management Program at Harvard University. |
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| | Name: Tracy D. Graham
Age: 50
Principal Occupation(1): Managing Principal of Graham-Allen Partners, LLC, a private investment company focused on building enterprise data and technology businesses, and Chief Executive Officer of Aunalytics, Inc, (a provider of enterprise cloud, analytics, and other technology related services); Director and Chairman of the Board of Directors, LCI Industries
Year In Which Directorship Assumed: 2021
Beneficial Ownership of Equity Securities(2) Common Stock: 10,548 % of Class: « |
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| ● | 28 years of experience in the information technology industry as entrepreneur and executive. Mr. Graham is the Founder and Managing Principal of Graham-Allen Partners, a private equity firm that specializes in investing in, and building, technology and technology-enabled companies. He leverages his long history of successfully acquiring and operating businesses to provide strategic and operational support to a growing portfolio of small and middle-market companies. He is currently focused on leveraging analytics and artificial intelligence to help companies evolve via digital transformation. Prior to Graham-Allen Partners, Mr. Graham co-founded GramTel, Inc. (a managed data center provider). Prior to founding GramTel, he founded Internet Services Management Group, where he led the company to become the second largest privately held Internet service provider in the United States (acquiring and integrating 23 companies). Mr. Graham contributes long-term perspective, current knowledge and extensive contacts in the state in which the Company is located. |
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| ● | Unique expertise in enterprise technology, cyber security, cloud, data center and Internet services and data analytics and artificial intelligence. |
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| ● | Member of 1st Source Bank Board of Directors since 2012. Member of 1st Source Corporation Board of Directors from 2012 to 2014. |
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| ● | Currently serves on the boards of Lippert, the Horton Group, Beacon Health System, Davenport University, and the Regional Development Authority of Northern Indiana’s Diversity and Inclusion Committee and as a member of the Board of Trustees of the University of Notre Dame. |
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| ● | Bachelor of Arts in Sociology from the University of Notre Dame and attended the Indiana University Graduate School of Education. |
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| | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Principal Occupation(1) | Year in Which Directorship Assumed | Common Stock | % of Class |
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Terms Expiring in April, 2018 (April, 2021 if reelected)
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| John T. Phair | 68 | President, Holladay Properties (real estate development) | 2004 | 19,654 | «
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| ● | 46 years of business experience, including 39 years in the real estate industry and seven years in the mortgage-banking field. Mr. Phair has been President of Holladay Properties for 20 years. Mr. Phair also is the managing partner of approximately 75 commercial partnerships and 13 joint ventures. As head of a locally based business, Mr. Phair contributes long-term perspective, current knowledge and extensive contacts in communities in which the Company does business. |
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| ● | Expertise in real estate development as well as general knowledge of the construction, hospitality, finance, and real estate industries. |
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| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
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| ● | Serves or served on the boards of the Boys & Girls Club of St. Joseph County, Family & Children’s Center, WNIT Public Television, the South Bend Civic Theatre, the Alliance of Indiana (IU Kelley School of Business), Project Future and the Villages of Indiana. |
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| ● | B.A. in Political Science from Marquette University. |
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| Mark D. Schwabero | 65 | Chairman, Chief Executive Officer and Director, Brunswick Corporation (recreation products); prior thereto, President and Chief Operating Officer, Brunswick Corporation and President, Mercury Marine (marine propulsion systems) | 2004 | 10,443 | « |
| | | | | | | |
| ● | Nearly 42 years of total experience in the automotive and commercial vehicle/manufacturing industries, the last 32 as a senior executive. For the last 14 years Mr. Schwabero has been with Brunswick Corporation. He became Chairman and Chief Executive Officer in February 2016 after having served as President and Chief Operating Officer of Brunswick Corporation and President of Mercury Marine. |
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| ● | Detailed knowledge of these industries as well as long-term perspective in manufacturing and general management expertise. Public company experience. |
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| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Former director of National Exchange Bank & Trust. |
| | | | | | | |
| ● | Serves on the Advisory Committee of The Ohio State University Center for Automotive Research. |
| | | | | | | |
| ● | Past Chairman of the National Marine Manufacturers Association. |
| | | | | | | |
| ● | B.S. and M.S. in Industrial and Systems Engineering from The Ohio State University. |
| | | | | | | |
OTHER INCUMBENT DIRECTORS
|
| | | | | | | |
| Terms Expiring in April, 2019 |
| | | | | | | |
| Daniel B. Fitzpatrick | 60 | Chairman and Chief Executive Officer, Quality Dining, Inc. (quick service and casual dining restaurant operator) | 1995 | 32,519 | « |
| | | | | | | |
| ● | 36 years of business experience as the founder, Chairman and Chief Executive Officer of Quality Dining, Inc. As head of a locally headquartered, multi-concept restaurant company with operations located in seven states, Mr. Fitzpatrick contributes long-term perspective, current knowledge, and extensive contacts in communities in which the Company does business. |
| | | | | | | |
| ● | Expertise in the restaurant industry and general knowledge of food services retailing. Previous public company experience. |
| | | | | | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Serves as Past Chairman of the Holy Cross College Board of Trustees and board member for Women’s Care Center Foundation, both in South Bend. Mr. Fitzpatrick has served with nearly two dozen other community organizations. |
| | | | | | | |
| ● | B.A. in Business Administration from the University of Toledo. |
| | | | | | | | | | | |
| | | |
| | Name: Mark D. Schwabero
Age: 71
Principal Occupation(1): Retired Chairman, Chief Executive Officer and Director, Brunswick Corporation (2018); Director, Methode Electronics, Inc.
Year In Which Directorship Assumed: 2004
Beneficial Ownership of Equity Securities(2) Common Stock: 24,467 % of Class: « |
| | | |
| ● | Nearly 43 years of total experience in the automotive, marine and commercial vehicle/manufacturing industries, the last 33 of which as a senior executive. Mr. Schwabero had been with Brunswick Corporation for the 15 years preceding his retirement in 2018. He became Chairman and Chief Executive Officer in February 2016 after having served as President and Chief Operating Officer of Brunswick Corporation and prior thereto as President of Mercury Marine. |
| | | |
| ● | Detailed knowledge of the transportation, recreational and marine industries as well as long-term perspective in manufacturing and general management expertise. Public company experience. |
| | | |
| ● | Named by CEO Today Magazine as one of the top 100 CEOs in America for U.S. based companies for 2018. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Former director of National Exchange Bank & Trust. |
| | | |
| ● | Serves as Lead Director. |
| | | |
| ● | Serves on the Advisory Committee of The Ohio State University Center for Automotive Research. |
| | | |
| ● | Past Chairman of the National Marine Manufacturers Association. |
| | | |
| ● | B.S. and M.S. in Industrial and Systems Engineering from The Ohio State University. |
| | | |
| | Name: Ronda Shrewsbury
Age: 58
Principal Occupation(1): President and Chief Executive Officer, RealAmerica, LLC (real estate development and property management)
Year In Which Directorship Assumed: 2021
Beneficial Ownership of Equity Securities(2) Common Stock: 7,563 % of Class: « |
| | | |
| ● | Over 32 years of experience in multifamily, commercial, land and office development serving as President of RealAmerica Companies for 29 years. As the sole owner and founder, Ms. Shrewsbury provides strategic direction and vision for four Women Business Enterprise-certified, vertically integrated companies. She holds an active Indiana Principal Brokers License and seeks opportunities to live out her passion of providing quality, supportive housing. Ms. Shrewsbury contributes long-term perspective, current knowledge and extensive contacts in the state in which the Company is located. |
| | | |
| ● | Extensive knowledge of real estate development, design, construction, and management of affordable, market-rate, commercial, senior living, and self-storage properties. Expertise in tax credit financing, historic tax credits, HUD and other financing products for new construction, adaptive reuse, historic rehab and preservation developments. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Founder of Legacy25, a non-profit organization dedicated to providing support and services for affordable housing communities. Serves as Past President of the Indiana Affordable Housing Council and Chair of the Governmental Affairs Committee. |
| | | |
| ● | Serves as Chair of the Board of the Indianapolis Zoo, on the board of the Near North Development Corporation, and other philanthropic boards. Her past service includes multiple leadership roles in the Young Presidents Organization including as Chapter Chair in Indiana and Illinois, Central U.S. Regional Board and International Forum Committee. |
| | | |
| ● | B.S. in Finance/Real Estate from Indiana University School of Business. |
|
| | | | | | |
| | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Principal Occupation(1) | Year in Which Directorship Assumed | Common Stock | % of Class |
| | | | | | | |
| Najeeb A. Khan | 64 | Chairman and Chief Executive Officer, Interlogic Outsourcing, Inc. and affiliated companies (payroll processing, tax filing and human resources administration services); and Independent Trustee, Whitestone REIT | 2011 | 12,650 | «
|
| | |
| ● | 35 years of business experience as the founder, Chairman and Chief Executive Officer of Interlogic Outsourcing, Inc., as former Chairman and Chief Executive Officer of CNA Unisource, Inc. and as former Vice President of Commercial Services for Midwest Commerce Data Corporation, a wholly owned subsidiary of NBD Midwest Commerce Bank. As head of a locally owned business currently operating in 48 states, Mr. Khan contributes long-term perspective, current knowledge and extensive contacts in several communities where many manufacturing and retail customers are located. |
| | | | | | | |
| ● | Expertise in technology, payroll, human resources, outsourcing services, venture and real estate investing, and entrepreneurial activities. Knowledge of specialized automotive markets. |
| | | | | | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Formerly served as a member of the Investment Committee of the Community Foundation of St. Joseph County and member of the Finance Committees for WNIT Public Television and Holy Cross College. |
| | | | | | | |
| ● | B.S. in Mathematics/Computer Science from Grand Valley State University. |
| | | | | | | |
Christopher J. Murphy IV(3) | 48 | Owner and Chief Executive Officer, Catharsis Productions, LLC (training programs) | 2011 | 121,837 | « |
| | | | | | | |
| ● | 18 years of business experience as co-founder, owner and Chief Executive Officer (previously Executive Director) of Catharsis Productions, LLC. |
| | | | | | | |
| ● | Contributes general business knowledge, long-term perspective and expertise in entrepreneurship, government contracting and creative marketing and development expertise. |
| | | | | | | |
| ● | Although not eligible to serve on the Audit Committee, meets the criteria to be an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Served as co-chairperson of MEN (Men Endorsing Non-Violence) Illinois state subcommittee and serves as board member for the non-profit organization Interact. Also serves as educator for the Our Whole Lives (OWL) program. |
| | | | | | | |
| ● | B.A. in Liberal Studies, Communications and Theatre and an M.B.A. from the University of Notre Dame. |
| | | | | | | |
| Terms Expiring in April, 2020 |
| | | | | | | |
| Vinod M. Khilnani | 65 | Chairman of the Board, Chair of the Governance and Organization Committee and member of the Executive and Compensation Committees, Materion Corporation; Director and Chairman of the Compensation Committee, Esco Technologies, Inc. and Director, Chairman of the Nominating and Corporate Governance Committees and member of the Audit Committee, Gibraltar Industries, Inc. Retired (2013) Executive Chairman of the Board, CTS Corporation (electronics components and accessories); prior thereto, Chairman and Chief Executive Officer, CTS Corporation | 2013 | 11,123 | « |
| | | | | | | |
| ● | 38 years of business experience, including 13 years as Executive Chairman, Chairman, President, Chief Executive Officer and Chief Financial Officer of CTS Corporation as well as 18 years in various senior executive finance and global leadership positions with Cummins, Inc. |
| | | | | | | |
| ● | Expertise in global operations as well as extensive skills in finance, accounting, mergers and acquisitions, international business and manufacturing, corporate strategy and corporate governance. Previous public company experience. Contributes long-term perspective in all of these areas. |
| | | | | | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Certified Public Accountant (inactive) and Certified Management Accountant. |
| | | | | | | |
| ● | B.A. in Business Administration from Delhi University and an M.B.A. in Finance from the University of New York at Albany. |
| | | | | | | | | | | |
| |
| OTHER INCUMBENT DIRECTORS |
| | | |
| Terms Expiring in April, 2025 |
| | | |
| | Name: John F. Affleck-Graves
Age: 72
Principal Occupation(1): Professor Emeritus, University of Notre Dame; prior thereto, Chaired Professor of Finance and Executive Vice President and Chief Financial Officer, University of Notre Dame; former director, Hi-Crush, Inc.
Year In Which Directorship Assumed: 2019
Beneficial Ownership of Equity Securities(2) Common Stock: 15,331 % of Class: « |
| | | |
| ● | Mr. Affleck-Graves served as Executive Vice President and Chief Financial Officer of the University of Notre Dame from 2004 to June 2019. Prior to that he had served as Vice President and Associate Provost for the University and served on the Notre Dame faculty from 1986 to 2000 (the final three years as Chairman of the Department of Finance and Business Economics). He spent one year at Florida State University as the Patty Hill Eminent Scholar in Finance and returned to Notre Dame in 2001. |
| | | |
| ● | Also serves as a director of Aunalytics, Inc., a provider of managed data center, data analysis, cloud and other technology related services. |
| | | |
| ● | Author of over 50 finance research articles including several in the leading finance and accounting academic journals. |
| | | |
| ● | Contributes expertise in financial analysis, statistical analysis and Economic Value Added analysis. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Former chair of the Regional Development Authority for the north central region of Indiana. |
| | | |
| ● | Bachelor’s and Master’s degrees in finance and Doctoral degree in mathematical statistics from the University of Cape Town. |
| | | |
| | Name: Daniel B. Fitzpatrick
Age: 66
Principal Occupation(1): Chairman, President and Chief Executive Officer, Quality Dining, Inc. (quick service and casual dining restaurant operator)
Year In Which Directorship Assumed: 1995
Beneficial Ownership of Equity Securities(2) Common Stock: 47,542 % of Class: « |
| | | |
| ● | 42 years of business experience as the founder, Chairman, President and Chief Executive Officer of Quality Dining, Inc. As head of a locally headquartered, multi-concept restaurant company with operations located in three states, Mr. Fitzpatrick contributes long-term perspective, current knowledge, and extensive contacts in communities in which the Company does business. |
| | | |
| ● | Expertise in the restaurant industry and general knowledge of food services retailing. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Serves as Past Chairman of the Holy Cross College Board of Trustees and is a board member for Women’s Care Center Foundation, both in South Bend. Mr. Fitzpatrick has served with nearly two dozen other community organizations. |
| | | |
| ● | B.A. in Business Administration from the University of Toledo. |
|
| | | | | | |
| | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Principal Occupation(1) | Year in Which Directorship Assumed | Common Stock | % of Class |
| | | | | | | |
| Rex Martin | 66 | Chairman and Chief Executive Officer, NIBCO, Inc. (copper and plastic plumbing parts manufacturer) | 1996 | 10,621 | «
|
| | |
| ● | 42 years of business experience with NIBCO, Inc. a family-owned business, including 32 years as Chairman and Chief Executive Officer. As head of Elkhart, Indiana-based NIBCO, Inc., Mr. Martin contributes long-term perspective, current knowledge, and extensive contacts in a community where the Company does business. |
| | |
| ● | Expertise in the copper and plastic plumbing parts manufacturing industry and general knowledge of sales, marketing, finance and technology. |
| | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | |
| ● | Serves as Founder and Director of the Rex and Alice A. Martin Foundation. Mr. Martin also is a board member of the Park Foundation of Elkhart, Indiana. |
| | |
| ● | B.A. in English from Indiana University and an M.B.A. from the Massachusetts Institute of Technology. |
| | |
Christopher J. Murphy III(4) | 71 | Chairman of the Board and Chief Executive Officer, 1st Source and 1st Source Bank | 1972 | 4,878,509 | 18.14% |
| | | | | | | |
| ● | Over 45 years of banking and business experience, including serving as a Director and/or President and Chief Executive Officer of both 1st Source Corporation or 1st Source Bank for 45 years. Mr. Murphy contributes long-term perspective, current knowledge, and extensive contacts in all communities in which the Company does business. Prior to 1st Source, Mr. Murphy worked at Citibank, and while in college, for the Office of the Comptroller of the Currency, U.S. Department of the Treasury. |
| | | | | | | |
| ● | Extensive knowledge of 1st Source and 1st Source Bank and general knowledge in the finance/banking industry, investments, insurance, venture capital, and real estate investments. |
| | | | | | | |
| ● | Serves as a director of Data Realty, LLC, representing 1st Source’s investment in this provider of managed data center, data analysis and other technology related services. |
| | | | | | | |
| ● | Serves on numerous boards including those of the Medical Education Foundation (serves as the citizen’s advisory board of Indiana University Medical School at Notre Dame), the Indiana State Chamber of Commerce, the Indiana Commission for Higher Education and the Independent Colleges of Indiana. Chairman of the Board of Regents of the Indiana Academy and also serves as a member of the Beacon Health System Audit Committee. Previously served on public company boards. |
| | | | | | | |
| ● | B.A. in Government from the University of Notre Dame, a J.D. from the University of Virginia Law School and an M.B.A. from the Harvard University School of Business. |
| | | | | | | |
| Timothy K. Ozark | 68 | Chairman and Chief Executive Officer, Aim Financial Corporation (mezzanine funding and leasing) and from 2012 to January 2017, Chairman, CFWF, Inc. (seafood processor and commercial fishing company) | 1999 | 28,399 | «
|
| | | | | | | |
| ● | 38 years of financial experience, including 26 years as founder, Chairman and Chief Executive Officer of Aim Financial Corporation, a mezzanine lender to privately held companies. Mr. Ozark also is President and CEO of TKO Finance Corporation, a lender to financial services and manufacturing companies. From 1980 to 1983, Mr. Ozark served as Executive Vice President of Great American Management Services, Inc. a wholly owned subsidiary of American Financial Corporation of Cincinnati, Ohio which specialized in equipment leasing and lending. From 1984 to 1992, Mr. Ozark served as CEO and President of Meridian Leasing Corporation, one of North America’s largest privately held leasing companies with revenues in excess of $500 million. |
