XML 27 R16.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Variable Interest Entities | 9 Months Ended
--- | ---
Sep. 30, 2022
Variable Interest Entities [Abstract] |
Variable Interest Entities Disclosure | Variable Interest Entities A variable interest entity (VIE) is a partnership, limited liability company, trust or other legal entity that meets any one of the following criteria: •The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party. •The entity’s investors lack the power to direct the activities that most significantly affect the entity’s economic performance. •The entity’s at-risk holders do not have the obligation to absorb the losses or the right to receive residual returns. •The voting rights of some investors are not proportional to their economic interests in the entity, and substantially all of the entity’s activities involve, or are conducted on behalf of, investors with disproportionately few voting rights. The Company is involved in various entities that are considered to be VIEs. The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. Tax credits from affordable housing investments and community development investments are recognized as a reduction of tax expense. Investments in renewable energy sources qualify for investment tax credits which are recognized as a reduction to the related investment asset. The Company recognized federal income tax credits related to its affordable housing and community development tax-advantaged investments in tax expense of $0.52 million and $0.55 million for the three months ended September 30, 2022 and 2021, respectively and $1.55 million and $1.56 million for the nine months ended September 30, 2022 and 2021, respectively. The Company also recognized $0.00 million and $0.32 million of investment tax credits for the three months ended September 30, 2022 and 2021, respectively and $9.48 million and $3.32 million for the nine months ended September 30, 2022 and 2021, respectively. The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. As a limited partner in these operating partnerships, the Company is allocated credits and deductions associated with the underlying properties. The Company has determined that it is not the primary beneficiary of these investments because the general partners have the power to direct activities that most significantly influence the economic performance of their respective partnerships. The Company’s investments in these unconsolidated VIEs are carried in Other Assets on the Consolidated Statements of Financial Condition. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in Other Liabilities on the Consolidated Statements of Financial Condition. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment recorded on the Company’s Consolidated Statements of Financial Condition, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business, housing projects and renewable energy projects completely fail and do not meet certain taxing authority compliance requirements resulting in recapture of the related tax credits. The following table provides a summary of investments in affordable housing, community development and renewable energy VIEs that the Company has not consolidated.
(Dollars in thousands) | September 30, 2022 |  | December 31, 2021
Investment carrying amount | $ | 55,546 |  |  | $ | 35,968 |
Unfunded capital and other commitments | 51,428 |  |  | 29,670 |
Maximum exposure to loss | 50,048 |  |  | 50,319 |
The Company is required to consolidate VIEs in which it has concluded it has significant involvement in and the ability to direct the activities that impact the entity’s economic performance. The Company is the managing general partner of entities to which it shares interest in tax-advantaged investments with third parties. At September 30, 2022 and December 31, 2021, approximately $66.91 million and $59.08 million of the Company’s assets and $0.00 million and $0.00 million of its liabilities included on the Consolidated Statements of Financial Condition were related to tax-advantaged investment VIEs which the Company has consolidated, respectively. The assets of the consolidated VIEs are reported in Other Assets, the liabilities are reported in Other Liabilities and the non-controlling interest is reported in Equity on the Consolidated Statements of Financial Condition. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIE do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIE is generally limited to the carrying value of its variable interest plus any related tax credits previously recognized. Additionally, the Company sponsors one trust, 1st Source Master Trust (Capital Trust) of which 100% of the common equity is owned by the Company. The Capital Trust was formed in 2007 for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the capital securities) to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debenture securities of the Company (the subordinated notes). The subordinated notes held by the Capital Trust are the sole assets of the Capital Trust. The Capital Trust qualifies as a variable interest entity for which the Company is not the primary beneficiary and therefore reported in the financial statements as an unconsolidated subsidiary. The junior subordinated debentures are reflected as subordinated notes in the Statements of Financial Condition with the corresponding interest distributions reflected as Interest Expense in the Statements of Income. The common shares issued by the Capital Trust are included in Other Assets in the Statements of Financial Condition. Distributions on the capital securities issued by the Capital Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Capital Trust on the subordinated notes held by the Capital Trust. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated notes. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The capital securities held by the Capital Trust qualify as Tier 1 capital under Federal Reserve Board guidelines. The following table shows subordinated notes at September 30, 2022.
(Dollars in thousands) |  | Amount of Subordinated Notes |  | Interest Rate |  | Maturity Date
June 2007 issuance (1) |  | $ | 41,238 |  |  | 7.22 | % |  | 6/15/2037
August 2007 issuance (2) |  | 17,526 |  |  | 4.77 | % |  | 9/15/2037
Total |  | $ | 58,764 |  |  |  |  |
(1) Fixed rate through life of debt. (2) 3-Month LIBOR +1.48% through remaining life of debt.

X
- Definition Variable Interest Entities [Abstract] + References No definition available. + Details
Name: | source_VariableInterestEntitiesAbstract
Namespace Prefix: | source_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for variable interest entities both unconsolidated and consolidated. + References No definition available. + Details
Name: | source_VariableInterestEntitiesDisclosureTextBlock
Namespace Prefix: | source_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration