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1st Source Corporation Reports Earnings for Full Year and Fourth Quarter 2020, Cash Dividend Increased, History of Increased Dividends Continues

·29-min read

FULL YEAR AND QUARTERLY HIGHLIGHTS

  • Net income was $81.44 million for the year of 2020, down 11.44% from 2019 and was $26.46 million for the fourth quarter of 2020, up 20.61% over the fourth quarter of 2019 and up 31.94% from the prior quarter.

  • Cash dividend of $0.29 per common share approved, up 3.57% from the third quarter and equal to that declared a year ago.

  • Diluted net income per common share was $3.17 for the year of 2020, down 11.20% from 2019 and was $1.03 for the fourth quarter of 2020, up 19.77% from the prior year’s fourth quarter of $0.86 and up 32.05% compared to the prior quarter of $0.78.

  • Return on average assets was 1.14% and return on average common shareholders’ equity was 9.41% for the full year of 2020 compared to 1.41% and 11.50%, respectively in 2019. For the fourth quarter of 2020, return on average assets improved to 1.42% and return on average common shareholders’ equity improved to 11.90% up from 1.30% and 10.56%, respectively in the fourth quarter of 2019.

  • Average loans and leases grew $463.28 million in the full year of 2020, up 9.27% from 2019 and grew $471.07 million, up 9.33% from the fourth quarter of 2019. Excluding the Paycheck Protection Program, average loans and leases increased 1.81% from the 2019 average and decreased slightly from the fourth quarter of 2019.

  • Average deposits grew $459.87 million in the full year of 2020, up 8.71% from 2019 and grew $555.35 million, up 10.26% from the fourth quarter of 2019.

  • Net charge-offs of $9.19 million for the full year of 2020 compared to $5.05 million in 2019 and $3.72 million in the fourth quarter of 2020 compared to $0.64 million in the fourth quarter of 2019. Nonperforming assets to loans and leases of 1.16% at December 31, 2020 compared to 0.37% at December 31, 2019.

  • Provision for credit losses of $36.00 million for the full year of 2020, compared to $15.83 million in 2019 and $4.97 million in the fourth quarter of 2020 compared to $2.95 million in the fourth quarter of 2019.

  • Net interest income increased $1.95 million in the full year of 2020, up 0.87% from 2019 and increased $6.81 million, up 12.32% from the fourth quarter of 2019.

  • Noninterest income increased $2.76 million in the full year of 2020, up 2.73% from 2019 and increased $0.41 million, up 1.60% from the fourth quarter of 2019. Excluding leased depreciation, noninterest income increased 10.11% for the year and 7.53% for the quarter.

  • Noninterest expenses decreased $1.64 million in the full year of 2020 down 0.87% from 2019 and decreased $0.38 million down 0.77% from the fourth quarter of 2019. Excluding leased depreciation, noninterest expense increased 2.00% for the year and 1.58% for the quarter.

1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported net income of $81.44 million for 2020, a decrease of 11.44% compared to $91.96 million earned in 2019. Fourth quarter net income was $26.46 million, an increase of 20.61% compared to $21.94 million earned in the fourth quarter of 2019. The annual net income comparison was adversely impacted by an increased provision for credit losses of $20.17 million primarily due to the negative impact on our clients from COVID-19, sizeable impairments in a few accounts, and higher special attention loan balances.

Diluted net income per common share for the year was $3.17, down 11.20% from the $3.57 earned a year earlier. Diluted net income per common share for the fourth quarter was $1.03, up 19.77% from the $0.86 earned in the fourth quarter of the previous year.

At its January 2021 meeting, the Board of Directors approved a cash dividend of $0.29 per common share, up 3.57% from the $0.28 per common share declared in the previous quarter and equal to that declared a year ago. The cash dividend is payable to shareholders of record on February 2, 2021 and will be paid on February 12, 2021.

Christopher J. Murphy III, Chairman, President and Chief Executive Officer, commented, "Given the unique challenges presented by the COVID-19 pandemic during 2020, I am proud of my colleagues for keeping themselves and our clients safe while delivering great client service. We helped our communities and clients by providing over 3,500 Paycheck Protection Program (PPP) loans for over $597 million, keeping businesses going and people employed. At the end of the year, $236 million of these loans had been forgiven. Over half of our PPP loans were for less than $50,000, so we are truly serving the small businesses in our communities. Considering the challenges of the COVID-19 pandemic and the reduced interest rate environment the Federal Reserve set in motion to stimulate the economy, I am pleased we were able to achieve our third highest year of net income and the 33rd consecutive year of dividend growth. We were glad to see continued economic improvement during the fourth quarter which led to providing $4.97 million to the allowance for loan and lease losses (our lowest quarter of the year for the credit loss provision) as we continue to work through the immediate and longer term negative impacts on our clients from the coronavirus pandemic.

"We spent the final weeks of the year monitoring the legislative progress on the Coronavirus Response and Relief Supplemental Appropriations Act, which included another round of PPP loans. We were pleased the legislation was finalized and enacted on December 27, 2020. We are now actively helping our clients work through the application process, with special attention paid to women-owned and minority-owned small businesses that have been statistically underserved nationally during the CARES Act PPP efforts.

"At 1st Source, one of our foundational values is Community Leadership. We encourage our team members and leaders to support the organizations and causes they are passionate about, and to serve their communities in the ways they are able. The pandemic certainly had an effect on volunteer opportunities and events that often bring people together to support those in need. But I am pleased to report it did not stop our colleagues from doing what they could, when and how they could, throughout the year. During 2020, 1st Source employees volunteered over 12,000 hours of their time to such causes, and collectively, the 1st Source Foundation and 1st Source Bank donated over $2 million to community organizations, much of which was directed toward COVID-19 relief and support efforts for those directly impacted by the pandemic.

"Throughout the pandemic, our focus has remained on keeping our clients, our colleagues, and families safe so we can deliver the highest level of service. All safety measures we put in place in the spring of 2020 have proven successful in stopping the spread among our staff and clients, and we plan to keep such measures in place until we are confident the well-being of all those we employ and serve can be protected by other means. As always, we will continue to review and analyze data from local health departments to make the best decisions possible for the health and safety of our team members, clients and communities," Mr. Murphy concluded.

FULL YEAR AND FOURTH QUARTER 2020 FINANCIAL RESULTS

Loans

Annual average loans and leases of $5.46 billion increased $463.28 million, up 9.27% from the full year 2019. Quarterly average loans and leases of $5.52 billion increased $471.07 million, up 9.33% in the fourth quarter of 2020 from the year ago quarter and have decreased $151.91 million from the third quarter. Loan growth is primarily from Paycheck Protection Program (PPP) originations when compared to 2019. As expected, the decrease during the fourth quarter of 2020 compared to the previous quarter was due to $236.25 million in PPP forgiveness by the SBA as we assisted our clients with the relief they sought from the government. As of the end of December, we had submitted PPP loan forgiveness requests to the SBA for more than 60% of the total PPP loan amounts we funded.

COVID-19 related loan modifications across our portfolios (including those that were in the process of receiving or we expect to receive an extension) were $168 million at December 31, 2020, compared to $195 million at September 30, 2020. Our transportation (particularly auto rental and charter bus) clients and hotel industry clients remain severely impacted by the COVID-19 pandemic and account for approximately 75% of the year-end COVID-19 related loan modification balances.

Deposits

Annual average deposits for 2020 were $5.74 billion, an increase of $459.87 million, up 8.71% from 2019. Quarterly average deposits of $5.97 billion grew $555.35 million, up 10.26% for the quarter ended December 31, 2020 compared to the year ago quarter and have increased $80.34 million, up 1.36% compared to the third quarter. Deposit growth is primarily from PPP loan fundings and increased consumer deposit levels compared to 2019.

Net Interest Income and Net Interest Margin

For the twelve months of 2020, tax-equivalent net interest income was $226.36 million, an increase of $1.81 million, up 0.81% compared to the full year 2019. Fourth quarter 2020 tax-equivalent net interest income of $62.23 million increased $6.78 million, or 12.22% from the fourth quarter a year ago and increased $7.24 million, or 13.16% from the third quarter.

Net interest margin for the year ending December 31, 2020 was 3.38%, a decrease of 29 basis points from the 3.67% for the year ending December 31, 2019. Net interest margin on a tax-equivalent basis for the year ending December 31, 2020 was 3.39%, a decrease of 29 basis points from the 3.68% for the year ending December 31, 2019. The margin continues to experience pressure from numerous Federal Reserve interest rate decreases during the second half of 2019 and first three months of 2020.

Fourth quarter 2020 net interest margin was 3.54%, an improvement of three basis points from the 3.51% for the same period in 2019 and an increase of 35 basis points from the third quarter. Fourth quarter 2020 net interest margin on a fully tax-equivalent basis was 3.55%, an increase of three basis points from the 3.52% for the same period in 2019 and an increase of 35 basis points from the 3.20% in the third quarter. The increased margin in the fourth quarter compared to the previous quarter was primarily due to accelerated PPP loan origination fee amortization due to SBA forgiveness. We have recognized $12.06 million in PPP loan fees during 2020, $7.84 million of which was recognized during the fourth quarter compared to $2.41 million during the third quarter.

The PPP loan impact on the tax-equivalent net interest margin was a positive five basis points for the twelve months ended December 31, 2020, and a positive 27 basis points for the fourth quarter. PPP loans caused a six basis points reduction for the third quarter due to the low interest rate and fees accrued compared to our base business.

Noninterest Income

Noninterest income for the twelve months ended December 31, 2020 was $103.89 million, up $2.76 million or 2.73% compared to the twelve months ended December 31, 2019. Fourth quarter 2020 noninterest income of $25.99 million increased $0.41 million, or 1.60% from the fourth quarter a year ago and decreased $2.06 million or 7.33% from the third quarter.

Noninterest income during the twelve months ended December 31, 2020 was higher compared to a year ago mainly from improved mortgage banking income driven by gains on a higher volume of loan sales and increased partnership investment gains. These positives were offset by reduced equipment rental income due to a decrease in the size of the average equipment rental portfolio as demand for leases declined and lower service charges on deposit accounts due to fewer overdraft and non-sufficient fund transactions in 2020 compared to 2019. Additionally, we recognized $0.81 million of impairment charges on our mortgage servicing rights during 2020 as prepayment speeds accelerated.

The decrease in noninterest income from the third quarter was mainly due to a reduction in mortgage banking income driven by a lower volume of loan sales and lower claim proceeds on bank-owned life insurance offset by higher partnership investment gains, increased trust and wealth advisory fees as market values improved, and increased customer swap fees with solar loan growth.

Noninterest Expense

Noninterest expense for the twelve months ended December 31, 2020 was $187.37 million, a decrease of $1.64 million, or 0.87% compared to the same period a year ago. Fourth quarter 2020 noninterest expense of $48.96 million decreased $0.38 million, or 0.77% from the fourth quarter a year ago and increased $1.92 million or 4.08% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were up 1.58% and 2.00% for the fourth quarter and twelve months ended December 31, 2020, respectively.

The decrease in noninterest expense for 2020 from 2019 was primarily due to lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, reduced business development expenses as travel and entertainment were curtailed with the pandemic, fewer negative valuation adjustments on repossessed assets, decreased group insurance costs, and less professional consulting fees. These increases were offset by higher salaries as a result of normal merit increases, a one-time special award made to most employees at the end of 2020 as recognition for the dedication they have shown in serving our clients and embracing their role as essential workers. In addition, we incurred increased mortgage origination commissions on higher production as well as higher FDIC insurance premiums due to FDIC assessment credits received in 2019.

The increase in noninterest expense from the third quarter was mainly due to higher salaries as a result of the one-time special award mentioned above to most employees at the end of 2020 and increased group insurance costs. These increases were offset by reduced valuation adjustments on repossessed assets, higher gains on the sale of operating lease equipment and lower marketing expenses due to fewer marketing promotions.

Non-recurring 2020 items which added to net income included $0.55 million in FDIC insurance premium credits received and bank-owned life insurance claims of $0.36 million. These additions to income were offset by $1.52 million of negative valuation adjustments on repossessed assets, $0.81 million in mortgage servicing rights impairment charges, special salary awards to employees of $0.89 million and a $0.68 million impairment charge on leased equipment.

Credit

In the fourth quarter, we adopted the Current Expected Credit Loss (CECL) methodology for calculating the allowance for credit losses which resulted in a four basis point increase to the allowance for loan and lease losses at December 31, 2020. The allowance for loan and lease losses as of December 31, 2020 was 2.56% of total loans and leases compared to 2.43% at September 30, 2020 and 2.19% at December 31, 2019. The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding those loans from the calculation results in an allowance of 2.73% at December 31, 2020 compared to 2.69% at September 30, 2020.

Net charge-offs that have been recorded for the full year of 2020 were $9.19 million compared to net charge-offs of $5.05 million in 2019. This resulted in a charge-off ratio of 0.17% for 2020 compared to 0.10% for 2019. The majority of the 2020 net charge-offs were related to one relationship within the construction equipment portfolio and numerous bus relationships in the auto and light truck portfolio that have been severely impacted by the pandemic shut down of events and tourism. Net charge-offs of $3.72 million were recorded for the fourth quarter of 2020 compared with net charge-offs of $0.64 million in the same quarter a year ago and down slightly from the $3.77 million of net charge-offs in the third quarter.

The provision for credit losses was $36.00 million for the twelve months ended December 31, 2020 and $4.97 million for the fourth quarter of 2020, an increase of $20.17 million and $2.02 million, respectively, compared with the same periods in 2019. The ratio of nonperforming assets to loans and leases was 1.16% as of December 31, 2020, compared to 1.33% on September 30, 2020 and 0.37% on December 31, 2019. Excluding PPP loans, the ratio of nonperforming assets to loans and leases was 1.24% at December 31, 2020 compared to 1.48% at September 30, 2020. Nonperforming assets saw improvement in the fourth quarter as a result of lower nonaccrual loans and the sale of a long held repossessed aircraft.

Capital

As of December 31, 2020, the common equity-to-assets ratio was 12.12%, compared to 12.04% at September 30, 2020 and 12.51% a year ago. The tangible common equity-to-tangible assets ratio was 11.10% at December 31, 2020 compared to 11.01% at September 30, 2020 and 11.38% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.06% at December 31, 2020 compared to 12.92% at September 30, 2020 and 12.55% a year ago. During the fourth quarter of 2020, 166,446 shares were repurchased for treasury reducing common shareholders’ equity by $6.42 million. Additionally, during the fourth quarter, with the adoption of CECL, we recognized a one-time cumulative effect adjustment which reduced retained earnings by $2.55 million, net of deferred taxes, effective January 1, 2020. CECL resulted in a two-to-three basis point reduction to our regulatory capital ratios as of December 31, 2020.

ABOUT 1ST SOURCE CORPORATION

1st Source common stock is traded on the NASDAQ Global Select Market under "SRCE" and appears in the National Market System tables in many daily newspapers under the code name "1st Src." Since 1863, 1st Source has been committed to the success of its clients, individuals, businesses and the communities it serves. For more information, visit www.1stsource.com.

1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 79 banking centers, 18 1st Source Bank Specialty Finance Group locations nationwide, eight Wealth Advisory Services locations and ten 1st Source Insurance offices.

FORWARD LOOKING STATEMENTS

Except for historical information contained herein, the matters discussed in this document express "forward-looking statements." Generally, the words "believe," "contemplate," "seek," "plan," "possible," "assume," "expect," "intend," "targeted," "continue," "remain," "estimate," "anticipate," "project," "will," "should," "indicate," "would," "may" and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which filings are available from the SEC. 1st Source undertakes no obligation to publicly update or revise any forward-looking statements.

NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of 1st Source conform to generally accepted accounting principles ("GAAP") in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent ("FTE") basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses and lease depreciation), measures how much it costs to produce one dollar of revenue. Securities gains or losses and lease depreciation are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity-to-tangible assets ratio and tangible book value per common share as useful measurements of the Company’s equity.

See the table marked "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of certain non-GAAP financial measures used by the Company with their most closely related GAAP measures.

Category: Earnings

(charts attached)

1st SOURCE CORPORATION

4th QUARTER 2020 FINANCIAL HIGHLIGHTS

(Unaudited - Dollars in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

AVERAGE BALANCES

Assets

$

7,402,431

$

7,281,542

$

6,708,475

$

7,120,009

$

6,528,274

Earning assets

6,981,460

6,841,720

6,258,938

6,684,246

6,104,673

Investments

1,098,072

1,057,780

1,044,917

1,058,060

1,014,659

Loans and leases

5,517,707

5,669,615

5,046,639

5,463,436

5,000,161

Deposits

5,969,776

5,889,434

5,414,423

5,736,602

5,276,736

Interest bearing liabilities

4,635,661

4,553,503

4,483,686

4,546,548

4,440,905

Common shareholders’ equity

884,530

876,992

824,361

865,278

799,736

Total equity

921,913

913,926

844,447

896,956

808,785

INCOME STATEMENT DATA

Net interest income

$

62,107

$

54,868

$

55,296

$

225,820

$

223,866

Net interest income - FTE(1)

62,234

54,996

55,456

226,363

224,552

Provision for credit losses

4,970

9,303

2,951

36,001

15,833

Noninterest income

25,985

28,041

25,577

103,889

101,130

Noninterest expense

48,964

47,043

49,346

187,367

189,009

Net income

26,463

20,054

21,954

81,461

92,015

Net income available to common shareholders

26,464

20,058

21,941

81,437

91,960

PER SHARE DATA

Basic net income per common share

$

1.03

$

0.78

$

0.86

$

3.17

$

3.57

Diluted net income per common share

1.03

0.78

0.86

3.17

3.57

Common cash dividends declared

0.28

0.28

0.29

1.13

1.10

Book value per common share(2)

34.93

34.35

32.47

34.93

32.47

Tangible book value per common share(1)

31.62

31.06

29.18

31.62

29.18

Market value - High

41.10

38.26

53.42

52.16

53.42

Market value - Low

30.33

28.72

44.12

26.07

39.11

Basic weighted average common shares outstanding

25,492,140

25,552,374

25,509,240

25,527,154

25,600,138

Diluted weighted average common shares outstanding

25,492,140

25,552,374

25,509,240

25,527,154

25,600,138

KEY RATIOS

Return on average assets

1.42

%

1.10

%

1.30

%

1.14

%

1.41

%

Return on average common shareholders’ equity

11.90

9.10

10.56

9.41

11.50

Average common shareholders’ equity to average assets

11.95

12.04

12.29

12.15

12.25

End of period tangible common equity to tangible assets(1)

11.10

11.01

11.38

11.10

11.38

Risk-based capital - Common Equity Tier 1(3)

13.06

12.92

12.55

13.06

12.55

Risk-based capital - Tier 1(3)

14.73

14.48

13.64

14.73

13.64

Risk-based capital - Total(3)

15.99

15.74

14.90

15.99

14.90

Net interest margin

3.54

3.19

3.51

3.38

3.67

Net interest margin - FTE(1)

3.55

3.20

3.52

3.39

3.68

Efficiency ratio: expense to revenue

55.58

56.74

61.02

56.83

58.16

Efficiency ratio: expense to revenue - adjusted(1)

53.32

54.18

57.87

54.20

54.65

Net charge offs to average loans and leases

0.27

0.26

0.05

0.17

0.10

Loan and lease loss allowance to loans and leases

2.56

2.43

2.19

2.56

2.19

Nonperforming assets to loans and leases

1.16

1.33

0.37

1.16

0.37

December 31,

September 30,

June 30,

March 31,

December 31,

2020

2020

2020

2020

2019

END OF PERIOD BALANCES

Assets

$

7,316,411

$

7,290,949

$

7,365,146

$

6,735,118

$

6,622,776

Loans and leases

5,489,301

5,627,036

5,692,322

5,129,514

5,085,527

Deposits

5,946,028

5,896,855

5,993,456

5,275,911

5,357,326

Allowance for loan and lease losses

140,654

136,817

131,283

120,798

111,254

Goodwill and intangible assets

83,948

83,953

83,959

83,964

83,971

Common shareholders’ equity

886,845

877,754

864,995

850,897

828,277

Total equity

930,670

915.015

901.653

877.302

848,636

ASSET QUALITY

Loans and leases past due 90 days or more

$

115

$

81

$

256

$

191

$

309

Nonaccrual loans and leases

60,388

70,595

62,800

26,301

9,789

Other real estate

359

303

303

362

522

Repossessions

1,976

4,639

6,132

9,020

8,623

Equipment owned under operating leases

1,695

136

57

Total nonperforming assets

$

64,533

$

75,754

$

69,548

$

35,874

$

19,243

(1) See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.
(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.
(3) Calculated under banking regulatory guidelines.