| | | | | | | |
| ● | Expertise in mezzanine funding, lending-leasing and general knowledge of business, finance, and real estate investing. Contributes long-term perspective in all of these areas. |
| | | | | | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | | | | | |
| ● | Serves as lead director. |
| | | | | | | |
| ● | Serves as a a member of the Visiting Committee to the Division of Biological Sciences and the Pritzker School of Medicine for The University of Chicago and on the board of directors for a number of privately held companies. |
| | | | | | | |
| ● | B.S. in Business Administration from the University of Minnesota and an M.B.A. from St. Cloud State University. |
| | | | | | | |
| ● | Served as an officer in the United States Marine Corps from 1968-1974. |
| | | | | | | | | | | |
| | |
| | | |
| | Name: Christopher J. Murphy IV(4)
Age: 54
Principal Occupation(1): Owner and Chief Executive Officer, Catharsis Productions, LLC (training programs)
Year In Which Directorship Assumed: 2011
Beneficial Ownership of Equity Securities(2) Common Stock: 148,074 % of Class: « |
| |
| ● | 24 years of business experience as co-founder, owner and Chief Executive Officer of Catharsis Productions, LLC. |
| | | |
| ● | Contributes general business knowledge, long-term perspective and expertise in entrepreneurship, government contracting and creative marketing and development expertise. |
| | | |
| ● | Although not eligible to serve on the Audit Committee, meets the criteria to be an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Served as co-chairperson of MEN (Men Endorsing Non-Violence) Illinois state subcommittee and serves as board member for Interaction (non-profit organization.) |
| | | |
| ● | B.A. in Liberal Studies, Communications and Theatre and an M.B.A. from the University of Notre Dame. |
| | | |
| | Name: Isaac P. Torres
Age: 56
Principal Occupation(1): President and Chief Executive Officer, InterCambio Express, Inc. (Internet-based money transfer service)
Year In Which Directorship Assumed: 2022
Beneficial Ownership of Equity Securities(2) Common Stock: 5,402 % of Class: « |
| |
| ● | Over 24 years of experience in an Internet-based industry as founder, President and Chief Executive Officer of InterCambio Express, Inc. InterCambio Express has its USA headquarters in Elkhart, Indiana and a Mexican subsidiary located in Puebla, Mexico. Prior to founding InterCambio Express, Inc., Mr. Torres served as Chief Financial Officer of the German transnational company Hoechst AG (now Sanofi-Aventis) and as a senior auditor for Price Waterhouse Coopers. Mr. Torres contributes long-term perspective, current knowledge and extensive contacts in the state in which the Company is located as well as internationally. |
| |
| ● | Expertise in Internet-based industries and international payments systems as well as extensive skills in finance, accounting and international business. |
| |
| ● | Attained CAMS (Certified Anti-Money Laundering Specialist) certification. |
| |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Active in the community serving on boards including the Indiana University Board of Trustees, Community Foundation of Elkhart County, Women’s Care Center, and RISE-Moxie. |
| | | |
| ● | Bachelor’s degree in Accounting from The National Autonomous University of Mexico - UNAM (Universidad Nacional Autónoma de Mexico) and an M.B.A. from Indiana University. |
| | | |
|
| | | | | | | |
| | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Principal Occupation(1) | | Common Stock | % of Class |
| | | | | | | |
| Executive Officers of the Company (Non-Directors) |
| | | | | | | |
| Jeffrey L. Buhr | 58 | Executive Vice President and Chief Credit Officer, 1st Source Bank (since 2014); prior thereto, Senior Vice President and Chief Credit Officer, 1st Source Bank | 57,247 |
| « |
| | | | | | | |
| John B. Griffith | 60 | Executive Vice President, Chief Administrative Officer, Secretary and General Counsel, 1st Source Corporation and 1st Source Bank (since 2011) | 54,800 |
| « |
| | | | | | | |
| James R. Seitz | 65 | President, 1st Source Corporation and 1st Source Bank (since 2014); prior thereto, Executive Vice President, 1st Source Corporation and President, 1st Source Bank and Executive Vice President, 1st Source Bank | 71,703 |
| « |
| | | | | | | |
| Andrea G. Short | 55 | Executive Vice President, Treasurer and Chief Financial Officer, 1st Source Corporation and 1st Source Bank (since 2013); prior thereto, Senior Vice President and Controller, 1st Source Bank | 46,745 |
| « |
| | | | | | | |
| All Directors and Executive Officers as a Group (15 persons) | 5,356,644 |
| 19.92% |
« Represents holdings of less than 1%. |
| (1)The principal occupation represents the employment for the last five years for each of the named directors and executive officers. Directorships presently held or held within the last five years in other corporations with publicly registered securities are also disclosed. |
| (2)Based on information furnished by the directors and executive officers as of February 16, 2018. |
| (3)Mr. Murphy IV is Mr. and Mrs. Murphy III’s son. |
| (4)See footnotes (1), (2), and (3) to the Voting Securities and Principal Holders Thereof table above. |
| | | | | | | | | | | |
| | |
| | | |
| Terms Expiring in April, 2026 |
| | | |
| | Name: Christopher J. Murphy III
Age: 77
Principal Occupation(1): Chairman of the Board, President and Chief Executive Officer, 1st Source and Chairman of the Board, 1st Source Bank (since 2022); prior thereto, Chairman of the Board, President, and Chief Executive Officer, 1st Source and Chairman of the Board and Chief Executive Officer, 1st Source Bank
Year In Which Directorship Assumed: 1972
Beneficial Ownership of Equity Securities(2)(3) Common Stock: 4,351,447 % of Class: 17.20% |
| |
| ● | Over 51 years of banking and business experience, including serving as a Director and/or President and Chief Executive Officer of both 1st Source Corporation or 1st Source Bank for 51 years. Mr. Murphy contributes long-term perspective, current knowledge, and extensive contacts in all communities in which the Company does business. Prior to 1st Source, Mr. Murphy worked at Citibank, and while in college, for the Office of the Comptroller of the Currency, U.S. Department of the Treasury. |
| | | |
| ● | Extensive knowledge of 1st Source and 1st Source Bank and general knowledge in the finance/banking industry, investments, insurance, venture capital, and real estate investments. |
| | | |
| ● | Serves as a director of Aunalytics, Inc., representing 1st Source’s investment in this provider of managed data center, data analysis, cloud and other technology related services. |
| | | |
| ● | Serves or has served on numerous local, regional and national for profit and not-for-profit boards including those of the Federal Reserve Bank of Chicago, the Medical Education Foundation (serves as the citizen’s advisory board of Indiana University Medical School at Notre Dame), and the Indiana State Chamber of Commerce (emeritus). Previously served on the Board and Audit Committee of Beacon Health System, as Chairman of the Board of Regents of the Indiana Academy, and on the board of the Indiana Commission for Higher Education. |
| | | |
| ● | B.A. in Government from the University of Notre Dame, a J.D. from the University of Virginia Law School and an M.B.A. from the Harvard University School of Business. |
| | | |
| | Name: Timothy K. Ozark
Age: 74
Principal Occupation(1): Chairman, TKO Finance Corporation (lender to financial services and manufacturing companies); formerly Chairman and Chief Executive Officer, Aim Financial Corporation (mezzanine funding and leasing) Year In Which Directorship Assumed: 1999
Beneficial Ownership of Equity Securities(2) Common Stock: 44,960 % of Class: « |
| |
| ● | 44 years of financial experience, including 32 years as founder, Chairman and Chief Executive Officer of Aim Financial Corporation, a mezzanine lender to privately held companies. Mr. Ozark also is President and CEO of TKO Finance Corporation, a lender to financial services and manufacturing companies. Mr. Ozark is also Lead Director of White Lodging Corporation, one of America’s leading hotel developers. From 1980 to 1983, Mr. Ozark served as Executive Vice President of Great American Management Services, Inc. a wholly owned subsidiary of American Financial Corporation of Cincinnati, Ohio which specialized in equipment leasing and lending. From 1984 to 1992, Mr. Ozark served as CEO and President of Meridian Leasing Corporation, one of North America’s largest privately held leasing companies. |
| | | |
| ● | Expertise in mezzanine funding, lending-leasing and general knowledge of business, finance, and real estate investing. Contributes long-term perspective in all of these areas. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | Serves as a member of the Visiting Committee to the Division of Biological Sciences and the Pritzker School of Medicine for The University of Chicago and on the board of directors for a number of privately held companies. |
| | | |
| ● | B.S. in Business Administration from the University of Minnesota and an M.B.A. from St. Cloud State University. |
| | | |
| ● | Served as an officer in the United States Marine Corps from 1968-1974. |
| | | | | | | | | | | |
| | |
| | | |
| | Name: Todd F. Schurz
Age: 63
Principal Occupation(1): Senior Advisor and former President and Chief Executive Officer, Schurz Communications, Inc. (communications, broadband and cloud services)
Year In Which Directorship Assumed: 2020
Beneficial Ownership of Equity Securities(2) Common Stock: 9,333 % of Class: « |
| | | |
| ● | 32 years of financial experience, including 15 years as President and Chief Executive Officer and 3 years as President and Chief Operating Officer of Schurz Communications, Inc. (SCI), a diversified, privately-owned communications company, with five broadband companies and managed cloud services companies. SCI has a presence in 13 states, including Indiana and Michigan, as well as Great Britain and Romania. Prior to joining SCI, Mr. Schurz was President and Editor of Associated Desert Shoppers in Palm Desert, California from 1991 to 1995. From 1995 to 2000, he was President, Editor and Publisher of the South Bend Tribune. He then served as SCI’s Vice President of Technology from 2000 to 2005 and as President and General Manager of WSBT Television from 2002 to 2005 before becoming President and Chief Operating Officer of SCI in 2005. |
| | | |
| ● | Serves as lead independent director and Vice Chair of Herschend Enterprises, a themed entertainment company. Mr. Schurz is also an independent board advisor to EBSCO Industries and serves on the University of Notre Dame College of Arts & Letters Advisory Council. |
| | | |
| ● | Previously served on the boards of Mutual Insurance Company Limited, News Media Alliance, American Press Institute (API), and the CBS Television Network Affiliates Association. Mr. Schurz is also a former Chair of the Memorial Hospital Board, Beacon Health Foundation, the Chamber of Commerce of St. Joseph County, Hoosier State Press Association Foundation, the Poynter Institute’s National Advisory Board, and the coordinating committee for the Regional Approach to Progress. |
| | | |
| ● | Expertise in media, marketing and communications and general knowledge of business and finance. Contributes long-term perspective in all of these areas. |
| | | |
| ● | Qualifies as an audit committee financial expert under SEC guidelines. |
| | | |
| ● | B.A. in History and Economics from Brown University and an M.B.A. from the Wharton School at the University of Pennsylvania. |
| | | |
| | Name: Andrea G. Short
Age: 61
Principal Occupation(1): Executive Vice President, 1st Source Corporation and President and Chief Executive Officer, 1st Source Bank (since 2022); prior thereto, Executive Vice President, 1st Source Corporation and President, 1st Source Bank (since 2021); Executive Vice President, Treasurer and Chief Financial Officer, 1st Source Corporation and President and Chief Financial Officer, 1st Source Bank (since 2020); and Executive Vice President, Treasurer and Chief Financial Officer, 1st Source Corporation and 1st Source Bank (since 2013)
Beneficial Ownership of Equity Securities(2) Common Stock: 78,039 % of Class: « |
| | | |
| ● | Over 39 years of banking and business experience, including serving as a Director of 1st Source Corporation and 1st Source Bank and/or President and Chief Executive Officer of 1st Source Bank, Executive Vice President, Treasurer and Chief Financial Officer of both 1st Source Corporation or 1st Source Bank and other positions for 25 years. Ms. Short contributes long-term perspective, current knowledge, and extensive contacts in all communities in which the Company does business. Prior to 1st Source, Ms. Short worked at Crowe LLP and First of America Bank (now PNC). |
| | | |
| ● | Extensive knowledge of 1st Source and 1st Source Bank and general knowledge in the finance/banking industry. |
| | | |
| ● | Serves on numerous boards including those of the Medical Education Foundation and the South Bend Elkhart Regional Partnership. |
| | | |
| ● | B.A. in Business from Alma College and a graduate of the Harvard University, Graduate School of Business Administration, Advanced Management Program, the Northwestern University Business School's Senior Marketing Program and the University of Chicago’s Booth School of Business Chicago Management Program. |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Beneficial Ownership of Equity Securities(2) |
| Name | Age | Title | | Common Stock | % of Class |
| | | | | |
| Executive Officers of the Company (Non-Directors) |
| | | | | | |
| Brett A. Bauer | 52 | Senior Vice President, Treasurer and Chief Financial Officer, 1st Source Corporation and 1st Source Bank (since 2021); prior thereto, Vice President and Chief Investment Officer of the Funds Management Division of 1st Source Bank (since 2012) | 22,095 | | « |
| | | | | | |
| Jeffrey L. Buhr | 64 | Executive Vice President and Chief Credit Officer, 1st Source Bank (since 2014) | 73,946 | | « |
| | | | | | |
| John B. Griffith | 66 | Executive Vice President, Chief Risk Officer, General Counsel and Secretary, 1st Source Corporation and 1st Source Bank (since 2011) | 70,980 | | « |
| | | | | | |
| All Directors and Executive Officers as a Group (15 persons) | 4,917,211 | | 19.44 | % |
« Represents holdings of less than 1%. |
| (1)The principal occupation represents the employment for the last five years for each of the named directors and executive officers. Directorships presently held or held within the last five years in other corporations with publicly registered securities are also disclosed. |
| (2)Based on information furnished by the directors and executive officers as of February 16, 2024. |
| (3)See footnotes (1), (2), and (3) to the Voting Securities and Principal Holders Thereof table above. |
| (4)Mr. Murphy IV is Mr. and Mrs. Murphy III’s son. |
TRANSACTIONS WITH RELATED PERSONS
The Audit, Finance and Risk Committee of 1st Source’s Board of Directors is responsible, under the terms of that Committee’s charter, for reviewing and disclosure of related party transactions that are material to 1st Source’s consolidated financial statements or otherwise require disclosure under Item 404 of SEC Regulation S-K.
Banking Transactions —Directors and officers of 1st Source and their affiliates were customers of, and had transactions with, 1st Source and its subsidiaries in the ordinary course of business during 2017.2023. Such transactions were in compliance with applicable federal and state laws and regulations.regulations in all significant respects. Additional transactions are expected to take place in the ordinary course of business in the future. All outstanding loans and commitments were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the Company and did not involve more than the normal risk of collectability, or present other features unfavorable to the Company. Credit underwriting procedures followed were no less stringent than those for comparable transactions with borrowers not related to the Company.
1st Source’s Loan Policy requires prior approval by a majority of the Board of Directors of any extension of credit to an executive officer, director, principal shareholder or persons related to any of the foregoing if aggregate extensions of credit to such executive officer, director, principal shareholder or other person exceeds $500,000. The aggregate of loans to an executive officer may not exceed $100,000 excluding loans 1) to finance the education of the executive officer’s children, 2) to purchase, construct, maintain or improve a residence owned by the executive officer and secured by a first lien, or 3) secured by a perfected security interest in bonds, notes, certificates of indebtedness or other obligations fully guaranteed by the United States, cash or a cash-equivalent. Loans to executive officers are 1) reported to the 1st Source Board at its next regularly scheduled meeting, 2) preceded by the submission of a current personal financial statement, and 3) made subject to the condition that the loan will become due if the executive officer becomes indebted to any other financial institution or financial institutions in an aggregate amount greater than $100,000 (excluding the types of loans noted in 1), 2) and 3) in the preceding sentence). Finally, within 10 days of the date that the aggregate indebtedness to other financial institutions exceeds $100,000 (again excluding the types of loans noted in 1), 2) and 3) above), an executive officer must make a written report to the Board disclosing same.
Other Transactions — The Company has previously reported its investment in Data Realty, LLC, and investments by 1st Source Bank in its subsidiary Data Realty Northern Indiana, LLC (DRNI) and payments to Data Realty LLC's subsidiary, Aunalytics, Inc. All of these entities have been consolidated in Aunalytics, Inc. (Aunalytics). DRNIAunalytics is a managed data center, network interconnection cooperative servicing business, and data hosting and data and cloud analysis service provider in 1st Source Bank’s headquarters region. 1st Source Bank is a customer of Aunalytics and DRNI and the Bank’s primary operating system hardware is located in the data center owned and operated by DRNI.Aunalytics. In 2017,2023, 1st Source Bank paid an aggregate of $201,493$2,933,203 for services provided by DRNI.Aunalytics.
Data Realty, LLC is the managing partner of DRNI. Director Khan has an interest in Data Realty, LLC as previously reported in the “Transactions with Related Persons” section of the Company’s 2014 to 2017 proxy statements. Mr. Murphy III is a Director of Data Realty, LLCAunalytics representing 1st Source’s interests. 1st Source BankMr. Affleck-Graves also is a director Tracyof Aunalytics. Mr. Graham is a principal in Data Realty, LLCAunalytics and DRNI and is itsAunalytics’ CEO.
BOARD COMMITTEES AND OTHER CORPORATE GOVERNANCE MATTERS
In January 2004, the Board of Directors adopted and has since periodically updated the 1st Source Corporate Governance Guidelines. The Corporate Governance Guidelines are designed to ensure and document the Company’s high standards for corporate governance. The Corporate Governance Guidelines are in accordance with the listing rules of the NASDAQ Stock Market and rules of the SEC. The Corporate Governance Guidelines are available on the Company’s website at www.1stsource.com.
Director Independence — The Board assesses each director’s independence in accordance with the Corporate Governance Guidelines. The Corporate Governance Guidelines define an independent director as one who has no relationship to the Company that would interfere with the exercise of independent judgment in carrying out responsibilities as a director of the Company and who is otherwise “independent” under the listing rules of the NASDAQ Stock Market. The Board has determined, after careful review, that the following eightnine of the eleventwelve current members of the Board are independent directors: Mr. Affleck-Graves, Ms. Birmingham, Mr. Fitzpatrick, Mr. Kapson, Mr. Khan, Mr. Khilnani, Mr. Martin,Graham, Mr. Ozark, Mr. PhairSchurz, Mr. Schwabero, Ms. Shrewsbury and Mr. Schwabero. The Board has also determined that director nominees Ms. Birmingham-Boyd and Ms. Hershman will be independent directors if elected.Torres.
Board Committees — 1st Source and 1st Source Bank share the following permanent committees made up of board members of both organizations. Executive, Governance and Nominating, Audit, Finance, and Risk, and Executive Compensation and Human Resources Committee members are appointed annually after the Annual Meeting of Shareholders.
Current member composition of these committees is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Director | Independent | Executive Committee | Governance and Nominating Committee | Audit, Finance
and Risk Committee | Executive Compensation and Human Resources Committee | Loan and Funds Management Committee(1) | Trust and Investment Committee(1) |
| John F. Affleck-Graves | Yes | X | X | Chair | X | | X |
CommitteeMelody Birmingham | MembersYes | | | X | FunctionsX | 2017 MeetingsChair | |
| Daniel B. Fitzpatrick | Yes | | X | X | Chair | X | |
| Tracy D. Graham | Yes | X | | X | | | X |
| | | | |
Executive(2)
| Christopher J. Murphy III | ●No | Chair | | | | X | |
| Christopher J. Murphy IV | No | X | | | | | X |
| Timothy K. Ozark | Yes | | | X | X | X | |
| Todd F. Schurz | Yes | X | X | X | X | | Chair |
| Mark D. Schwabero | Yes | X | Chair | X | | | X |
| Andrea G. Short | No | X | | | | | X |
| Ronda Shrewsbury | Yes | | X | X | | X | |
| Isaac P. Torres | Yes | | | X | X | X | |
| | | | | | | |
| (1) The Loan and Funds Management Committee and the Trust and Investment Committee are committees of the Board of Directors of 1st Source Bank. |
Functions and 2023 meetings for each committee are as follows:
| | | | | | | | | | | |
| Committee | | Functions | 2023 Meetings |
| | | |
Executive(1) | ● | Act for the Board of Directors between meetings subject to certain statutory limitations. | 3— |
| ● | Daniel B. Fitzpatrick(1)
| | limitations. | |
| Vinod M. Khilnani | ● | Give guidance to management regarding actions taken as part of its strategic | |
| Rex Martin | | operating or budget plans. | |
| ● | Christopher J. Murphy IV | ● | Provide guidance on acquisitions, divestures or other transactions that need totransactions. | |
| | Timothy K. Ozark | | be negotiated in private and may ultimately require review and approval by the |
| John T. Phair | | full Board. | |
| Mark D. Schwabero | | | |
| | | | |
Governance and | Timothy K. Ozark Nominating(1)(2)
| ● | Serve as senior committee withProvide oversight responsibility for effective governance | 4 |
Nominating(2)(3)
| Daniel B. Fitzpatrick | | of the Company. | 4 |
| ● | Vinod M. Khilnani | ● | Identify and monitor the appropriate structure of the Board. | |
| ● | Rex Martin | ● | Select Board members for committee assignments. | |
| ● | John T. Phair | ● | Identify, evaluate, recruit and select qualified candidates for election, re-election | |
| Mark D. Schwabero | | or appointment to the Board. | |
| ● | | ● | See also “Governance and Nominating Committee Information” below. | |
| | | | |
Audit, Finance and Risk(1)(2)(3) | Vinod M. Khilnani(1)
● | ● | Select the Company’s independent registered public accounting firm. | 6 |
| ● | Daniel B. Fitzpatrick | ● | Review the scope and results of the audits by the internal audit staff and the | |
| Craig A. Kapson | | independent registered public accounting firm. | |
| ● | Najeeb A. Khan | ● | Review the adequacy of the accounting and financial controls and the risk | |
| Rex Martin | | management process and present the results to the Board of Directors with | |
| John T. Phair | | respect to accounting practices and internal procedures. | |
| ● | | ● | Make recommendations for improvements in internal procedures. | |
| ● | In addition to financial reporting risks and controls, review and oversight of risk and controls for other operational and compliance risk categories with the potential to cause significant financial loss, consumer harm, regulatory criticism, and/or reputational damage to the Company. | |
| ● | Review and oversight of management’s implementation and maintenance of the Company’s legalEnterprise Risk Management Program consistent with the Company’s strategies, the Board’s risk appetite, and compliance risks, includingthe board-approved Enterprise Risk Management Policy. | |
| ● | | | adherence to ethical standards and bank regulatory requirements as well as other | |
| | | operational risk areas. | |
| | ● | See also “Report of the Audit, Finance and Risk Committee” below. | |
| | | | |
Executive Compensation and | Mark D. Schwabero Human Resources(1)(2)
| ● | Determine compensation for executive management, personnel, review | 4 |
Human Resources(2)(3)
| Daniel B. Fitzpatrick | | performance of the Chief Executive Officer and oversee the Company’s stock | |
| Vinod M. Khilnani | | and other incentive compensation plans. | 4 |
| ● | Rex Martin | ● | EstablishOversee and approve establishment and administration of wage and benefit policies for the Company and its subsidiaries. | |
| ● | Timothy K. Ozark | ● | Review human resources guidelines, policies and procedures. | |
| ● | John T. Phair | ● | See also the “Executive Compensation and Human Resources Committee Report” below. | |
| | | |
| Loan and Funds Management | ● | Oversee and approve establishment and administration of the credit policy for the Bank. | 12 |
| ● | Review Bank lending activities, including approvals of loans to new or existing customers of total commitments in excess of stated amounts. | |
| ● | Report” below.Oversee and approve quarterly reviews of the adequacy of the allowance for loan and lease losses and loan concentrations as compared to established limits. | |
| ● | Review the Bank’s Funds Management Division in its investment activities, relationships with securities dealers, relationships with other depository institutions, administration of 1st Source’s asset/liability management and liquidity functions and other similar activities related to managing market, interest rate and liquidity risks. | |
| | | | | | | | | | | |
| Trust and Investment | ● | Exercise general supervision over the fiduciary activities of the Wealth Advisory Services Group and the Retirement Plan Services Division. | 4 |
| (1)● | Assign the administration of those fiduciary powers to such officers, employees and committees as the Committee chairmandeems appropriate. | |
| (2) ● | Review the actions of individuals or committees used by the Bank in the exercise of the fiduciary powers and services offered to clients. | |
| ● | Oversee and approve establishment and administration of appropriate policies, practices and controls to promote high quality fiduciary administration. | |
| ● | Oversee appropriate policies and procedures to ensure the Bank makes appropriate investments. | |
| | | |
| (1)The charter of the committee is available at www.1stsource.com. |
(3) (2)The Committee is comprised entirely of independent directors. |
Board Leadership Structure —Under 1st Source’s Corporate Governance Guidelines, the Governance and Nominating Committee is responsible for reviewing and making recommendations to the Board regarding the Board’s leadership structure, including whether one individual should serve as Chairman of the Board and Chief Executive Officer and whether the Board should have a Lead Director. The Governance and Nominating Committee reviews the structure of the Board on at least an annual basis and monitors and makes recommendations to the Board on an ongoing basis on other matters concerning Board policies and corporate governance. Additionally, the Executive Compensation and Human Resources Committee of the Board reviews the performance of the Chief Executive Officer on an annual basis. The Board believes it is in the best interest of 1st Source to have Mr. Murphy serve as Chairman of the Board and Chief Executive Officer. The reasons for this include:
•Mr. Murphy’s past performance in both roles and his continuing ability to serve in both;
•The need for decisive leadership and clear accountability in facing 1st Source’s challenges and opportunities;
•Mr. Murphy’s extensive specialized knowledge regarding those challenges and opportunities as well as his large ownership position;
•The composition of the Board includes a majority of independent directors, providing an appropriate amount of independent board oversight; and
•The Board has an independent Lead Director.
The incumbent chairman of the Governance and Nominating Committee, Mr. Ozark,Schwabero, presently serves as the Lead Director under the Corporate Governance Guidelines. The Lead Director will normally chair any meetings of the Board at which the Chairman or Vice Chairman (if there is one) of the Board is not present or from which, for whatever reason, each has recused himself. The Lead Director has the power to call meetings of the Board of Directors and to set agendas for meetings. The Lead Director also chairs the executive sessions of the independent directors, which occurred 4 timesat each Board meeting in 2017.2023.
Board Role in Risk Oversight —The Board exercises oversight of the risk management of 1st Source through the functions of its committees as described above. Additionally, Board members exercise oversight responsibilities by serving on the Loan and Funds Management Committee and/or the Trust and Investment Committee of 1st Source Bank.
The Loan and Funds Management Committee generally oversees credit, interest rate and liquidity risks. Its responsibilities include:
Establishing the credit policy for the Bank;
Reviewing Bank lending activities, including approvals of loans to new or existing customers of total commitments in excess of stated amounts;
Conducting quarterly reviews of the adequacy of the allowance for loan and lease losses and loan concentrations as compared to established limits; and
Reviewing the Bank’s Funds Management Division in its investment activities, relationships with securities dealers, relationships with other depository institutions, administration of 1st Source’s asset/liability management and liquidity functions and other similar activities.
The Trust and Investment Committee generally oversees fiduciary risks associated with 1st Source Bank’s trust and investment services. Its responsibilities include:
Exercising general supervision over the fiduciary activities of the Wealth Advisory Services Group and the Retirement Plan Services Division;
Assigning the administration of those fiduciary powers to such officers, employees and committees as the Committee deems appropriate;
Directing and reviewing the actions of all individuals or committees used by the Bank in the exercise of the fiduciary powers and services offered to clients;
Implementing and periodically evaluating appropriate policies, practices and controls to promote high quality fiduciary administration; and
Overseeing appropriate policies and procedures to ensure the Bank makes appropriate investments.
Finally, the Board receives quarterly reports from management on major risks and controls that are identified and evaluated by several executive level management committees of 1st Source Bank and overseen by the Strategic Deployment Committee, an executive-level management committee chaired by Mr. MurphyMurphy.
Corporate Responsibility and Sustainability — We appreciate the continued growing investor interest in corporate responsibility and sustainability (sometimes referred to as “Environmental, Social, and Corporate Governance” or ESG). This perspective is aligned with the way we have always viewed our corporate purpose and the keys to our success. Simply stated, our long-term success is built and dependent on the long-term, sustainable success of all who live, work, and do business in the communities we serve. It has long been our mission to help individuals, institutions, businesses and communities achieve security, build wealth and realize their dreams. How well we deliver on our mission will determine how well we create and preserve long-term, sustainable value for our shareholders. Put another way, the interests of our long-term shareholders are wholly aligned with the needs and interests of our clients, colleagues, vendors, regulators, and the communities we serve.
While we are proud of our corporate responsibility and sustainability related practices, we also know that our work for the common interests of our stakeholders, particularly those individuals, businesses, not-for-profits and communities we serve as clients, is never finished. Rather, this requires a commitment that extends well beyond the present to living our shared values, to understanding societal needs and impacts of our actions better and making continuous improvements for delivering on our mission.
Here are some of the ways we address important corporate responsibility and sustainability issues for the benefit of our stakeholders:
Our People — At December 31, 2023, we had approximately 1,170 colleagues on a full-time equivalent basis. As a service-driven business, our long-term success depends on our people. And as we have grown, the importance of our talent strategy has intensified. We are committed to a multi-dimensional approach to talent and culture.
Diversity, Equity, and Inclusion — We cultivate diversity in all forms as part of building a strong culture in which inclusion and belonging are paramount. Our culture is what unifies our colleagues across our diverse business model, ensures we are best positioned to serve our diverse clients and propels our continuous evolution.
•For the second consecutive year, all new employees completed a series of facilitated training sessions on unconscious bias within six months of hire.
•Diversity in leadership starts with our Board of Directors and we are proud to report that five of our twelve Board Members (42%) are women or minority.
•For the seventh consecutive year, more than 21% of our new hires were diverse colleagues.
•In 2023, the Company was recognized by Newsweek as a Greatest Workplace for Parents and Families and by Forbes as a Best Midsize Employer and Best-In-State Bank.
Training and Talent Development — We believe a critical driver of our future growth is the ability to grow leaders. We provide developmental opportunities for our colleagues at all levels through a robust set of formal and informal programs.
•1st Source University enables colleagues to build skills and knowledge in multiple facets of our business.
•In 2023, 1st Source colleagues completed over 40,000 training modules consisting of over 1,310 different courses covering topics such as regulations, leadership development, relationship building, cybersecurity, communication, and unconscious bias.
•The 1st Source L.E.A.D. program is a set of immersive experiences and collaborative interactions, developing leadership capability over a twelve-month period. The program is built around a series of best-in-class leadership principles.
•The Commercial Banker Development Program is a rotational program for recent college graduates designed to expose participants to fundamentals of commercial banking.
•The Tuition Reimbursement Program reflects our culture of continuous learning. In 2023, we reimbursed over $163,000 to colleagues for tuition at 16 different Colleges and Universities with an average of approximately $3,600 per colleague who used the benefit.
•To encourage our colleagues to build careers delivering the highest levels of outstanding client service at 1st Source Bank, we developed mastery career paths for critical roles including personal and commercial banking, management and pre-management, and customer service. In 2023, 56 career paths were tracked in our new Learning Management System. 897 career paths were accessed by our colleagues, 411 were completed, and more than 6,700 skills were developed.
•The Business of Banking series, facilitated internally, helps colleagues learn more about the banking industry as well as different areas of 1st Source Bank.
Community Engagement —Our organization is only as strong as the communities we serve. 1st Source and our colleagues are proud to support our local schools, nonprofits, and faith groups.
•In 2023, our colleagues donated approximately 14,300 hours to a total of 600 different organizations.
•In 2023, our colleagues contributed over $186,000 to local United Way organizations.
•In 2023, 1st Source contributed over $700,000 to over 470 deserving and successful community service organizations.
Sustainability and Social Responsibility — We focus on developing business practices that protect and conserve natural resources. This includes using responsible, reputable, and monitored e-recyclers for our electronic assets. All computers, including desktops, laptops, and monitors, are properly recycled. We are also conscious of our paper usage, recognizing that we depend on printed materials for important day-to-day office work, client communications, and acquiring new clients. Increasingly, consumers demand more environmentally sustainable options and prefer online statements and correspondence rather that printed materials. Most of the paper used in our facilities is recycled through our secure shred program and in 2023 we recycled 216,233 pounds of paper. In recent years, we have transitioned away from the traditional proxy model and have utilized the notice and access or “e-proxy” model for supplying shareholder materials for our Annual Meeting. We have also utilized recycled paper to produce shareholder materials which we are required to print upon shareholder request. The paper we use to produce shareholder materials is also certified by the Forest Stewardship Council (FSC). The FSC promotes environmentally appropriate, socially beneficial, and economically viable management of the world’s forests.
Additionally, we are utilizing various sustainable practices in some of our facilities such as LED lights (66 of 79 locations), daylight harvesting sensors, programmable thermostats, 95% or higher efficiency furnace systems (42 of 65 HE HVAC locations), smart irrigation systems (19 locations), 90% recycled mats, “no mow grasses,” permeable paving, rain gardens, and sustainable landscaping (50 of 69 landscaped locations). To reduce our carbon footprint, we have utilized solar panels in two of our banking centers for supplemental sustainable power. These banking centers have supplemented approximately 33% of their total electrical usage (per banking center) with renewable solar power. The Bank has implemented solar energy at a standalone ATM site as well.
Our colleagues have initiated additional activities addressing this area including:
a.Unity Garden- We have developed a close relationship with Unity Garden in South Bend in order to work with the community to provide fresh, organic vegetables, herbs, and fruit. We have a community garden at our Ewing banking center. This activity works toward better ensuring that clean, healthy foods are available to anyone in the community.
b.Recycling Project- The building services department collects plastic caps/lids which cannot be traditionally recycled. Those caps/lids are taken to a specialized recycling facility.
c.Rain barrel- We created a traveling display to educate the public on the importance of water conservation. This display visited 6 locations in the Central Region and pamphlets to create a rain barrel at home were included.
Integrity and Business Ethics — We are committed to doing what is right, acting with integrity, and holding ourselves accountable. We have a set of formal Moral and Ethical Standards and a Code of Conduct that provide additional clarity and focus on the ethical behavior we expect of all colleagues and members of our Board. The Code is supported by underlying policies as well as by interactive online training that all colleagues complete annually. Members of the Board also annually acknowledge their obligations under the Code of Conduct. It is critical for colleagues to understand our expectations and always do what is right. Our colleagues also need to be comfortable speaking up with no fear of retaliation if they have a concern or see something that does not seem quite right.
Our Code of Conduct requires all colleagues to adhere to our policies, recognize unethical behavior, and report suspected unethical or illegal conduct. The policy also sets additional expectations for managers to report any conduct that may violate policies. We provide for several alternative channels for the reporting of possible illegal or unethical behavior. Under the Code of Conduct, employees are invited to report any possible illegal or unethical activity to their supervisor or anyone else in the reporting line, or to the general Counsel or Chief Auditor, in all cases, without fear of recrimination or retaliation. We also have an Open-Door Policy that encourages colleagues to bring any questions or concerns to their supervisor, their supervisor’s manager, department head, the head of Human Resources or to the Employee Relations Department, without fear of recrimination or retaliation. The procedure for reporting employee concerns directly to the Chief Auditor is yet another channel for escalation of possible illegal or unethical behavior to an executive who is independent from front-line sales and service colleagues.
To further its risk oversight role, our Board adopted an Enterprise Risk Management Policy calling for a culture of honesty and transparency: “Consistent with the Company’s values, built on a foundation of integrity for generations, it is the Board’s expectation that management shall continue its commitment to a culture of transparency that encourages employees to be open, candid and fact-based in discussing risk issues, making all relevant facts and information available so the Company is able to make informed decisions.” Finally, our independent Compliance Review Program and our Customer Complaint Management Program both serve to identify and escalate to executive management and the Board any potentially illegal or unethical behavior or unsafe and unsound practices.
Financial Inclusion & Capacity Building in Our Communities — Community leadership is a core value of 1st Source. For over 161 years, the Company has given back to our communities to help build good places to live, work, worship, raise families, and build businesses. This service to our communities is one of our principal values and has defined who we are and how we do business. To ensure our long-term success, our strategic plan includes strategies for active and effective engagement with all segments of our communities. We serve with a wide range of products and services offered to individuals and to small and medium-sized businesses throughout our footprint. Our aim is to grow our business and achieve appropriate returns for our shareholders by strengthening our communities. Here are some highlights:
•Our priority is to deliver outstanding service to all of our clients without compromising the safe and sound operation of the Company.
•We provide consumer and business products and services designed to support and strengthen all within the communities we serve.
•We give special consideration to the banking needs (including credit needs) of sustainable small businesses, low-to-moderate income individuals and neighborhoods, and community organizations that have a demonstrable positive and lasting impact on our communities.
•For the eleventh consecutive year, we were honored to have been recognized with a gold level award from the Indiana District of the U.S. Small Business Administration (SBA). This award recognizes our efforts for delivering the greatest number of SBA loans in the state of Indiana among community banks with less than $10 billion in assets.
•We have an extensive and active financial education program designed to support our own employees and the employees of our business and not-for-profit clients. We have a dedicated Financial Education Manager as well as many colleagues who partner with these clients to provide financial education through presentations, classes, online videos and educational tools. In 2023, we gave 245 formal presentations and reached over 3,200 employees of our clients and community members. We also provide financial education and information on our online and mobile banking platform.
•We seek to strengthen our communities by supplying financial and human resources to civic, charitable, and other things, overseesdemonstrably successful non-profit community service organizations throughout our footprint. One way we reinforce this effort is through the Ernestine M. Raclin Community Leadership Awards established by the Company to honor and evaluatesencourage leadership in volunteerism through the businesses and governmental agencies in our communities. The award recognizes Ernestine M. Raclin, Chairman Emeritus of 1st Source, who strongly demonstrated the spirit of volunteerism throughout her career by giving of her time and talents to help others.
•We are committed to and accountable for performance under the Community Reinvestment Act (CRA). Our corporate value of supporting our communities aligns closely with the CRA which has helped us receive an ‘outstanding’ rating from the Federal Reserve Bank of Chicago for our overall CRA efforts in our most recent report. We have a dedicated CRA Officer who ensures our accountability to our clients and the people who live and work in our markets. If they are successful, so are we.
•We are also committed to and accountable for oversight and implementation of a compliance management system designed to ensure we are compliant with the laws and regulations to which our industry is subject and that we at all times adhere to our values in service to others of all backgrounds without regard to personal characteristics such as ethnicity, race, religious affiliation, marital status, gender, sexual orientation, or any other personal characteristics. This consideration includes possible changes to legal requirements for, or underwriting considerations related to, flood or disaster-related insurance. We serve our neighbors in the heart of our local communities, and we do so through our people who embrace and are trained in accordance with our values and who in turn oversee and implement processes and technologies designed to ensure fair and responsible access to the products and services we offer.
•In 2023, 1st Source Foundation supported the United Way in its efforts to eradicate poverty in our home market and supported Habitat for Humanity building affordable housing in most of our community bank markets. The Foundation continues to support the economic development efforts of the South Bend Elkhart Regional Partnership as well as other economic development activities in markets the Company serves across northern Indiana and southwestern Michigan.
Environmental, Social, and Governance Factors in Credit Analysis — In 2023, we continued our focus on renewable energy sources through lending and investment partnerships with renewable energy providers. We recognize the opportunities and complexities associated with energy financing and understand the value of innovative technology that leverages the sun, wind and water. These are sustainable sources of power from an environmental and financial perspective.
We have particularly focused on solar energy projects and, since developing the line of business in 2016, we have invested $142 million and provided debt financing in 59 solar projects across 17 states with current loan and lease outstandings of $399 million. We estimate the aggregate power capacity of the operating projects avoids 299,393 metric tons of carbon greenhouse emissions or 335 million pounds of coal burned annually.
