Banking with Integrity

Christopher J Murphy III faced a common question upon his return to South Bend, Indiana: will he or won’t he assume leadership of a community bank?

The questions came from well-meaning school friends and colleagues in New York where he was building his career in banking.

“They said, ‘What are you going to do in South Bend? It’s a tiny town’,” recalls Murphy, Chair and CEO of 1st Source Corporation. “I said, ‘Look, they are good and smart people in South Bend; we can build with the good people there.’ And we have done just that.”

Murphy has grown 1st Source Bank into the leading regional bank in northern Indiana and southwestern Michigan, while also expanding its national footprint.

“I never brought in anybody from Harvard or Citibank. We did it with the people here in South Bend.”

“The bank was at a little over US$100 million when we bought it back into community ownership and now we’re at US$8 billion today,” he says proudly. “We earned a million dollars in the first year after acquiring 1st Source Bank and in 2022 we earned US$120 million.”

While the numbers speak for themselves, what makes Murphy especially proud is the way in which 1st Source Bank has prioritized providing customers with top-quality service, meeting their banking needs and accompanying them throughout their lifetimes.

It’s a track record in perfect alignment with the bank’s mission of building relationships over the long-term, which Murphy describes as “simply helping our clients to achieve security, to build wealth, and to realize their dreams.”

The Unexpected CEO

The bank dates back to 1863 when it was founded as The First National Bank of South Bend. It was later reintroduced as the First Bank and Trust Company after a merger in the 1930s. From there, the bank began expanding, opening additional branches in the 1940s before adopting the name we know it by today in 1981.

After completing his undergraduate studies at the University of Notre Dame in South Bend, his law degree at the University of Virginia and his MBA from Harvard Business School, Murphy took a job at Citibank.

In 1972, Murphy joined his father-in-law and a group of investors to purchase the bank in South Bend. He also joined the board.

“People are not paid to push products. We respond to needs with products and services that we believe will meet that need.”

In 1976, Murphy took leave from Citibank and returned to South Bend after the passing of his father-in-law.

“The question was, ‘What does the family do with its interest in the bank?’” Murphy recalls. “My mother-in-law and I happened to believe it was better to continue the legacy her family had built.”

Murphy assumed the duties of CEO and set his sights on growing the bank, despite the skeptics.

“I never brought in anybody from Harvard or Citibank. We did it with the people here in South Bend,” he says. “That was the fun thing. The real opportunity was building local business and careers for local people. Today, we have a national, and a little bit of an international, scope.”

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Publicly traded on the Nasdaq Stock Exchange, 1st Source Bank now has US$8 billion in assets, 79 branches and 1,100 employees. The bank’s Specialty Finance Group operates across the United States and has become a leading financier of specialty groups including private aircraft, construction machinery, rental cars and long-haul trucks.

“We have had organic growth with a strong balance sheet and strong reserves,” Murphy says of his 47 years as CEO. “To continue growing in other parts of the country, we’ve assembled vertical businesses across the United States.”

Thinking Ahead

The bank’s growth has also been guided by long-term thinking.

“We really look to long-term growth, not fast dips and doodles in the short term, but really how to continue sustaining our growth over the very long-term,” Murphy says. “We’ve been increasing our dividend for 35 years.”

Murphy established incentives early on to encourage long-term thinking, altering the compensation plan for managers and salespeople who receive bonuses into a combination of cash and stock, which is subject to forfeiture over the ensuing five-year period.

“We get input from the people who are closest to the problem, closest to the customer, and I think that strengthens our leadership and makes us a better company overall.”

“It makes everyone here an owner,” Murphy says. “I don’t want people making decisions one year with the goal of getting some kind of payout and then having problems the next; that’s the wrong kind of incentive.”

Murphy’s medium-term thinking involves innovation with a focus on digitalization, data mining and data management. The plan further emphasizes greater understanding and elevated customer service.

“We need to ensure that we are even more personal on the delivery of our products and services,” Murphy says. “We ask questions and aim to discern what makes our customers different, one person to the next. ‘The market of one’ is what we call it. We give the client straight talk and sound advice, all while keeping their best interests in mind for the long-term.

“We do not push products here,” Murphy continues. “People are not paid to push products. We respond to needs with products and services that we believe will meet that need.”

Developing Talent

Another key to Murphy’s success is his investment in talent development.

“It begins with 1st Source University, which focuses on building employees’ skills and knowledge of specific facets of the business,” he says, adding that “there’s also the 1st Source Mastery Program, which helps people become experts in their areas of responsibility.”

The bank has also implemented tuition reimbursement and banking apprenticeship programs to further support talent development.

“We spend a lot of time on talent development,” Murphy says. “It’s how we get our people involved and motivated.”

One area in which 1st Source Bank involves its employees is problem-solving, embracing the Lean management approach for achieving continuous improvement and greater efficiency.

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“We introduced and adopted Lean across the bank,” Murphy says. “By embracing Lean, we’re making sure that we all have the same tools to solve problems with the same language. The reason for that is, people who are in positions of greater power tend to speak without really knowing. By giving everyone the same tools and processes to solve problems, look and align data and make decisions, we’re leveling the playing field.”

Adopting and implementing Lean is a philosophy Murphy believes makes the bank better overall.

“We get input from the people who are closest to the problem, closest to the customer, and I think that strengthens our leadership and makes us a better company overall,” he says. “At 1st Source Bank, you need to be a servant leader.”

Servant Leadership

Murphy believes strongly in the concept of servant leadership. It’s something he has developed a keen eye for during the recruitment process.

“When we hire new people, whether that be into positions of leadership or otherwise, the first question we ask is, ‘Do you enjoy being in service to others?’ We’re all a team,” he says. “It’s challenging to succeed if the people working with you are not successful servants.”

Murphy solicits the input of his employees and organizes the feedback he receives into a word diagram, illustrating the words and phrases that best represent the bank’s values.

“The first pillar is teamwork,” he says of the values guiding 1st Source Bank. “We are all interdependent.”

Next is superior quality in everything the bank does, Murphy explains.

“If we’re going to spend time and money on something, we want it to be superior quality. It’s just not worth it to do anything less,” he says.

“We are nothing more than a mirror of the communities we serve.”

Third is delivering outstanding customer service.

“We are nothing more than a mirror of the communities we serve,” Murphy says. “It’s our job to make those communities better places to live, work, worship, raise families and build businesses.”

Another value prized by 1st Source Bank is inquisitiveness.

“They’ve got to be curious. What’s going on in the world, the world that we’re serving? What’s going on with our clients? What’s going on with our competitors?” Murphy says of the bank’s leadership. “How do we keep our edge and how do we keep from falling down that rabbit hole of expanding in the wrong directions that don’t give us any return?”

Bearing that in mind, Murphy speaks most passionately of what he calls the base value: integrity.

“Maintaining corporate and personal integrity is central to all those values,” he says. “Integrity is the foundation that all of 1st Source Bank’s other values are built on.”