We employ a values-based, relationship-focused approach to financing solar projects and partner with strong developers who have national project pipelines. Many of the solar projects consist of single or multiple solar arrays that are interconnected with the local utility grid. We have a strategic focus in community solar projects for our energy portfolio wherein a group of subscribers, including commercial businesses, small businesses, municipalities, and residential homes, participate in the program and receive the benefits of purchasing their electricity from the community solar array. In addition to our focus on community solar projects, we also finance solar projects that provide clean energy to colleges, universities, school districts, utilities, and municipalities.
We are committed to investing in and financing solar energy projects and are pleased with the current and ongoing environmental benefits of this portfolio that positively impact the lives of people in communities across the United States. We will continue to finance and invest in sustainable opportunities, and we will explore new opportunities to develop products and solutions that support our clients and advance sustainability.
Data Security and Privacy — Our Board of Directors has delegated primary responsibility for oversight of cybersecurity risk management to the Audit, Finance and Risk Committee of the Board. The Committee receives quarterly reports from the Chief Information Security Officer (CISO) and Chief Risk Officer (CRO), respectively, and reviews them with such officers. These reports are made available to all board members concurrently. The CRO’s report includes evaluation of the level of cybersecurity risks controls and strength of mitigating controls. All board members are invited to attend the portion of the Committee’s meetings for review of reports received on risk management from management (e.g., the CRO, CISO, Chief Compliance Officer).
Our processes for assessing, identifying, and managing material risks from cybersecurity threats are based on examination guidance published by the Federal Financial Institution Examination Council (FFIEC), an interagency body established under the Financial Institutions Regulatory and Interest Rate Control Act of 1978. Consistent with FFIEC guidance, 1st Source selected and adheres to the risk management framework established by the Cybersecurity Risk Institute known as the “CRI Profile.” The CRI Profile is based primarily on the well-known National Institute of Standards and Technology’s (NIST) “Framework for Improving Critical Infrastructure Cybersecurity” and is tailored to ensure expectations of financial institution regulators are met. Our processes are designed to meet standards for 1st Sourceall seven CRI Profile functions – governance, identification, detection, protection, response, recovery, and 1st Source Bank.supply chain dependency management. In addition, we adhere to security standards set by the PCI Security Standards Council which are designed to ensure secure payments globally.
Risks from cybersecurity threats, including risks identified from previous cybersecurity incidents, have required significant investments over time in maturing our Information Security Program and attracting and retaining the personnel with requisite experience and expertise. In particular, the CISO has substantial relevant expertise in the financial services industry and formal training in the areas of information security and cybersecurity risk management. We will need to continue to make meaningful investments in cybersecurity controls for continuous improvement and maturation in response to constantly evolving cybersecurity threats. Cybersecurity threats will continue to be endemic to the financial services industry for the foreseeable future.
For additional information, see Item 1C. Cybersecurity in our 2023 Form 10-K.
Meetings of the Board of Directors and Directors’ Compensation — The Board of Directors held 6 meetings in 2017.2023. No incumbent directors attended fewer than 75% of the aggregate total meetings of the Board of Directors and all committees of the Board of 1st Source on which he or she served.
Directors receive fees in the amount of $25,000 per year, plus $1,500 per Board meeting and $1,250 per committee meeting attended ($1,750 per Audit Committee meeting attended). Committee chairpersons also receive annual retainers as follows: Audit Committee $10,000, Executive Committee $3,000, Governance & Nominating Committee $10,000, and Executive Compensation & Human Resources Committee $6,000. Total fees paid in 2017 were $716,500.
| | | | | |
| Meeting Fees | |
| Each meeting of Board of Directors attended | $3,000 |
| Each meeting of Audit, Finance and Risk Committee attended | $3,000 |
| Each meeting of Loan and Funds Management Committee attended | $2,500 |
| Each meeting of other Board committee attended | $2,500 |
Annual Retainers(1): | |
| Board member | $70,565 |
| Committee chairs: | |
| Audit, Finance and Risk Committee | $15,000 |
Executive Committee(2) | $0 |
| Governance and Nominating Committee | $20,000 |
| Executive Compensation and Human Resources Committee | $15,000 |
| Loan and Funds Management Committee | $10,000 |
| Trust and Investment Committee | $10,000 |
| |
| (1) Annual retainers are generally paid in early June. Annual retainer was increased from $64,202 effective May 1, 2023. |
| (2) Mr. Murphy III is the Chair of the Executive Committee and receives no additional compensation for that position. |
| (3) Mr. Murphy III and Ms. Short only receive annual retainers. |
Annual Meeting Attendance — Per the Company’s Corporate Governance Guidelines, directors are expected to attend the Annual Meeting of Shareholders. The Chairman of the Board presides at the Annual Meeting, and the Board of Directors holds one of its regular meetings in conjunction with the Annual Meeting of Shareholders. All members of the Board at the time of the Company’s 20172023 Annual Meeting of Shareholders attended that meeting.
Code of Ethical Conduct — The Board of Directors has adopted a Code of Ethical Conduct for Financial Managers, which is available on the Company’s website at www.1stsource.com. The Code of Ethical Conduct for Financial Managers constitutes a code of ethics as defined in Section 406(c) of the Sarbanes-Oxley Act of 2002 and applies to the Chief Executive Officer, Chief Financial Officer, Controller and other individuals performing similar accounting or financial reporting functions for the Company.
Shareholder Communications — Communications to the Board of Directors from shareholders are welcomed. All written communications may be submitted through the Company’s web sitewebsite at www.1stsource.com, by e-mail at shareholder@1stsource.com, or by U.S. mail at 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana, 46601, Attn: Chairman, Governance and Nominating Committee, or Attn: Corporate Secretary. The recipient of any such communication shall share it with the Chairman of the Governance and Nominating Committee who shall either (i) relay it to the full Board or an appropriate committee chairperson, or (ii) where he feels that the communication is not appropriate to relay to the Board, provide a copy of the communication and an indication of his proposed disposition to the General Counsel, or another independent director, either of whom may forward the communication to any other directors if he or she deems it prudent or appropriate to do so. The Chairman of the Governance and Nominating Committee shall forward all recommendations for Board nominees submitted by shareholders to the members of the Committee.
GOVERNANCE AND NOMINATING COMMITTEE INFORMATION
The Board of Directors formed an independent Governance and Nominating Committee in January 2004. The charter of the Governance and Nominating Committee was amended in October 2014 to reflect its additional governance responsibilities and is available at www.1stsource.com. See also the description of the Committee under “Board Committees and Other Governance Matters” above. All members of the Governance and Nominating Committee (see “Board Committees” above) comply with the independence requirements of the NASDAQ Stock Market listing rules. One of the purposes of the Governance and Nominating Committee is to identify, evaluate, recruit and select qualified candidates for election, re-election or appointment to the Board. The Governance and Nominating Committee may use multiple sources for identifying and evaluating nominees for directors, including referrals from current directors and executive officers and recommendations by shareholders. Candidates recommended by shareholders will be evaluated in the same manner as candidates identified by any other source except that the Governance and Nominating Committee also may consider the number of shares held and the length of time the shareholder-recommended candidate has invested in the Company.source. In order to give the Governance and Nominating Committee adequate time to evaluate recommended director candidates, shareholder recommendations should be submitted in writing at leastno earlier than 120 days and no later than 90 days prior to the next Annual Meeting to be held on or before April 18, 2019.24, 2025. Nominations should be addressed to the attention of the Chairman, Governance and Nominating Committee, c/o 1st Source Corporation.
The Governance and Nominating Committee will select new or incumbent nominees or recommend to the Board replacement nominees considering the following criteria:
Whether the nominee is under the age of 72;
•Qualifications, including judgment, skill, capability, conflicts of interest, business experience and technical/professional/technical, professional, and educational background;
•Personal qualities and characteristics, accomplishments and reputation in the business community;
•Whether the nominee currently lives in one of the Company’s markets;
•Current knowledge and contacts in the communities or industries in which the Company does business;
•Current knowledge in one or more of the Company’s lines of business;
•Public company experience;
•Ability to qualify as an audit committee financial expert under SEC guidelines;
•Ability and willingness to commit adequate time, or in the case of incumbent directors, past participation and contribution, to Board and committee matters;
•Whether the nominee’s knowledge and experience isare complementary to, or duplicative of, that of the other members of the Board;
•If applicable, whether the nominee would be deemed “independent” under listing rules of the NASDAQ Stock Market and SEC rules;
•Whether the nominee is qualified and likely to remain qualified to serve under the Company’s By-laws and Corporate Governance Guidelines;
•Diversity of viewpoints,personal characteristics and background experienceconsistent with the Company’s heritage and other demographics;record, since the Company’s inception in 1971 of maintaining both ethnic and gender diversity among membership of the respective boards of directors of the Company and its subsidiary bank;
•Whether the nominee is under the age of 72; and
•Such other factors the Committee deems relevant.
The Governance and Nominating Committee assesses its own performance, including its effectiveness in achieving a diverse Board, and reviews its charter and recommends any proposed changes every other year coincident with the bi-annual self-assessment of the full Board.
Board Diversity Matrix (As of March 15, 2024) | | | | | | | | | | | | | | |
| Total Number of Directors: | 12 | | | |
| | | | |
| Female | Male | Non-Binary | Did Not
Disclose Gender |
Part I: Gender Identity | | | | |
| Directors | 3 | 9 | 0 | 0 |
Part II: Demographic Background | | | | |
| African American or Black | 1 | 1 | 0 | 0 |
| Alaskan Native or Native American | 0 | 0 | 0 | 0 |
| Asian | 0 | 0 | 0 | 0 |
| Hispanic or Latinx | 0 | 1 | 0 | 0 |
| Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 |
| White | 2 | 7 | 0 | 0 |
| Two or More Races or Ethnicities | 0 | 0 | 0 | 0 |
| LGBTQ+ | 0 |
| Did Not Disclose Demographic Background | 0 |
REPORT OF THE AUDIT, FINANCE AND RISK COMMITTEE
The Audit, Finance and Risk Committee oversees 1st Source’s financial reporting process on behalf of the Board of Directors, retains and oversees the Company’s independent registered public accounting firm, approves all audit and non-audit services provided by the independent registered public accounting firmfirm. In addition to financial reporting risks and controls, the Committee oversees risks and controls for other operational and compliance risk categories with the potential to cause significant financial loss, consumer harm, regulatory criticism, and/or reputational damage. The Committee also oversees management’s implementation and maintenance of the Company’s complianceEnterprise Risk Management Program consistent with ethics policiesthe Company’s strategies, the Board’s risk tolerance, and the Company’s management of legal, regulatory and other operational risks.Board-approved Enterprise Risk Management Policy. The Board of Directors has adopted a charter for the Audit, Finance and Risk Committee to set forth its authority and responsibilities. All of the members of the Committee are independent as defined in the listing rules of the NASDAQ Stock Market and SEC rules and also qualify as audit committee financial experts, as defined in the rules of the SEC.
The Committee reviewed the audited financial statements in the Annual Report with management. The Committee also reviewed the financial statements with 1st Source’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States. The Committee also considered, with the independent registered public accounting firm, the firm’s judgments as to the quality, not just the acceptability, of 1st Source’s accounting principles and such other matters as are required to be discussed with the Committee under PCAOB Auditing Standard No. 16, “Communication with Audit Committees.” In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and 1st Source, including the matters in the written disclosures required by PCAOB Ethics and Independence Rule 3526, “Communication with Audit Committees Concerning Independence”,Independence,” and considered the compatibility of non-audit services provided by the independent registered public accounting firm to 1st Source with the firm’s independence.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20172023, for filing with the SEC.
Audit, Finance and Risk Committee
Vinod M. Khilnani,John F. Affleck-Graves, Chairman
Melody Birmingham
Daniel B. Fitzpatrick
Craig A. KapsonTracy D. Graham
Najeeb A. KhanTimothy K. Ozark
Rex MartinTodd F. Schurz
John T. PhairMark D. Schwabero
Isaac P. Torres
COMPENSATION DISCUSSION & ANALYSIS
Compensation Oversight
The Executive Compensation and Human Resources Committee of the Board of Directors, comprised entirely of independent directors, administers the Company’s executive compensation program. The responsibilities of the Executive Compensation and Human Resources Committee are described in its charter and include:
Determine•Reviews Chief Executive Officer’s recommendations for compensation for the other Named Executive Officers (the executives required by SEC rules to be named in this proxy statement, or “NEOs”) and revieweither approves or adjusts it and approve recommendations of executive managementreviews and approves metrics and policy guidelines for salary and incentive compensation for other senior management personnel;
•Review performance and determines compensation of the Chief Executive Officer;
Establish•Oversee and approve establishment and administration of wage and benefit policies for the Company;Company including an annual salary and performance grid for all employees;
•Review general human resources guidelines, policies and procedures;
•Oversee the Company’s stock and benefit plans;
•Review incentive plans and attest that they do not encourage inappropriate risk taking; and
•Conduct an annual self-assessment.
The Executive Compensation and Human Resources Committee determines the compensation for NEOs and reviews and either adjusts or approves it for other senior management personnel based on executive management’s recommendations after reviewing the Company’s performance against its annual operating plan and its intermediate and long-term tactical and strategic plans. The Committee also reviews market data and peer and industry information periodically and considers the recommendations of the Chief Executive Officer with regard to cash and stock incentives under the Company’s Executive Incentive Plan and the other incentive plans for officers in the Company as described below.
The Committee also periodically engages outside consultants to review the Company’s compensation programs and underlying data to ensure they are competitive and reflect market realities, and to provide advice with regards to determining compensation for NEOs and other senior management personnel. The Committee engaged Blanchard Consulting Group in December 2015November 2021 for this purpose. It did so after considering the independence factors for compensation consultants outlined in the NASDAQ Listing Rules and determining that Blanchard was independent. The Committee’s engagement of Blanchard is described further below.
Compensation Philosophy and Program
The Company’s compensation philosophy rests on the core principle that its executive officers and key employees are all in partnership with each other and with the Company’s shareholders to achieve success over the long-term.long term. Guided by this core principle, the Company’s compensation program can be summarized as follows:
•The Company succeeds best over the long-term when the executive officers and key employees are motivated to work together in this partnership as long-term owners themselves. The Company’s compensation program is designed to compensate executive officers and key employees fairly and continuously reinforce a partnership of long-term owners.owners responsive to our markets and compliant with local, state and federal regulations.
•The program is designed to encourage consistent high-level performance with particular emphasis on building long-term customer relationships.relationships and serving well its various constituencies: individuals, businesses, not for profits, municipal governments, communities, employees and shareholders. The Company believes that a strategic focus on building deep, long-term customer relationships is the foundation for strong, high quality, sustainable, long-term performance. Increasing such relationships over the long-termlong term optimizes shareholder value through growth of high qualityhigh-quality net revenues.
•The program is based on pay-for-performance with performance evaluated relative to both internal business plans, and tactical and strategic objectives and to the results of the Company compared with its relevant peer groups.
•The program provides competitive compensation opportunities that are consistent with practices of our peers with adjustments made for individual variance in skill and contribution.
•The program is designed to encourage a measured approach to growth that includes necessary attention to understanding and managing the risks of the business.
•The program rewards growth of customer relationships and sound risk management through compensation that is balanced between base salaries and performance-based incentive compensation.
•The program’s incentive compensation is also balanced between cash bonuses and equity awards, with both linked to the Company’s overall performance on a short-term, intermediate-term and long-term basis.
The program also promotes long-term share ownership, with all executive officers expected to maintain a significant investment in the Company and meet stock ownership guidelines.
Company Performance
The Committee evaluated the Company’s 20172023 performance during early 2018.2024. The Company generally met many of its quantitative and qualitative objectives for 2017.2023 despite broad economic challenges. Highlights included:
•The Company achieved record net income of $68.05$124.93 million in 2017.2023. This was a 17.8%3.7% increase from 2016.2022 and was the highest achieved in the company’s history.
•The Company earned $2.60$5.03 per share which was a 17.1%3.9% increase from 2016.2022.
•The Company continued 36 years of dividend increases.
•The Company achieved a return on average assets of 1.21%1.48%. This placed it in the top quartile9% of all publicly-traded $3 to $10 billion peer companies.companies as of the date of its annual review period.
•The Company grew its average loans outstanding to $4.33$6.20 billion, a 5.3%11.4% growth over the prior year, and increased its year-end loans outstanding to $4.53 billion, a 8.1% growth over 2016.year.
•The Company had net loan lossesloss recoveries of 0.06%0.04% of average net loans and leases outstanding.
•The Company ended the year with a nonperforming assets ratio of 0.67%0.37% and a reserve for loan and lease losses of 2.10%2.26%.
•The Company continued to exceed the new minimum regulatory requirements for Well Capitalized requirements on a fully phased-in basis.banks.
•The Company openedwas one newof 14 banks to be included in the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll, which consists of banking center and replaced one other on time and on budget. institutions that have had 10 consecutive years of increased earnings per share.
•The U.S. Small Business Administration (SBA), Indiana District recognized the Company with a Gold Level Award in the Community Lender category for the eleventh consecutive year. The award honors 1st Source Bank for delivering the greatest number of SBA loans in Indiana in 2022 among Community Banks with less than $10 billion in assets.
•The Company closed three banking centerswas named to the Forbes ‘America’s Best Midsize Employers’ list, Forbes ‘Best In State Banks’ list, ranking #1 in markets well served by other nearby banking centers.Indiana, and the Newsweek ‘America’s Greatest Workplace for Parents and Families 2023’ list.
•The Company maintained its #1 deposit share in its 1516 contiguous county market.
•The Company continued development of succession management in a variety of positions.
•The Company continued 30 yearsachieved 13.22% of dividend increases.diverse exempt colleagues as a % of total exempt colleagues as of year-end.
•All of the Company’s current employees have completed a required series of facilitated training sessions on unconscious bias.
•The Company receivedwas one of the “Gold Level Award” forfirst depository institutions to participate in the Community Bank category forFederal Reserve’s new instant payment rail, the fifth yearFedNow service.
•The Company opened a loan production office in a row for delivering the greatest number of SBA loans in Indiana.Indianapolis area.
To understand the Company’s performance in relative terms the Committee reviewscompared it compared to a number of other peer groups variously reflecting the Company’s geographic markets, its business line focus, and its size and complexity. These include:
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
In-Market Peers | Location | Midwest Peers | Location | Ticker | | National C&I Peers | Location | Ticker |
| 1st Source Corporation* | South Bend, IN | SRCE | | 1st Source Corporation* | South Bend, IN | 1st Source Corporation* | South Bend, INSRCE |
Chemical Financial Corporation*Byline Bancorp, Inc. | Midland, MIChicago, IL | BancFirst Corporation*BY | | Oklahoma City, OKAmarillo National Bancorp, Inc | Amarillo, TX | |
Crystal Valley Financial Corporation | Middlebury, IN | Chemical Financial Corporation* | Midland, MI | CNB Financial Corporation* | Clearfield, PA |
First Bancshares, Inc | Whiting, IN | Community Trust Bancorp, Inc* | Pikeville, KY | Cullen/Frost Bankers, Inc*CTBI | | San Antonio, TXBancFirst Corporation* | Oklahoma City, OK | BANF |
First Merchants Corporation* | Muncie, IN | Enterprise Financial Group* | Clayton, MO | DiscountEFSC | | Brookline Bancorp, IncInc. | New York, NYBoston, MA | BRKL |
Horizon Bancorp* | Michigan City, IN | F.N.B. Corporation* | Hermitage, PA | First American Bank Corporation | Elk Grove Village, IL |
Lakeland Financial Corporation* | Warsaw, IN | First Busey Corporation* | Urbana, IL | Hancock Holding Company*BUSE | | Gulfport, MSCNB Financial Corporation* | Clearfield, PA | CCNE |
Mutualfirst Financial Inc (MFB)* | Muncie, IN | First Commonwealth Financial Corp* | Indiana, PA | Heartland Financial*FCF | | Dubuque, IACullen/Frost Bankers, Inc* | San Antonio, TX | CFR |
Old National Bancorp* | Evansville, IN | First Defiance Financial Corporation* | Defiance, OH | MB Financial, Inc* | Chicago, IL |
Star Financial Group, Inc | Fort Wayne, IN | First Financial Bancorp* | Cincinnati, OH | Mercantile Bank Corporation*FFBC | | Grand Rapids, MIDiscount Bancorp, Inc | New York, NY | |
| | First Financial Corporation* | Terre Haute, IN | Pinnacle Financial Partners*THFF | | Nashville, TNHancock Holding Company* | Gulfport, MS | HWC |
| | First Merchants Corporation* | Muncie, IN | Servisfirst Bancshares, Inc*FRME | | Birmingham, ALHeartland Financial* | Dubuque, IA | HTLF |
| | First Midwest Bancorp, Inc* | Itasca, IL | Sterling Bancorp* | New York, NY |
| | German American Bancorp, Inc* | Jasper, IN | GABC | | Mercantile Bank Corporation* | Grand Rapids, MI | MBWM |
| Horizon Bancorp* | Michigan City, IN | HBNC | | National Bank Holdings Corporation* | Green Village, CO | NBHC |
| Intrust Financial Corporation | Wichita, KS | | | Pinnacle Financial Partners* | Nashville, TN | PNFP |
| Johnson Financial Group, Inc | Racine, WI | | | S&T Bancorp* | Indiana, PA | STBA |
| Lakeland Financial Corporation* | Warsaw, IN | LKFN | | Stock Yards Bancorp, Inc* | Louisville, KY | SYBT |
| Merchants Bancorp* | Carmel, IN | Intrust Financial CorporationMBIN | | Wichita, KSTexas Capital Bancshares, Inc* | Dallas, TX | TCBI |
| | JohnsonMidWest One Financial Group, IncInc.* | Racine, WIIowa City, IA | MOFG | | UMB Financial Corporation* | Kansas City, MO | UMBF |
| Nicolet Bankshares, Inc. | Green Bay, WI | Lakeland Financial Corporation*NIC | | Warsaw, INUnivest Corporation of Pennsylvania* | Souderton, PA | UVSP |
| Park National Corporation* | Newark, OH | Mainsource Financial Group, Inc*PRK | | Greenburg, INWestern Alliance Bancorporation* | Phoenix, AZ | WTBF |
| Premier Financial Corp* | Defiance, OH | Old National Bancorp*PFC | | Evansville, INWintrust Financial Corporation* | Lake Forest, IL | WTFC |
| Republic Bancorp, Inc* | Louisville, KY | Park National Corporation*RBCAA | | Newark, OHW.T.B. Financial Corporation* | Spokane, WA | WTBFB |
| | | | | | |
| | | | | | |
| * Publicly-traded | | | | | | |
| | | | | | |
| | | | | | |
The Committee compared the Company’s performance for the first three quarters of 20172023 to its selected peer groups using ratios including those shown below. The Company continued to show consistent financial performance equal to or superior to most peers while maintaining stable credit quality and a strongly reserved position. Peer group amounts shown are the median or average as indicatedin the peer group and the Company’s ranking in the group is set forth below the peer group metric, with a 1 ranking indicating the best result:
| | | | | | | | | | | | | | | | | |
| Midwest Peer Group
(20 members)
Sept 2023 YTD
Median | National Commercial & Industrial Concentration Peer Group
(20 members)
Sept 2023 YTD
Median | National $3 to $10 Billion Assets Peer Group (177 members) Sept 2023 YTD Median(1) | 1st Source Sept 2023 YTD | 1st Source Dec 2023 YTD |
| | | | | |
| Return on average total assets | 1.35%
3 | 1.16%
3 | 0.99%
21 | 1.54% | 1.48% |
| | | | | |
| Return on average common equity | 12.45%
5 | 12.22%
4 | 10.78%
44 | 14.04% | 13.48% |
| | | | | |
| Net income growth | 3.81%
9 | 4.47%
10 | –6.77%
50 | 7.89% | 3.67% |
| | | | | |
| EPS Growth | 3.91%
8 of 18 | 9.16%
10 of 18 | –7.88%
32 of 104 | 7.80% | 3.93% |
| | | | | |
| Net interest margin on a tax-equivalent basis | 3.42%
8 | 3.43%
9 | 3.17%
59 | 3.51% | 3.51% |
| | | | | |
| Net charge-offs to average net loans and leases outstanding | 0.09%
2 | 0.08%
1 | 0.04%
11 | –0.02% | –0.04% |
| | | | | |
Nonaccrual loans and leases, restructured loans and other real estate to loans and leases and other real estate(2) | 0.53%
2 | 0.46%
5 | 0.43%
61 | 0.31% | 0.56% |
| | | | | |
| Allowance for loan and lease losses to net loans and leases outstanding | 1.29%
1 | 1.26%
1 | 1.16%
3 | 2.27% | 2.26% |
| | | | | |
Noninterest income to average assets (3) | 0.91%
8 | 0.73%
6 | 0.69%
43 | 0.96% | 0.95% |
| | | | | |
Noninterest expense to average assets (3) | 2.29%
11 | 2.30%
10 | 2.28%
91 | 2.29% | 2.31% |
| | | | | |
Efficiency ratio (3) | 54.85%
6 | 55.37%
7 | 61.73%
40 | 53.46% | 54.21% |
| (1) Computed based on the companies included in the September 2023 Bank Holding Company Performance Report. |
| (2) This is a ratio shown on the Bank Holding Company Performance Report selected to facilitate peer comparisons and different from the nonperforming assets ratio mentioned in the bullet points at the beginning of this section. |
| (3) Noninterest income and expense computed net of leased equipment depreciation. |
|
| | | | | | |
| | In-Market Peer Group (10 members) Sept 2017 YTD Median | Midwest Peer Group (20 members) Sept 2017 YTD Median | National Commercial & Industrial Concentration Peer Group (20 members) Sept 2017 YTD Median | National $3 to $10 Billion Assets Peer Group (145 members) Sept 2017 YTD Average(1) | 1st Source Sept 2017 YTD | 1st Source Dec 2017 YTD |
| | | | | | | |
| Return on average total assets | 1.06% 3 | 1.12% 6 | 1.05% 6 | 1.04% 34 | 1.20% | 1.21% |
| | | | | | | |
| Return on average common equity | 9.59% 5 | 9.30% 9 | 9.66% 11 | 9.56% 69 | 9.60% | 9.69% |
| | | | | | | |
| Net income growth | 18.07% 6 | 18.07% 11
| 22.24% 13 | 18.47% 70 | 17.61% | 17.76% |
| | | | | | | |
| EPS Growth | 15.55% 3 of 8 | 10.64% 3 of 18 | 17.79% 9 of 17 | 12.06% 36 of 102 | 17.79% | 17.12% |
| | | | | | | |
| Net interest margin on a tax-equivalent basis | 3.59% 6 | 3.56% 10 | 3.63% 13 | 3.50% 69 | 3.56% | 3.57% |
| | | | | | | |
| Net charge-offs to average net loans and leases outstanding | 0.04% 3 | 0.08% 6 | 0.14% 5 | 0.08% 50 | 0.02% | 0.06% |
| | | | | | | |
Nonaccrual loans and leases, restructured loans and other real estate to loans and leases and other real estate(2) | 0.76% 1 | 0.80% 2 | 0.81% 4 | 0.88% 25 | 0.38% | 0.46% |
| | | | | | | |
| Reserve for loan and lease losses to net loans and leases outstanding | 1.09% 1 | 1.05% 1 | 0.99% 2 | 0.97% 4 | 2.10% | 2.10% |
| | | | | | | |
Noninterest income to average assets (3) | 1.03% 2 | 1.18% 6 | 0.98% 5 | 0.91% 32 | 1.23%
| 1.22% |
| | | | | | | |
Noninterest expense to average assets (3) | 2.76% 4 | 2.66% 9 | 2.58% 11 | 2.55% 79 | 2.59% | 2.64% |
| | | | | | | |
Efficiency ratio (3) | 60.98% 3 | 59.47% 6 | 59.25% 9 | 60.56% 51 | 56.81% | 57.66% |
| (1) As reported in 1st Source’s September 2017 Bank Holding Company Performance Report. |
| (2) This is a ratio shown on the Bank Holding Company Performance Report selected to facilitate peer comparisons and different from the nonperforming assets ratio mentioned in the bullet points at the beginning of this section. |
| (3) Noninterest income and expense computed net of operating lease depreciation. |
The Committee also compared the Company’s total return over the past five years with the total return of the publicly-traded members of the In-Market, Midwest and National Commercial & Industrial Concentration Peer Groups as well as the group of publicly-traded banking companies in Illinois, Indiana, Michigan, Ohio, and Wisconsin and all NASDAQ traded companies shown in the Annual Report:
* Assumes $100 invested on December 31, 20122018, in 1st Source Corporation common stock, NASDAQ market index, banking companies in Illinois, Indiana, Michigan, Ohio, and Wisconsin, and the In-Market, Midwest, and National Commercial & Industrial Concentration peer group.
** The Morningstar Weighted NASDAQ Index Return is calculated using all companies which trade as NASD Capital Markets, NASD Global Markets or NASD Global Select.on the NASDAQ Stock Market. It includes both domestic and foreign companies. The index is weighted by the then current shares outstanding and assumes dividends reinvested. The return is calculated on a monthly basis.
*** The peer group is a market-capitalization-weighted stock index of 4133 banking companies in Illinois, Indiana, Michigan, Ohio, and Wisconsin. The following companies included in this peer group in last year’s proxy statement have not been included this year, all due to being acquired during 2017: Baylake Corp, Cheviot Financial Corporation, Firstmerit Corp, Private Bancorp and Your Community Bancshares, Inc.
NOTE: Total return assumes reinvestment of dividends.
Compensation Consultants
As noted above, the Committee engaged Blanchard Consulting Group in late 2015 after interviewing2021. A senior management committee interviewed a number of compensation consulting firms.firms and then reviewed the results of those interviews with the Chairman of the Committee. The Chairman then discussed these results with the entire Committee, which approved the Chairman engaging Blanchard on its behalf. The scope of Blanchard’s engagement was to evaluate the Committee’s processes and information, provide advice concerning the competitiveness of the Company’s compensation for NEOs and other members of senior management and recommend improvements in compensation practices. In this regard, Blanchard performed the following:
•Validated the process and information the Committee uses to evaluate base compensation and short and long termlong-term cash and equity incentives of the CEO and CFO as to their competitiveness and appropriateness.
•Similarly collected and validated comparative data for the then next four highest paid officers, including the President and Chief Operating Officer, the Executive Vice President, Chief Administrative Officer and General Counsel, the Executive Vice President and head of the Wealth Advisory Services Group, and the Executive Vice President and Chief Credit Officer.officers.
•Constructed the following peer comparison groups that in some cases included similar or the same companies that 1st Source traditionally includes in its peer groups:
| |
◦ | A regional peer group of 20 banking companies with assets between $2 and $12 billion as of September 30, 2015 and headquartered in Iowa, Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, or Pennsylvania; |
| |
◦ | Blanchard’s internal database of publicly traded banking companies with assets between $2 billion and $10 billion as of year-end 2014; |
| |
◦ | The publicly traded members of the “National Commercial & Industrial Concentration Peer Group” used by the Committee for assessing relative performance of the Company as noted in the tables above under “Company Performance”; and |
| |
◦ | Summarized data from other published banking and financial industry surveys, some of which currently are being used by 1st Source. |
◦A regional peer group of 20 banking companies with assets between $4.5 and $15 billion as of December 31, 2020, and headquartered in Iowa, Illinois, Indiana, Kentucky, Missouri, Ohio, Pennsylvania, or Tennessee;
◦Blanchard’s internal database of publicly traded banking companies with assets between $4.5 billion and $15 billion as of year-end 2020;
◦The publicly traded members of the “National Commercial & Industrial Concentration Peer Group” used by the Committee for assessing relative performance of the Company as noted in the tables above under “Company Performance”; and
◦Summarized data from other published banking and financial industry surveys, some of which currently are being used by 1st Source.
1st Source Bank participated inpurchased McLagan’s Equipment & Finance Compensation Survey in 2016.2019. The survey included over 7075 banks, captives and independent leasing companies and benchmarked the Bank’s Specialty Finance Group’s officers’ pay levels including salary, incentives, and total compensation against comparable market roles in 2015.2021. The Bank also engaged McLagan to run an additional cut of the survey with a refined peer group selected by the Bank. The Committee has determined that McLagan is independent after considering the independence factors for compensation consultants outlined in the NASDAQ listing rules.
Components of Compensation and 20172023 Compensation Decisions
The following table summarizes the components of compensation the Company provides to its NEOs and other senior management personnel:
| | | | | | | | | | | | | | | | | |
| | | | | |
| Compensation Component | Frequency | Criteria | Form(s) of Payment | Restrictions | Term of Holding |
| Salary | Annual | Qualifications, responsibilities and performance | Cash | None | None |
| | | | | |
| Executive Incentive Plan (EIP) | Annual | Weighted corporate, group, division, unit and individual performance goals | Cash and book value stock | None as to cash component. Book value stock subject to forfeiture over a five-year period based on employee remaining with the Company and the Company meeting EPS growth or ROA criteria | Book value stock generally required to be held until retirement. Limited exceptions for up to 50% of stock beginning seven years following lapse of forfeiture period (eight to twelve years from date of grant) but subject to minimum stock ownership requirements |
| | | | | |
| Long-Term Executive Incentive Plan | Every three years | Weighted corporate financial goals for the third year of the three-year planning period and average of individual annual awards for the three-year planning period | Cash and market value stock | None as to cash component. Market value stock subject to forfeiture over a five-year period based on employee remaining with the Company and the Company remaining profitable | Subject to NEO accumulating required minimum stock holdings |
| | | | | |
| Strategic Deployment Incentive Plan | Annual | Company net income and Committee’s determination of success of strategic initiatives embedded in Company’s long-term plans using specific operating and financial metrics | Cash and/or stock as the Committee determines | Market value stock subject to forfeiture over a five-year period based on employee remaining with the Company and the Company remaining profitableNone | Subject to NEO accumulating required minimum stock holdings |
| | | | | |
| 1982 Restricted Stock Award Plan | Discretionary | Discretionary | Market value stock | Market value stock subject to forfeiture over a zero to ten-year period based on employee remaining with the Company and in some cases the attainment of individual, group or Company goals | Subject to NEO accumulating required minimum stock holdings |
Each element of compensation is discussed in more detail below. The Committee reviews the salary and incentive history for each NEO.
Base Salaries
•Why we pay this component.
Annual base salaries are designed to provide 1st Source executives with a basic level of cash compensation that is competitive in view of their qualifications, responsibilities and performance. Executive salaries are administered under the 1st Source Salary Administration Program applicable to all exempt employees. Through this program, each exempt job is graded under direction of the Human Resources Division and placed in a salary range with a midpoint targeted for the 50th percentile of the market range. Management monitors and re-calibrates the job grades and salary ranges by regularly evaluating market pay for particular positions as openings occur, as jobs change or as managers raise questions about the competitiveness of the pay for certain jobs. In addition, management periodically studies the competitiveness of its salary structure (ranges and job grades) by reference to market and industry information from a variety of sources, including Pearl Mayer,Meyer, Compdata Surveys/Dolan Technologies CorporationSurveys, Salaries.com, Blanchard, Crowe, ABA and McLagan. As noted, in late 2015,2021, the Committee sought validation and advice from Blanchard Consulting Group concerning management’s processes and information for base salaries as well as total compensation.
•How we determine the amount.
For the NEOs, the Executive Compensation and Human Resources Committee annually evaluates base salaries and total compensation by reference to the same sources used for the Company’s Salary Administration Program. It also reviews the public information available from proxy statements on compensation paid to NEOs of peer organizations. The Committee reviews information for the CEO, CFO and, to the extent peer information is available, other NEOs compared to its Midwest peer group (see list above under Company Performance), a nationwide peer group of banking companies with a concentration of commercial and industrial loans (see list above under Company Performance), a nationwide peer group of banking companies with $3 billion to $10 billion in assets, and a nationwide peer group of publicly traded banking companies of all sizes. The Committee uses the peer group data as a point of reference and one of several factors in setting base salaries and other components of compensation for the NEOs. If any component of compensation for the NEOs varies significantly from the median of those in our peer group, then the Committee considers the circumstances (e.g. tenure, experience, historical performance) and whether an adjustment to one or more components of compensation is warranted. In additionThe Committee continued to the foregoing, the Committee reviewed the Blanchard data prior to awarding incentive compensation for 2015 under both the Executive Incentive Plan and the Strategic Deployment Incentive Plan. It took into account 1st Source’s performance as compared toreference the Blanchard peer groups as well as the peer groups traditionally used by 1st Source. The Committee continued to reference these data setsSource as it approveddetermined base compensation changes in 20172023 and awarded incentive compensation for 20172023 for the named executive officers.
Increases to base salaries are considered annually. Management evaluates market conditions and proposes a salary performance grid that provides the range of authorized merit increases for each level of performance rating in each quadrant of the applicable salary ranges. The Executive Compensation &and Human Resources Committee reviews, adjusts and approves the proposed grid each year. All of the NEOs, including the Chief Executive Officer, are eligible to receive annual salary increases approved under the Salary Administration Program.
An exempt employee’s base salary will increase based on his or her position in the salary range and individual performance rating determined through the annual performance review process. Performance ratings are based on a scale of 1 to 5 with a 3 rating representing performance that meets expectations.
The Committee applies the salary performance grid used for all exempt employees when determining base salary increases for Mr. Murphy and the other NEOs. The Committee evaluates Mr. Murphy’s performance each year looking at, among other factors, the Company’s return on assets, return on equity, its absolute earnings, and the overall performance of the Company relative to its annual budget plan and long-term strategic plan approved by the Board of Directors. His responsibilities also include representing the Company to its various constituencies, ensuring the Company’s ongoing community engagement, and ensuring the development of a culture of client service, long-term financial performance, teamwork, corporate integrity, and long-term success. As previously disclosed, the Committee would have granted Mr. Murphy a 3.0% increase in 2017 but acceded to his request that his salary increase be held flat and that the difference be spread to other senior officers. Similarly, in 2018, the Committee again reviewed Mr. Murphy’s base compensation. Based on Mr. Murphy’s 20172023 performance and the Company’s performance against its annual profit plan and using the salary performance grid approved by the Committee for 2018,2024, the Committee would have granted Mr. Murphy a 2.74%an increase of $30,000 in base salary.salary but acceded to his request to have his salary increase limited to $15,000 or 1.82%.
Mr. Murphy evaluates the performance of the other NEOs and makes recommendations for their annual increases to the Committee. The President of the Company, Mr. Seitz,Ms. Short also contributes to the evaluation of the other NEOs besides himself.herself. The progression of increases in base salary for each of the NEOs is shown in the Summary Compensation Table below.
Annual Incentive Awards Under the Executive Incentive Plan (EIP)
•Why we pay this component.
The EIP is designed to reward the NEOs and other participants for performance with a long-term emphasis. Annual incentive awards achieve this balance with payments of both cash and stock. The annual cash awards provide participants with immediate recognition of strong,achieving annual performance.performance criteria. The Committee has discretion to approveregularly approves a matching award equal to the full value of, or a portion of, the value of the cash award to be paid in the form of book value shares or market value shares.shares so that participants become long-term investors in the Company. “Book value shares” refers to shares of common stock awarded under the EIP that may not be transferred and may only be sold to the Company at book value. The Committee has generally made annual matching awards of 1/250% to 1/3100% in book value stock to provide participants with the opportunity to build and increase the value of their ownership of 1st Source during the course of a long career with the Company. The value of this stock only grows if the Company continues to perform. Also, a long-term holding requirement for those shares further establishes alignment between the long-term benefit to the participants and the interests of our shareholders. The Company has chosen book value stock as the primary form of incentive stock because book value is the one value that members of management and sales and service personnel directly affect by their individual and collective actions. Earnings of the Company are either added to the book value per share or paid out as dividends on all outstanding shares (including book value shares whether or not still subject to forfeiture). In this way, book value more closely reflects the real economic value of the Company and is not subject to fluctuations in the stock market that are unrelated to the long-term performance of the Company. Inappropriate risk-taking is discouraged through the five year forfeiture period of book value share awards because imprudent short-term risk taking would be likely to impair the long-term value of awards. Inappropriate risk-taking is further discouraged through restrictions on the sale of book value shares that, with limited exceptions, require recipients to hold the shares until retirement and then sell them back to the Company at the then book value, with the purchase price payable in installments over a five year period. The limited exceptions allow executives, subject to the Committee’s approval, to sell back to the Company up to 50% of those book value shares for which the risk of forfeiture has been lapsed for seven or more years and only for the purchase of a personal residence or second home, college education tuition or financial hardship. The Company believes that equity-based compensation using book value stock under the EIP ties participants’ economic incentives directly to the long-term, substantive and sustainable economic performance of the Company. It encourages them to make sound business decisions that will grow the Company carefully over time and strengthen its financial position and should discourage decisions designed only for short-term personal gain. This decision-making for the long-term is reinforced as these stock awards can become a significant portion of a participant’s net worth over time.
•How we determine the amount.
Awards under the EIP are determined annually following the close of the fiscal year based on performance against a series of metrics selected and weighted for each participant at the beginning of the year. The EIP offers participants the potential for an annual cash award and a long-term stock award.
▪Annual Cash Awards:Awards: Each management participant under the EIP is assigned a “partnership level” percentage that is the starting point for determining his or her annual cash award. Partnership level percentages range from 4.25% to 15% of the salary range midpoint assigned by the Committee for purposes of computing the EIP award or the base salary of a participant. For 2017,2023, the partnership level percentage of the NEOs was 15% of base salary for Mr. Murphy and 10% of base salary for Ms. Short and Messrs. GriffithBauer, Buhr and Seitz, and 8% of base salary for Mr. Buhr.Griffith. The “base bonus” for each NEO participant is equal to the participant’s base salary or salary midpoint multiplied by the relevant partnership share percentage.
That dollar amount is further adjusted up or down by the “Company Performance Factor.” Beginning in 2023, the Committee decided to use a Company Performance Factor based on the Company’s return on assets performance compared to the performance of its $3 to $10 billion peer group. The Company Performance Factor is 2.5 timesset at 100% at the percentage50% percentile and then is increased by which actual net income1% for each percentile above 50% to a maximum Company Performance Factor of 125% at the 75th percentile level or above. The Company Performance Factor is reduced by 2.5% for each percentile below 50% to a minimum of 75% at the 40th percentile level. As all year-end peer group results were not available at the time the Committee made its annual awards in February 2024, the Committee used the year-to-date results as of September 30, 2023 but reserved the right to subsequently adjust the awards based on the final year-end results if it deems necessary. For September 2023 year-to-date, the Company’s reported return on assets of 1.54% resulted in the Company performing at the 92nd percentile level compared to its $3 to $10 billion peer group. This translated to a positive adjustment of 25% for the year exceeded (or missed) budgeted net income with a maximum adjustment of 25%Company Performance Factor. Thus, the Company Performance Factor for 2023 was 125%.
The Committee is authorized to make adjustments to reported net income and return on assets for purposes of determining the Corporate Performance Factor.Factor and other EIP performance metrics. Historically, the Committee has done so when, in the Committee’s judgment, the reported net income included unusual or one-time items that distorted the true substantive or normalized earnings of the Company. The Committee chose to adjustuse the Company’s reported net income of $68.05$124.93 million as the starting metric. The Committee chose to $65.65exclude the Company’s fourth quarter losses of $2.88 million from the sale of available-for-sale securities for purposesrepositioning of determining the Company Performance Factorinvestment securities portfolio (net of related income tax effects), which the Committee had pre-approved. The Committee also chose to exclude the Company’s $1 million December 2023 contribution to the 1st Source Foundation (net of related income tax effects). These adjustments were used as follows:noted in the corporate-level performance goals below.
|
| | | | |
| ($000s) | Item Amount |
| Company Performance Factor Adjustment – Net of Tax |
|
| Reported net income | | $68,051 |
| Adjustments: | | |
| Nonrecurring security and other gains or losses | $3,434 | (2,145 | ) |
| Contributions to 1st Source Foundation | (2,459 | ) | 1,536 |
|
| Customer Relationship Management system expenses | (1,313 | ) | 820 |
|
Net deferred tax liabilities revaluation – 2017 Tax Cuts and Jobs Act | (2,614 | ) | (2,614 | ) |
| Adjusted net income for Company Performance Factor | | $65,648 |
For 2017, adjusted net income was approximately 4.6% over budget resulting in a positive adjustment of 11% for the Company Performance Factor. Thus, the Company Performance Factor for 2017 was 111%.
For each individual, the base bonus after adjustment for the Company Performance Factor is further adjusted up or down between 0% and 300% based upon the participant’s performance against a set of corporate, group and individual performance goals established at the beginning of the fiscal year. Target amounts are scored at 150% of weighting for staff management personnel while they are scored at 200% for sales, credit and line management personnel. For example, if the Company achieves a corporate-level goal exactly at target and the goal is weighted for the individual at 10%, a staff person’s result is scored as 15% of their base salary or salary range midpoint assigned for EIP purposes while a sales, credit or line person’s result is scored as 20% of their base salary or salary range midpoint assigned for EIP purposes. The total of the annual cash and stock awards to a single participant may not exceed $1 million.
The corporate-level financial performance goals for each of the NEOs in 20172023 included a combination of the following depending upon the NEO’s role and responsibilities:
| | | | | | | | | | | | | | |
| Objective | Minimum | Target | Maximum | Actual |
| | | | |
Net income(1) | $120,509 | $122,682 | $128,816 | $127,894 |
Return on assets(1) | 1.33% | 1.45% | 1.70% | 1.52% |
Exceed median ROA results for $3 to $10 billion peers(2) | 58 of 108 | 53 of 108 | 36 of 108 | 10 of 108 |
Return on common equity(1) (3) | 11.45% | 11.66% | 12.60% | 12.00% |
| Revenue growth | 5.26% | 7.01% | 12.27% | 6.00% |
Expense to revenue ratio(1) | 53.03% | 51.99% | 48.09% | 53.93% |
Loan growth(4) | 8.32% | 11.09% | 16.63% | 11.86% |
Core deposit growth(5) | 1.50% | 3.00% | 4.50% | -4.75% |
| Year-end nonperforming assets | 1.40% | 1.00% | 0.35% | 0.37% |
| Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 0.38% | 0.15% | 0.08% | -0.04% |
| | | | |
Percent of diverse exempt colleagues of total exempt colleagues at year-end(6) | 11.80% | 12.30% | 13.30% | 13.37% |
| Net new primary relationships | 90% of Target | Target | 130% of Target | 15% of Target |
| (1) Actual amounts computed using adjustments described above. |
| (2) Computed as of September 30, 2023 for reasons discussed above. |
| (3) Computed based on common equity excluding accumulated other comprehensive loss. |
| (4) Computed from 2022 base amount excluding PPP loans. |
| (5) Core deposits are defined as total deposits excluding brokered deposits and time deposits over $250,000. |
| (6) Total Company result. Adjusted for impact of one exempt hire in 2023 who subsequently passed away. |
|
|
| | | | |
| Objective | Minimum | Target | Maximum | Actual |
| | | | | |
| Net income | $62,146 | $62,775 | $64,032 | $65,648 |
| Return on assets | 0.91% | 1.10% | 1.26% | 1.16% |
| Exceed median ROA results for $3 to $10 billion peers | 60 of 101 | 51 of 101 | 34 of 101 | 15 of 101 |
| Return on common equity | 8.69% | 9.07% | 10.63% | 9.35% |
| Expense to revenue ratio | 58.56% | 57.12% | 55.17% | 56.57% |
| Loan growth | 3.63% | 7.18% | 9.99% | 5.34% |
| Core deposit growth | 2.94% | 5.81% | 8.09% | 4.59% |
| Year-end nonperforming assets | 1.22% | 0.90% | 0.33% | 0.67% |
| Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 0.34% | 0.15% | 0.07% | 0.07% |
| Net new primary relationships | 87% of Target | Target | 125% of Target | 85% of Target |
The corporate financial performance goals assigned to each of the NEOs and the weightings of corporate, group and individual performance goals for each of the NEOs were as follows:
| | | Objective | Mr. Murphy | Mr. Seitz | Ms. Short | Mr. Griffith | Mr. Buhr | Objective | Mr. Murphy | Ms. Short | Mr. Bauer | Mr. Griffith | Mr. Buhr |
| Corporate Financial Performance Goals | |
| Net income | |
| Net income | |
| Net income | 15% | 10% | 5% | 13.5% | 9.0% | 9.2% | 4.6% |
| Return on assets | 15% | — | 10% | 5% | Return on assets | 9.0% | 4.5% | 9.2% | 4.6% | 9.2% |
| Exceed median ROA results for $3 to $10 billion peers | 15% | 10% | Exceed median ROA results for $3 to $10 billion peers | 13.5% | 9.0% | 9.2% |
| Return on common equity | 10% | — | 5% | — | Return on common equity | 9.0% | 4.5% | 4.6% | — |
| Expense to revenue ratio | 15% | 25% | 20% | 5% | Expense to revenue ratio | 13.5% | 4.5% | 23.0% | 13.8% | — |
| Revenue growth | | Revenue growth | 4.5% | 9.0% | 9.2% | 4.6% |
| Loan growth | — | 10% | — | 7.5% | — | Loan growth | — | 9.0% | — | 4.6% | 7.4% |
| Core deposit growth | — | 15% | — | 7.5% | — | Core deposit growth | — | 13.5% | 4.6% | 9.2% | — |
| Year-end nonperforming assets | 10% | 5% | — | 15% | Year-end nonperforming assets | 9.0% | — | 13.8% |
| Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 10% | 5% | — | 15% | Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 9.0% | 4.5% | — | 13.8% |
Percent of diverse exempt colleagues of total exempt colleagues at year-end(1) | | Percent of diverse exempt colleagues of total exempt colleagues at year-end(1) | 10.0% | 8.0% |
| Net new primary relationships | 10% | 15% | 5% | Net new primary relationships | 9.0% | 13.5% | 9.2% | 4.6% |
| Group financial performance goals | — | 15% | 35% | 20% | 40% | Group financial performance goals | — | 13.8% | 18.4% | 24.8% |
| Enhance enterprise risk management | — | 10% | — | Enhance enterprise risk management | — | 13.8% | — |
| Total weighting | 100% | Total weighting | 100% |
| Target amount scoring | 200% | 150% | 200% | Target amount scoring | 200% | 150% | 200% |
| | (1) Score based on total Company for Mr. Murphy and Ms. Short and on their respective reporting units for Mr. Bauer, Mr Griffith, and Mr. Buhr. | |
| (1) Score based on total Company for Mr. Murphy and Ms. Short and on their respective reporting units for Mr. Bauer, Mr Griffith, and Mr. Buhr. | |
| (1) Score based on total Company for Mr. Murphy and Ms. Short and on their respective reporting units for Mr. Bauer, Mr Griffith, and Mr. Buhr. | |
In assessing performance against these performance goals, the Committee considers quantitative and qualitative factors, and ultimately uses its judgment when determining the amount and terms of individual awards. However, in the calculation of Mr. Murphy’s award, his award was first calculated based upon quantitative factors in order to comply with IRS Code Section 162(m). Then the Committee has the authority to consider qualitative factors to reduce the amount of the award to Mr. Murphy. The qualitative factors the Committee considers to adjust awards include:
•The recommendations of Mr. Murphy with respect to the achievement of group and individual performance goals of the other NEOs and all other participants in the EIP.
•An analysis of competitive marketplace compensation data as described above;
•An analysis of the Company’s performance compared to its peer groups as described above;
•An analysis of the Company’s performance compared to its overall quantitative and qualitative goals;
•The executive’s level of responsibility and ability to influence the Company’s performance;
•The executive’s level of experience, skills and knowledge;
•The need to retain and motivate highly talented executives;
•Corporate governance considerations related to executive compensation; and
•The Company’s current business environment, objectives and strategy.
For 2017,2023, Mr. Murphy received the award as computed based upon quantitative factors. Messrs.Mr. Murphy, Seitz,Ms. Short and Mr. Buhr were scored as part of sales, credit and line management personnel. Mr. GriffithBauer and Ms. ShortMr. Griffith were scored as part of staff management personnel.
▪Annual cash awards: These are paid following the Committee’s approval of the awards. For the NEOs, the Committee approved cash awards for 20172023 performance as follows:
| | | Mr. Murphy | $288,000 | | Mr. Griffith | $77,900 | Mr. Murphy | $326,400 | | Mr. Griffith | $82,000 |
| Mr. Seitz | $73,450 | | Mr. Buhr | $48,150 |
| Ms. Short | $69,550 | | Ms. Short | $116,350 | | Mr. Buhr | $91,450 |
| Mr. Bauer | |
These amounts are shown on the 20172023 lines of the “Non-Equity Incentive Compensation Plan” column of the Summary Compensation Table below.
| |
▪
| Annual Book Value Stock Awards: The amount of the annual cash award under the EIP is matched with an equal amount of book value stock that is subject to forfeiture ratably over a five-year period in the event the Company fails to achieve designated annual performance hurdles or the participant’s employment terminates. For 2017, the Committee chose a 15% EPS growth requirement for 2018 and 4% for 2019 through 2022 or a 1.20% annual return on assets as alternative performance hurdles for releasing the forfeiture restrictions on the awards of book value stock approved for 2017 performance. The Committee believes that this combination of requirements collectively represents a reasonable hurdle for participants to motivate future performance based on, among other factors, the peer group performance documented above. The Committee also has the authority under the EIP to evaluate whether forfeiture of book value shares is appropriate if the Company’s performance results are in the top quartile of its peer groups notwithstanding failure of the Company to achieve the performance hurdles. This additional authority gives the Committee flexibility to respond to external events or market conditions.
|
▪Annual Book Value Stock Awards: The amount of the annual cash award under the EIP is matched with an equal amount of book value stock that is subject to forfeiture ratably over a five-year period in the event the Company fails to achieve designated annual performance hurdles or the participant’s employment terminates. For 2023, the Committee chose a 3% EPS growth requirement or a 1.20% annual return on assets. The Committee believes that this combination of requirements collectively represents a reasonable hurdle for participants to motivate future performance based on, among other factors, the peer group performance documented above. The Committee also has the authority under the EIP to evaluate whether forfeiture of book value shares is inappropriate if the Company’s performance results are in the top quartile of its peer groups notwithstanding failure of the Company to achieve the performance hurdles. This additional authority gives the Committee flexibility to respond to external events or market conditions.
Mr. Murphy’s annual cash award is matched with an equivalent value in book value stock subject to the same performance hurdles.hurdles as with all employees under the EIP. As the risk of forfeiture lapses over the five year period based on achievement of performance hurdles, he is paid the value of book value stock in cash. His book value stock awards ultimately paid in cash are shown in the “Stock Awards” column of the Summary Compensation Table in the year the awards are made, consistent with the presentation for the other NEOs. The Committee believes Mr. Murphy’s ownership interest in the Company is already significant and sufficiently aligned with shareholder interests that the book value share awards under the EIP can be denominated and paid in cash as the forfeiture risk lapses.lapses without impairing the objectives of the EIP.
The annual stock awards for 20172023 performance were made in calendar year 2018. Thus,2024. As required by SEC rules, the 20172023 stock award amounts for the NEOs will be shown in next year’s proxy statement on the 20182024 lines under the Stock Awards column of the Summary Compensation Table. The annual book value stock awards for 20162022 (made in 2017)2023) are shown on the 20172023 lines of the “Stock Awards” column of the Summary Compensation Table below.below as required by SEC rules.
Long-Term Plan Awards Under the EIP
•Why we pay this component
In addition to the annual incentive award of cash and book value stock, the EIP also offers management participants an additional periodic award of cash and stock in the event the Company achieves longer-term performance goals. These performance goals are established periodically (usually every 3 years) as part of the Company’s ongoing long-term strategic planning process. These awards are also designed to reward consistent individual performance over the long termlong-term as individual performance is calculated based on the participant’s average annual incentive awards under the EIP over the three-year period. These awards further reinforce alignment with the interests of our shareholders by encouraging a long-term view with sound strategic planning and risk management and providing participants with an opportunity for additional ownership of the Company but with the same market risk to which shareholders of the Company are exposed.
•How we determine the amount.
▪Calculation of Amount of the Long-Term Plan Awards: The most recent 3-year performance goal period ended in 20162022 with targets set in early 20142020 and awards being determined and paid in early 2017.2023. The goals for2020-2022 targets, results and cash payments to the 2014-2016 period included the following:
|
| | | | | |
| | Weighting | Minimum | Target | Maximum | Actual |
| | | | | | |
| Return on assets | 15% | 1.10% | 1.25% | 1.40% | 1.08% |
| Expense to revenue ratio | 15% | 57.00% | 55.00% | 53.00% | 60.24% |
| Net interest margin | 10% | 3.45% | 3.60% | 3.75% | 3.43% |
| Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 15% | 0.45% | 0.30% | 0.15% | 0.13% |
| Period-end nonperforming assets | 15% | 2.00% | 1.50% | 0.75% | 0.70% |
| Net new primary checking accounts | 30% | 80% of Target | Target | 125% of Target | 125% of Target |
The goals for the 2017-20192023-2025 period include the following:
| | | | | | | | | | | | | | |
| Weighting | Minimum | Target | Maximum |
| | | | |
| Weighting | Minimum | Target | Maximum |
| | | | |
| Return on assets | 15%19% | 87%89% of Target | Target | 113%111% of Target |
| Expense to revenue ratio | 15%10% | 104%110% of Target | Target | 96%90% of Target |
Net interest marginAverage total assets | 10%14% | 96%95% of Target | Target | 106%105% of Target |
| Net charge offs and other credit-related losses to average loans, leases, repossessed assets and other real estate | 15%9% | 180%150% of Target | Target | 60%50% of Target |
| Period-end nonperforming assets | 15%9% | 133%200% of Target | Target | 50%75% of Target |
| Growth in net new primary relationships | 30%19% | 51%75% of Target | Target | 119%150% of Target |
| Community Bank loans (non-Specialty Finance Group) to total loans | 15% | 96% of Target | Target | 106% of Target |
| Percent of diverse exempt colleagues of total exempt colleagues at year-end | 5% | 96% of Target | Target | 108% of Target |
Company performance is scored at 50% for minimum, 100% for target and 200% for maximum. The three yearthree-year awards then are calculated based upon a pre-determined mathematical formula that multiplies the Company’s weighted performance relative to its long-term goals by an assigned percentage and then by the participant’s average annual incentive award under the EIP over the three yearthree-year period. The participant may earn from 0% to 200% of his/her average annual incentive awards over the three yearthree-year period. The total of the annual cash and stock awards to a single participant may not exceed $1 million. For the 2014-2016 period, the assigned percentages of the NEOs for purposes of the three year long-term awards were as follows:
|
| | | | | | |
| Mr. Murphy | 100 | % | | Mr. Griffith | 90 | % |
| Mr. Seitz | 100 | % | | Mr. Buhr | 90 | % |
| Ms. Short | 90 | % | | | |
For the 2017-20192023-2025 period, the assigned percentages of the NEOs for purposes of the three year long-term awards are as follows:
| | | | | | | | | | | | | | |
| Mr. Murphy | 100 | % | | Mr. Griffith | 90 | % |
| Ms. Short | 100 | % | | Mr. Buhr | 90 | % |
| Mr. Bauer | 90 | % | | | |
|
| | | | | | |
| Mr. Murphy | 100 | % | | Mr. Griffith | 90 | % |
| Mr. Seitz | 100 | % | | Mr. Buhr | 90 | % |
| Ms. Short | 90 | % | | | |
Method of Payment of Periodic Long-Term Awards: The periodic long-term awards are paid with a combination of cash and market value stock, with more senior participants required to take a higher percentage of stock. The stock portion is subject to forfeiture over a five-year period based upon the participant remaining with the Company and the Company remaining profitable during the period. For Mr. Murphy and Mr. Seitz, the split for the 2014-16 performance period was 25% cash and 75% stock. For Ms. Short, Mr. Griffith, and Mr. Buhr, the split was 30% cash, 70% stock. Cash was paid to the NEOs (and other participants) upon approval of the awards by the Committee. For Mr. Murphy, the stock portion of his award was subject to the same forfeiture term but because of his existing ownership interest in the Company, the Committee approved payment to Mr. Murphy in cash as the five-year forfeiture period lapses. This market value stock award ultimately paid in cash is shown in the “Stock Awards” column of the Summary Compensation Table in 2017, the year the award was made, consistent with the presentation for the other NEOs. For performance during 2014 through 2016, the NEOs received periodic long-term awards as follows:
|
| | | | | | | | | | | |
| | Cash | Stock | Total | | | Cash | Stock | Total |
| Mr. Murphy | $119,500 | $358,600 | $478,100 | | Mr. Griffith | $32,300 | $75,500 | $107,800 |
| Mr. Seitz | 32,500 | 97,600 | 130,100 | | Mr. Buhr | 28,500 |
| 66,600 |
| 95,100 |
|
| Ms. Short | 28,400 | 66,400 | 94,800 | | | | | |
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| Cash | Stock | Total | | | Cash | Stock | Total |
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The cash portions of the 2014-162020-2022 awards are shown on the 20162022 lines of the Non-Equity Incentive Compensation Plan column of the Summary Compensation Table. The stock portions of the 2014-162020-2022 awards were made in calendar year 20172023 and are shown in this proxy statement on the 20172023 lines of the Stock Awards column of the Summary Compensation Table.Table as required by SEC rules.Annual Incentive Awards Under the Strategic Deployment Incentive Plan (SDIP)
•Why we pay this component.
NEOs have an additional incentive compensation plan available to them which is designed to encourage execution of the Company’s strategic objectives on an annual and a long-term basis. NEOs and other members of senior management are eligible to participate. Mr. Murphy, Ms. Short and Messrs. Buhr, Griffith and SeitzBauer were participants in the SDIP for 2017.2023.
Any awards (“Awards”) made to participants under the SDIP are performance-based compensation with three dimensions. First, the SDIP is designed to encourage the participants to focus on initiatives that support the Company’s long-term strategic objectives but not at the expense of meeting or exceeding the expectations offailing to meet our shareholders as reflected in the annual performance goals approved by the Board. Thus, there will be no Awards unless the Company achieves its minimum net income goal.
Second, the amount of the Awards is calculated as a percentage of the Company’s annual net income. Sharing a modest portion of net income with the participants who successfully lead and execute the initiatives designed to meet the Company’s long-term strategic objectives directly aligns their performance on these initiatives with the long-term interests of shareholders. At the beginning of each calendar year, theThe Committee sets a range for each of the participants reflected by a minimum, target and maximum percentage of net income. In setting the percentages, the Committee considers the roles and responsibilities of each participant with respect to the Company’s long-term strategic objectives.
Third, the Committee determines the final percentage of net income within the respective pre-established ranges by reference to pre-established shared and/or individual goals for the participants that support the Company’s long-term strategic objectives (“Annual Strategic Goals”). The Committee assigns Annual Strategic Goals to each of the participants at the beginning of each calendar year using objective performance targets or criteria and weightings among the Annual Strategic Goals. The Committee then uses the results achieved during the calendar year (individually or in aggregate) to determine the Award for each participant within the applicable range of percentages of net income. See “How we determine the amount” below for calculation and the payment of awards.
All determinations of eligibility, Annual Strategic Goals, financial metrics and formulas for calculation of Awards for a calendar year are established by the Committee in writing no later than ninety (90) days after the beginning of the calendar year or by such other date as may be permitted under Section 162(m) of the Internal Revenue Code of 1986 and regulations thereunder.writing. No Award to any single participant can exceed $1 million in one calendar year. No performance measures for a participant’s Annual Strategic Goals will allow for any discretion by the Committee to increase an Award over the maximum percentage of net income determined by the Committee at the beginning of the calendar year, but the Committee does have discretion to reduce an Award below the maximum percentage of net income to any amount it believes is justified based on the actual results achieved related to the Annual Strategic Goals. The payment of any Award under the SDIP to a participant with respect to a relevant calendar year is contingent upon certification by the Committee prior to any such payment that the applicable performance measure(s) or criteria for the participant’s Annual Strategic Goals have been satisfied. All awards under the SDIP are subject to potential forfeiture and/or recovery by the Company in the event they are based upon financial results that are subsequently determined to have been overstated.
•How we determine the amount.
Under this program, awards for participants are based on the net income of the Company. The Committee set the range from 0.00% to 1.60%1.50% of net income for the total program with a target of 0.80%0.75% for 2017.2023. All awards are subject to the Company achieving a minimum net income of $59.0 million.$116.5 million (95% of budgeted net income). The Committee set the following individual award levels as a percentage of the Company’s net income:
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| Minimum | Target | Maximum |
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| Mr. Murphy | 0% | 0.21% | 0.42% |
| Ms. Short | 0% | 0.13% | 0.26% |
| Mr. Griffith | 0% | 0.10% | 0.20% |
| Mr. Buhr | 0% | 0.10% | 0.20% |
| Mr. Bauer | 0% | 0.11% | 0.22% |
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| | Minimum | Target | Maximum |
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| Mr. Murphy | 0% | 0.30% | 0.60% |
| Mr. Seitz | 0% | 0.15% | 0.30% |
| Ms. Short | 0% | 0.15% | 0.30% |
| Mr. Griffith | 0% | 0.10% | 0.20% |
| Mr. Buhr | 0% | 0.10% | 0.20% |
For 2017,2023, the goals and weightings were as follows:
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1. Achieve targeted levels of mobile and digital product adoption by both business and consumer customers. Maximum score for each targeted level is based on 200% of the goal amount. | 40% |
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2. Achieve 2017 core deposit growth goals for specific growth markets. Goals were set at a target of 150% or 200% of the market growth rate for core deposits. Maximum score for each targeted level is based on 150% of the goal amount. | 20% |
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3. Adoption and installation of a sales management system across the bank including change management process to ensure full use and selection and plan for loan work flow by early 2018. | 25% |
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4. Achieve staff reductions and targeted branch closings related to transaction levels in branches due to adoption of debit card mobile and on-line technology in 2017. | 15% |
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Total weighting using metrics set at the beginning of the year | 100% |
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5. Qualitative goal to be judgmentally used by the Committee to adjust downward the awards under the above metrics either for the group or for each NEO individually. | |
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| Weight | Min | Target | Max | Result |
| 1. Core/Total Deposit Growth* | 15% | 1.50%/2.00% | 3.00%/4.00% | 4.50%/6.00% | -4.75%/3.66% |
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| 2. New Enterprise Project Management Office: Projects completed on time out of 36 total | 20% | 18 | 22 | 30 | 25 |
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| 3. Branch Account Opening + Omni Channel with Mobile Account Opening | 15% | | | | 70% of Maximum |
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| Pilot went live on September 22 with all available products. We were fully operational across all branches before year-end. We have completed majority of clean-up. |
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| 4. Incorporated eSign into commercial documents for all Business Banking and Specialty Finance documents by year-end 2023 and fix other primary pain points in commercial banking systems. | 15% | | | | 37.5% of Maximum |
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| Completed 5 of 7 pain points. We established eSign in production, but the roll-out is in Q1 2024. |
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| 5. Move data warehouse into new location by year-end 2023. | 15% | | | | 25% of Maximum |
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| Defined, identified, and mapped all data files by July. Data warehouse replacement needed to be re-architected, and additional resources were required. Data warehouse will be moved in by Q1 2024. |
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| 6. Percentage of our exempt population that is diverse as of December 31, 2023. (Actual adjusted for impact of one exempt hire in 2023 who subsequently passed away.) | 10% | 11.8% | 12.3% | 13.3% | 13.37% |
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| 7. Address data recovery gaps with development and testing plan | 10% | | | | 75% of Maximum |
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| 75% of all eligible application servers were operated in disaster recovery location for over a week (some over one month) and were successfully migrated back. 99% of all eligible application servers were replicated and validated but not failed over and back. |
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| 8. Qualitative goal to be judgmentally used by the Committee to adjust downward the awards under the above metrics either for the group or for each NEO individually. | | | | | |
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| *Core deposits are defined as total deposits excluding brokered deposits and time deposits over $250,000. |
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The Committee assesses performance against these goals and each individual’s contributions to the achievement of the goals including the quality of teamwork exhibited and the individual’s contribution to the team. In assessing performance against these performance goals, the Committee considers quantitative factors first and may adjust downward for qualitative factors, and ultimately uses its judgment when determining the amount and terms of individual awards. The Committee did not make an adjustment for qualitative factors in 2023.
The Company earned net income that exceeded the minimum net income goal of $59.0 million. The Committee chose to pay the entire bonus amounts in cash. The annual cash awards are paid following the Committee’s approval of the awards. For the 20172023 participants, the Committee approved cash awards for 20172023 performance as follows:
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| 2023 Award | | | | |
| Mr. Murphy | $216,600281,400 | | | | |
Mr. SeitzMs. Short | $111,600166,300 | | | | |
Ms. ShortMr. Griffith | $111,600127,900 | | | | |
Mr. GriffithBuhr | $72,200127,900 | | | | |
Mr. BuhrBauer | $72,200140,700 | | | | |
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Awards Under the 1982 Restricted Stock Award Plan
•Why we pay this component.
The Restricted Stock Award Plan provides for the grant of restricted shares to selected executives and other key employees of the Company as a means of inducing continued future employment and performance of such key employees. The Restricted Stock Award Plan provides that the shares shall vest over a period of time if the participant continues to serve as an employee. Additionally, the Committee may set additional vesting requirements at the time of grant based on the individual participant’s performance, the Company’s financial performance or both. If the participant does not meet or exceed his or her individual performance goal(s) for a given year, all shares so restricted with respect to that year will be forfeited. If 1st Source does not meet the financial requirements by the end of the vesting period, the shares so restricted are forfeited. The Committee retains discretion to make periodic stock awards from time to time in the future to maximize the usefulness of the Restricted Stock Award Plan in attracting, retaining and motivating key employees.
•How we determine the amount.
No named executive officers received awards under the Restricted Stock Award Plan in 2015, 2016, or 2017.2023. In 2021, Mr. Bauer received a restricted award in conjunction with his promotion in 2021, to be earned over the following five years subject to his remaining with the Company. The Committee made this award in recognition of Mr. Bauer’s increased responsibilities and past performance, as a retention incentive, and to tie his long-term financial incentives more closely to that of the Company’s shareholders. The Committee made the awards after reviewing Mr. Bauer’s total compensation at the time of his promotion.
Stock Ownership Guidelines
In February 2015, the Company established stock ownership guidelines for its NEOs. The Company requires the CEO to own Company stock with value at least equal to five times the CEO’s current base salary and other NEOs to own Company stock with a value at least equal to three times the NEO’s current base salary. All of the Company’s NEOs are currently in compliance with this requirement.
Hedging or Pledging Company Securities
In February 2015, the Company adopted a policy prohibiting directors, NEOs and other Senior Vice Presidents or above from pledging shares of the Company on margin, trading in derivative securities of the Company’s common stock, engaging in short sales or buying or selling put or call options on the Company’s common stock, and purchasing or selling other financial instruments designed to hedge or offset any decrease in the market value of the Company’s common stock. Shares owned by directors, NEOs and other Senior Vice Presidents in excess of those required to be owned by Company stock ownership guidelines may be used as collateral for the owner’s personal or business borrowing purposes upon notification of and prior approval by the Governance and Nominating Committee.
Most Recent Shareholder Advisory Vote
The Executive Compensation and Human Resources Committee carefully considered the results of the 20172023 shareholder advisory vote on executive compensation. The CEO also reviewed and discussed the results of the vote with selected larger shareholders. The result of the advisory vote was that 99%89% of votes cast approved of the executive compensation of the NEOs as described in the 20172023 Proxy Statement. The results indicated shareholder support for the Company’s executive compensation decisions and policies and the Committee has continued to make its compensation decisions consistent with historical practice and existing policies. The Committee also carefully considered the results of the 20172023 shareholder advisory vote on the frequency of future advisory votes on executive compensation. The result of the advisory vote was that 67%58% of votes cast supported a vote every three years. The Committee elected to continue its practice of having a vote every three years.
Shareholders are given an opportunity to cast an advisory vote on the Company’s executive compensation program every three years with the next opportunity occurring in connection with the annual shareholder meeting in April 2020.2026.
Shareholders are also given an opportunity to cast an advisory vote on the frequency of future shareholder advisory votes on executive compensation with the next opportunity occurring in connection with the annual shareholder meeting in April 2023.2029.
Risk Management
As discussed above, the senior executive officer compensation plans and other management incentive programs include both equity and cash components that link compensation to the Company’s overall performance on both a short-term and long-term basis, subject to forfeiture based on the senior executive officers or participating management officers failing to remain with the Company and on long-term real economic performance of the Company. As such, these plans do not encourage the senior executive officers or participating management officers to take unnecessary and excessive risks that threaten the Company. Nor do they encourage the manipulation of earnings of the Company to enhance the compensation of any employee.employee because awards are subject to independent confirmation by the Committee and subject to many objective and discretionary factors, other than our net income, that are not susceptible of inappropriate influence by recipients.
The Committee also identified and reviewed the Company’s five business unit incentive plans, each of which rewards measurable performance in the Company’s five major product and service segments: Business Banking, Consumer Banking, Specialty Finance, Trust and Asset Management, and Insurance. Each of these incentive plans has common features that encourage high quality, long-term relationship business and discourage unnecessary or excessive risks for short-term gain. In particular, short-term cash awards generally are capped at a specific dollar amount or a percentage of a participant’s salary midpoint or base salary. In practice, actual awards generally have been much less than the maximum amount after applying the respective individual performance metrics under the plans. Annual stock awards are similarly limited to a percentage of a participant’s salary midpoint and have long-term attributes. They carry substantial risks of forfeiture over a five-year period if performance hurdles that are tied to Company performance are not cleared. They are made in book value common stock transferable only to the Company upon death, disability, normal retirement, early termination of employment, or with discretionary approval of the Committee, with less favorable payout terms upon early termination of employment. The incentive plans for lenders further mitigate excessive risks by including substantial weightings or deductions for credit quality and net charge-offs. The Committee also identified and reviewed the Company’s referral programs designed to encourage internal referrals by providing small, immaterial cash incentives to eligible participants.
These features, combined with the systems of controls in place to mitigate the risks of the products and services the Company offers, limit and discourage the taking of unnecessary or excessive risks. They also discourage and mitigate the risk of manipulation of reported earnings to enhance the compensation of any employee. None of these incentive plans or referral programs, alone or in aggregate, encourages unnecessary or excessive risks or presents significant risks to the Company as a whole.
Clawbacks
IfWe maintain a policy providing for clawback of management compensation if it is determined to have been inappropriately awarded. Under that policy, if the Company (i) is required to prepare an accounting restatement of its financial statements due to the Company’s noncompliance with any financial reporting requirement under the securities laws, or (ii) otherwise determines that financial results or other metrics used to determine the amount of any incentive awards paid or awarded to any Participants were misstated or otherwise inaccurate, then the Committee shall, except in the case of any Participant who had no responsibility for the accounting that led to the misstatement or inaccuracy, recoup any excess incentive compensation received by any such Participant. TheAdditionally, the Committee shall recoup all incentive compensation received by any Participant who had responsibilities for the accounting that led to the misstatement or inaccuracy or who the Committee determines committed fraud or other malfeasance while employed by the Company.
Employment Agreements Severance Provisions
Among the NEOs, the Company has entered into employment agreements with Mr. Murphy, Mr. Seitz, Ms. Short, Mr. Griffith, Mr. Buhr, and Mr. Buhr.Bauer. The agreements provide for severance payments in the event of the executive’s termination of employment by the Company without cause or by the executive because of good reason, including a material adverse change in his or her status such as a material diminution of responsibility or relocation. In such event, the executive would continue to receive only his or her base salary for a period of time after his or her termination. Mr. Murphy would receive the equivalent of 36 months of base salary with the first six months payable in a lump sum. Mr. Seitz, Ms. Short, MrMr. Griffith, Mr. Buhr, and Mr. BuhrBauer would receive the equivalent of twelve months of base salary with the first six months payable in a lump sum. The Committee believes that providing severance payments to certain executives in the event the executives terminate employment because of a material adverse change in status is necessary and fair given the critical nature of the roles of the executives. As of December 31, 2016,2023, Mr. Murphy, Mr. Seitz, Ms. Short, Mr. Griffith, Mr. Buhr, and Mr. BuhrBauer would receive $2.19$2.48 million, $345,000, $310,000, $352,500,$470,000, $415,000, $375,000, and $300,000,$290,000, respectively under the agreements.
The employment agreements also provide for severance payments in the event Mr. Murphy, Mr. Seitz, Ms. Short, Mr. Griffith, Mr. Buhr, or Mr. BuhrBauer terminates his or her employment for good reason within one year of a change in control transaction. Under these circumstances, the executive would receive severance pay in cash equal to 2.99 times his or her “Annualized Includable Compensation for the Base Period” (as defined under the Internal Revenue Code of 1986, as amended) without a gross-up provision. The Committee reaffirmed its long-standing view that such a “two-trigger” change in control provision for key executives is consistent with the interests of shareholders and fair protection to the executives.
Tax Deductibility of Pay
Federal income tax law caps at $1,000,000 the deductible compensation per year for each of the NEOs, subject to certain exceptions (some of which may change in 2018).NEOs. In developing and implementing executive compensation policies and programs, the Executive Compensation and Human Resources Committee considers whether particular payments and awards are deductible for federal income tax purposes, along with other relevant factors. The Executive Compensation and Human Resources Committee has taken what it believes to be appropriate steps to maximize the deductibility of executive compensation. It is the general intention of the Executive Compensation and Human Resources Committee to meet the requirements for deductibility whenever possible. The Executive Compensation and Human Resources CommitteeCompany will continue to review and monitor the deductibility of compensation.compensation and provide any necessary information on new developments in this area to the Committee.
SUMMARY COMPENSATION TABLE
The following table provides information regarding compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer, and the three other executive officers employed at the end of 20172023 who were the most highly compensated in 20172023 among the major policy-making executives of the Company.
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| Name and Principal Position | Year | Salary($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation($) | All Other Compensation($)(2) | Total(6) |
| Christopher J. Murphy III | 2023 | $821,495 | | $1,158,576 | | $607,800 | | $180,729 | | $2,768,600 |
| Chairman of the Board, President and | 2022 | 810,000 | | 449,554 | | 947,750 | | 157,592 | | 2,364,896 |
| Chief Executive Officer, 1st Source | 2021 | 808,269 | | 235,254 | | 827,550 | | 139,138 | | 2,010,211 |
| Corporation and Chairman of the Board, | | | | | | | | | | |
| 1st Source Bank | | | | | | | | | | |
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| Andrea G. Short | 2023 | 465,392 | | 378,734 | | 282,650 | | 131,178 | | 1,257,954 |
| Executive Vice President, 1st Source | 2022 | 417,348 | | 133,122 | | 393,800 | | 119,868 | | 1,064,138 |
| Corporation and President and Chief Executive | 2021 | 385,385 | | 71,502 | | 327,800 | | 103,558 | | 888,245 |
| Officer, 1st Source Bank | | | | | | | | | | |
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| John B. Griffith | 2023 | 411,539 | | 273,432 | | 209,900 | | 51,919 | | 946,790 |
| Executive Vice President, Chief Administrative | 2022 | 397,692 | | 132,862 | | 312,913 | | 47,222 | | 890,689 |
| Officer, General Counsel and Secretary | 2021 | 383,462 | | 73,353 | | 259,877 | | 42,974 | | 759,666 |
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| Jeffrey L. Buhr | 2023 | 372,115 | | 301,313 | | 219,350 | | 50,280 | | 943,058 |
| Executive Vice President and Chief Credit | 2022 | 357,692 | | 114,305 | | 341,850 | | 43,021 | | 856,868 |
| Officer, 1st Source Bank | 2021 | 342,692 | | 55,329 | | 241,100 | | 38,759 | | 677,880 |
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Brett A. Bauer(5) | 2023 | 287,115 | | 160,122 | | 196,200 | | 43,004 | | 686,441 |
| Senior Vice President, Treasurer and | 2022 | 265,385 | | 53,930 | | 266,200 | | 38,160 | | 623,675 |
| Chief Financial Officer | 2021 | 226,154 | | 252,019 | | 53,900 | | 30,488 | | 562,561 |
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| (1) | Amounts included in Stock Awards represent the aggregate grant date fair value of all awards computed in accordance with FASB ASC Topic 718 granted during the year. These amounts generally relate to the prior year’s performance and are subject to forfeiture over the succeeding five (5) years. |
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| (2) | Amounts included in All Other Compensation for the most recent fiscal year are as follows: |
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| Company Contributions to Defined Contribution Retirement Plans | Dividends on Stock Awards | Directors’ Fees | Perquisites(3)(4) | Value of Life Insurance Benefits | Other | Total |
| Mr. Murphy | $ | 29,961 | | | $ | 60,829 | | | $ | 70,565 | | | $ | 15,048 | | | $ | 4,326 | | | $ | — | | | $ | 180,729 | | |
| Ms. Short | 29,961 | | | 25,108 | | | 70,565 | | | « | | 5,544 | | | — | | | 131,178 | | |
| Mr. Griffith | 29,961 | | | 15,291 | | | — | | | « | | 6,667 | | | — | | | 51,919 | | |
| Mr. Buhr | 29,961 | | | 14,830 | | | — | | | « | | 5,489 | | | — | | | 50,280 | | |
| Mr. Bauer | 29,961 | | | 11,711 | | | — | | | « | | 1,332 | | | — | | | 43,004 | | |
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| « | Not included - total of perquisites and benefits is less than $10,000 |
| (3) | Mr. Murphy’s perquisites included business club dues, annual medical exam and personal usage of the company plane. These are values at the incremental cost to the Company. For personal use of the company plane, the incremental cost is the SIFL (Standard Industrial Fare Level) cost. |
| (4) | Mr. Murphy reimbursed the Company $2,500 in 2023 and $1,000 in 2022 and 2021 for miscellaneous incalculable personal benefits. This amount has not been deducted in computing the disclosable perquisites above. |
| (5) | Mr. Bauer was promoted to Treasurer and Chief Financial Officer effective July 22, 2021. |
| (6) | There were no bonus awards, option awards or changes in pension value and non-qualified deferred compensation earnings for the named executive officers in 2023, 2022 or 2021. |
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| Name and Principal Position | Year | Salary($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation($) | All Other Compensation($)(2) | Total(6) |
| Christopher J. Murphy III | 2017 | $730,000 | | $535,394 | | $504,600 | | $85,638 | | $1,855,632 |
| Chairman of the Board and | 2016 | 730,000 | | 170,874 | | 394,450 | | 93,905 | | 1,389,229 |
| Chief Executive Officer | 2015 | 726,923 | | 250,007 | | 375,696 | | 107,738 | | 1,460,364 |
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| James R. Seitz | 2017 | 343,077 | | 143,049 | | 185,050 | | 63,830 | | 735,006 |
| President | 2016 | 334,615 | | 52,619 | | 129,900 | | 59,115 | | 576,249 |
| | 2015 | 325,010 | | 64,607 | | 129,417 | | 60,905 | | 579,939 |
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| Andrea G. Short | 2017 | 303,462 | | 108,321 | | 181,150 | | 36,719 | | 629,652 |
| Executive Vice President, Treasurer and | 2016 | 290,356 | | 35,467 | | 122,300 | | 34,261 | | 482,384 |
| Chief Financial Officer | 2015 | 275,769 | | 54,204 | | 112,267 | | 35,479 | | 477,719 |
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| John B. Griffith | 2017 | 347,022 | | 122,372 | | 150,100 | | 37,476 | | 656,970 |
| Executive Vice President, Chief Administrative | 2016 | 337,614 | | 43,412 | | 113,850 | | 34,300 | | 529,176 |
| Officer, General Counsel and Secretary | 2015 | 328,429 | | 59,405 | | 91,407 | | 37,107 | | 516,348 |
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| Jeffrey L. Buhr | 2017 | 297,173 | | 112,055 | | 120,350 | | 33,779 | | 563,357 |
| Executive Vice President and Chief Credit | 2016 | 279,875 | | 40,862 | | 108,600 | | 33,357 | | 462,694 |
| Officer, 1st Source Bank |
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| (1) | Amounts included in Stock Awards represent the aggregate grant date fair value of all awards computed in accordance with FASB ASC Topic 718 granted during the year. These amounts generally relate to the prior year’s performance and are subject to forfeiture over the succeeding five (5) years. The 2017 amounts also include the stock awards included in the 2016 long-term EIP plan awards. |
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| (2) | Amounts included in All Other Compensation for the most recent fiscal year are as follows: |
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| | Company Contributions to Defined Contribution Retirement Plans | Dividends on Stock Awards | Directors’ Fees | Perquisites(3)(4) | Value of Life Insurance Benefits | Other | Total |
| Mr. Murphy | $22,882 | | $30,649 | | $25,000 | | « | | $7,107 | | $ — |
| | $85,638 | |
Mr. Seitz(5) | 22,882 |
| | 7,500 |
| | 25,000 |
| | « | | 8,448 |
| | — |
| | 63,830 |
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| Ms. Short | 22,882 |
| | 10,896 |
| | — |
| | « | | 2,941 |
| | — |
| | 36,719 |
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| Mr. Griffith | 22,882 |
| | 7,205 |
| | — |
| | « | | 7,389 |
| | — |
| | 37,476 |
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| Mr. Buhr | 22,883 |
| | 8,086 |
| | — |
| | « | | 2,810 |
| | — |
| | 33,779 |
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| « | Not included - total of perquisites and benefits is less than $10,000 |
| (3) | Mr. Murphy’s perquisites included company car mileage, country club dues, annual medical exam and personal usage of the company plane. These are valued at the incremental cost to the Company. For personal use of the company plane, the incremental cost is the SIFL (Standard Industrial Fare Level) cost. |
| (4) | Mr. Murphy reimbursed the Company $5,000 in each year shown for miscellaneous incalculable personal benefits. |
| (5) | Mr. Seitz serves on the 1st Source Bank Board of Directors and receives the fees shown for his services. |
| (6) | There were no bonus awards, option awards or changes in pension value and non-qualified deferred compensation earnings for the named executive officers in 2017, 2016 or 2015. |
20172023 Grants Of Plan-Based Awards
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| Estimated Future Payouts Under Equity Incentive Plan |
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| Book Value Awards (#Shares) | | Market Value Awards (#Shares) |
| Name | Grant Date | Threshold | Target | Maximum | Grant Date Fair Value of Stock Awards | | Grant Date | Threshold | Target | Maximum | Grant Date Fair Value of Stock Awards |
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| Christopher J. Murphy III | 2/6/23(1) | — | 11,660 | | — | $35.04 | | | 2/6/23(2) | — | 14,890 | | — | $50.37 | |
| Andrea G. Short | 2/6/23(1) | — | 3,716 | | — | 35.04 | | | | 2/6/23(2) | — | 4,934 | | — | 50.37 | | |
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| John B. Griffith | 2/6/23(1) | — | 2,512 | | — | 35.04 | | | | 2/6/23(2) | — | 3,681 | | — | 50.37 | | |
| Jeffrey L. Buhr | 2/6/23(1) | — | 3,404 | | — | 35.04 | | | | 2/6/23(2) | — | 3,614 | | — | 50.37 | | |
| Brett A. Bauer | 2/6/23(1) | — | 2,044 | | — | 35.04 | | | | 2/6/23(2) | — | 1,757 | | — | 50.37 | | |
| Note: There were no non-equity incentive plan awards with future payouts made during 2023. Also, there were no other stock awards or option awards made during 2023. |
| (1) | Annual Executive Incentive Plan award for 2022 subject to forfeiture over a five-year period based on the executive remaining with the Company and the Company achieving annual financial performance hurdles as discussed above under “Annual Incentive Awards Under the EIP.” |
| (2) | Long-term Executive Incentive Plan shares awarded for 2020-2022 performance subject to forfeiture over a five-year period based on the executive remaining with the Company and the continued financial performance of the Company. |
|
| | | | | | | | | | | | | | | | | | | | |
| Estimated Future Payouts Under Equity Incentive Plan |
| |
| | Book Value Awards (#Shares) | | Market Value Awards (#Shares) |
| Name | Grant Date | Threshold | Target | Maximum | Grant Date Fair Value of Stock Awards | | Grant Date | Threshold | Target | Maximum | Grant Date Fair Value of Stock Awards |
| | | | | | | | | | | | | | |
| Christopher J. Murphy III | 2/8/17(1) | — | 6,799 |
| — | $ | 176,774 |
| | | 2/8/17(2) | — | 8,030 |
| — | $ | 358,620 |
| |
| James R. Seitz | 2/8/17(1) | — | 1,747 |
| — | 45,422 |
| | | 2/8/17(2) | — | 2,186 |
| — | 97,627 |
| |
| Andrea G. Short | 2/8/17(1) | — | 1,612 |
| — | 41,912 |
| | | 2/8/17(2) | — | 1,487 |
| — | 66,409 |
| |
| John B. Griffith | 2/8/17(1) | — | 1,802 |
| — | 46,852 |
| | | 2/8/17(2) | — | 1,691 |
| — | 75,520 |
| |
| Jeffrey L. Buhr | 2/8/17(1) | — | 1,747 |
| — | 45,422 |
| | | 2/8/17(2) | — | 1,492 |
| — | 66,633 |
| |
| Note: There were no non-equity incentive plan awards with future payouts made during 2017. Also, there were no other stock awards or option awards made during 2017. |
| (1) | Annual Executive Incentive Plan award subject to forfeiture over a five-year period based on the executive remaining with the Company and the Company achieving annual financial performance hurdles as discussed above under “Annual Incentive Awards Under the EIP”. |
| (2) | Long-Term Executive Incentive Plan subject to forfeiture over a five-year period based on the executive remaining with the Company and the continued financial performance of the Company. |
Narrative Disclosure To Summary Compensation Table And Grants Of Plan-Based Awards Table
Employment Agreements:
Messrs. Murphy and Griffith each entered into an employment agreement effective January 1, 2008. Ms. Short entered into an employment agreement effective January 1, 2013. Messrs. Seitz andMr. Buhr each entered into an employment agreement effective May 23, 2017. Mr. Bauer entered into an employment agreement effective August 1, 2021.
Mr. Murphy’s agreement provides for a $730,000$825,000 base salary at January 1, 2018,2024, with annual increases as the Committee may deem appropriate each year, and bonus payments (paid in cash or stock at Mr. Murphy’s election) under the Executive Incentive Plan and the Strategic Deployment Incentive Plan. Under the other four agreements, Mr. Seitz, Ms. Short, Mr. Griffith, Mr. Buhr, and Mr. BuhrBauer receive base salaries of $345,000, $310,000, $352,500,$470,000, $415,000, $375,000, and $300,000$290,000 respectively, at January 1, 2018,2024, with increases thereafter as may be determined by 1st Source, and cash and stock bonuses determined under the Executive Incentive Plan and the Strategic Deployment Incentive Plan.
Mr. Murphy’s Mr. Seitz’s,agreement expires on December 31, 2027. Ms. Short’s, Mr. Griffith’s, Mr. Buhr’s, and Mr. Buhr’sBauer’s agreements expire on December 31, 2018.2024. Each will continue to be extended from year-to-year unless either party gives a notice of non-renewal to the other. The term of Mr. Murphy’s agreement will end on December 31 of the third year following the year in which any notice of non-renewal is given. The term of the agreements with Ms. Short, Mr. Griffith, Mr. Seitz, Mr. Buhr, and Ms. ShortMr. Bauer will end on December 31 of the same year in which any non-renewal notice is given.
In the event of an executive’s death, the executive’s beneficiaries would receive a payment in the amount of twice the executive’s current base salary (reduced to 65%, 45% and 45%30% of this amount at ages 65, 70 and 70,75, respectively) up to a maximum of $750,000 under a group term life insurance policy provided by the Company. Mr. Griffith’s beneficiaries also would receive a payment of $600,000 under an individual policy for which the Company pays the premiums.
The employment agreements also include restrictive covenants which require, among other things, that the executives not compete with 1st Source in bank or bank-related services within the geographic region in which full-service retail branches of 1st Source Bank or any affiliate are located.located for a period of 24 months following termination of employment. The agreements also prohibit the executives from ever divulging confidential information or trade secrets after termination of employment.
In the event an executive’s employment is terminated because of disability and in addition to other disability programs in effect for all officers of 1st Source, the executive will receive twelve months of base salary, with the first six months payable in a lump sum and the balance paid in monthly installments beginning on the first day of the seventh month following the date of termination.
See Compensation Discussion & Analysis above for discussion of certain severance benefits provided for under the employment agreements.
Bonus Plan:
See discussion above in the Compensation Discussion & Analysis
The amounts shown in the Stock Awards column of the Summary Compensation Table represent the aggregate grant date fair value of all awards granted during the fiscal year computed in accordance with FASB ASC Topic 718. The amounts shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table represent the annual and long-term cash awards under the EIP and the SDIP Plan. Estimated future payout amounts for 20172023 stock awards and the corresponding grant date fair values are shown in the Grants of Plan-Based Awards Table.
Recipients of unvested book value and market value shares granted under the EIP and the SDIP Plan receive dividends at the same time and in the same amount as all other holders of 1st Source common stock.
The relative amounts of salary and bonus are discussed above under “Components of Compensation and 20172023 Compensation Decisions.”
The Executive Compensation and Human Resources Committee has reviewed and discussed the Compensation Discussion & Analysis section of this Proxy Statement with management. In reliance on these reviews and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion & Analysis section be included in this Proxy Statement.
No member of the Executive Compensation and Human Resources Committee is or was formerly an officer or employee of the Company. No executive officer of the Company currently serves or in the past year has served as a member of the compensation committee or board of directors of another company of which an executive officer serves on the Executive Compensation and Human Resources Committee. Nor does any executive officer of the Company serve or has in the past year served as a member of the compensation committee of another company of which an executive officer serves as a Director of the Company.
The Securities Exchange Act of 1934 requires executive officers, directors and beneficial owners of 10% or more of the issuer’s equity securities to file reports of ownership and changes in ownership of 1st Source Corporation stock with the SEC and to furnish 1st Source with copies of all reports filed.
Based solely on a review of the copies of such reports furnished to 1st Source and written representations from the executive officers and directors that no other reports were required, 1st Source believes that all filing requirements were complied with by such persons during the last fiscal year, except that Mr. Buhr filed one untimely report for a sale of shares.year.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF BKDFORVIS, LLP AS 1ST SOURCE CORPORATION’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.2024.
The financial statements of 1st Source are audited annually by an independent registered public accounting firm. For the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, the audit was performed by BKDFORVIS, LLP. Fees for professional services provided by BKD LLP and Ernst & YoungFORVIS, LLP for the last three (3) years were as follows:
If a shareholder prefers to receive individual copies of proxy statements, annual reports, notice of internetInternet availability of proxy materials or prospectuses, the shareholder should call the Company’s transfer agent, American Stock Transfer & Trust Company, toll-free at 800-347-1246. Representatives are available to assist shareholders Monday through Thursday from 8:00 a.m. until 7:00 p.m. ET, and 8:00 a.m. until 5:00 p.m. ET on Friday, or write to Chuck Ditto, Trust Operations, 1st Source Corporation, P. O. Box 1602, South Bend, IN 46634. 1st Source will start sending separate documents to a requesting shareholder of record within 30 days of the request.
Beneficial shareholders can request information about householding from their banks, brokers or other holders of record.
Important Notice Regarding The Availability Of Proxy Materials For The Shareholder Meeting To Be Held On April 19, 2018:25, 2024: The Notice of Annual Meeting of Shareholders and Proxy Statement, Annual Report and Proxy Card are available at www.proxyvote.com.
A copy of 1st Source’s Annual Report on Form 10-K is furnished herewith to shareholders for the calendar year ended December 31, 2017,2023, containing financial statements for such year.
John B. Griffith