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited - Dollars in thousands)

December 31,

September 30,

June 30,

December 31,

2020

2020

2020

2019

ASSETS

Cash and due from banks

$

74,186

$

62,575

$

67,591

$

67,215

Federal funds sold and interest bearing deposits with other banks

168,861

91,641

112,645

16,150

Investment securities available-for-sale

1,197,467

1,083,427

1,055,797

1,040,583

Other investments

27,429

27,674

30,619

28,414

Mortgages held for sale

12,885

20,990

36,508

20,277

Loans and leases, net of unearned discount:

Commercial and agricultural

1,478,722

1,681,519

1,710,712

1,132,791

Auto and light truck

542,369

527,582

563,606

588,807

Medium and heavy duty truck

279,172

271,248

284,432

294,824

Aircraft

861,460

806,162

782,160

784,040

Construction equipment

714,888

723,596

739,027

705,451

Commercial real estate

969,864

961,550

942,971

908,177

Residential real estate and home equity

511,379

519,881

531,972

532,003

Consumer

131,447

135,498

137,442

139,434

Total loans and leases

5,489,301

5,627,036

5,692,322

5,085,527

Allowance for loan and lease losses*

(140,654)

(136,817)

(131,283)

(111,254)

Net loans and leases

5,348,647

5,490,219

5,561,039

4,974,273

Equipment owned under operating leases, net

65,040

79,703

86,183

111,684

Net premises and equipment

49,373

49,933

51,486

52,219

Goodwill and intangible assets

83,948

83,953

83,959

83,971

Accrued income and other assets

288,575

300,834

279,319

227,990

Total assets

$

7,316,411

$

7,290,949

$

7,365,146

$

6,622,776

LIABILITIES

Deposits:

Noninterest bearing demand

$

1,636,684

$

1,720,768

$

1,684,102

$

1,216,834

Interest-bearing deposits:

Interest-bearing demand

2,059,139

1,885,771

1,866,415

1,677,200

Savings

1,082,848

992,320

942,891

814,794

Time

1,167,357

1,297,996

1,500,048

1,648,498

Total interest-bearing deposits

4,309,344

4,176,087

4,309,354

4,140,492

Total deposits

5,946,028

5,896,855

5,993,456

5,357,326

Short-term borrowings:

Federal funds purchased and securities sold under agreements to repurchase

143,564

158,834

169,483

120,459

Other short-term borrowings

7,077

6,740

7,536

25,434

Total short-term borrowings

150,641

165,574

177,019

145,893

Long-term debt and mandatorily redeemable securities

81,864

81,659

81,760

71,639

Subordinated notes

58,764

58,764

58,764

58,764

Accrued expenses and other liabilities

148,444

173,082

152,494

140,518

Total liabilities

6,385,741

6,375,934

6,463,493

5,774,140

SHAREHOLDERS’ EQUITY

Preferred stock; no par value

Authorized 10,000,000 shares; none issued or outstanding

Common stock; no par value

Authorized 40,000,000 shares; issued 28,205,674 shares at December 31, 2020, September 30, 2020, June 30, 2020, and December 31, 2019, respectively)

436,538

436,538

436,538

436,538

Retained earnings

514,176

497,419

484,491

463,269

Cost of common stock in treasury (2,816,557, 2,652,030, 2,655,319, and 2,696,200 shares at December 31, 2020, September 30, 2020, June 30, 2020, and December 31, 2019, respectively)

(82,240)

(75,861)

(75,922)

(76,702)

Accumulated other comprehensive income

18,371

19,658

19,888

5,172

Total shareholders’ equity

886,845

877,754

864,995

828,277

Noncontrolling interests

43,825

37,261

36,658

20,359

Total equity

930,670

915,015

901,653

848,636

Total liabilities and equity

$

7,316,411

$

7,290,949

$

7,365,146

$

6,622,776

*December 31, 2020 calculated under ASU 2016-13, prior periods shown reflect the incurred loss calculation.

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in thousands, except per share amounts)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Interest income:

Loans and leases

$

64,113

$

58,318

$

63,259

$

242,772

$

258,348

Investment securities, taxable

3,940

4,103

5,189

18,080

20,946

Investment securities, tax-exempt

192

207

297

895

1,351

Other

333

289

798

1,284

2,232

Total interest income

68,578

62,917

69,543

263,031

282,877

Interest expense:

Deposits

4,811

6,532

12,523

30,459

50,495

Short-term borrowings

90

83

170

517

1,934

Subordinated notes

824

824

907

3,367

3,677

Long-term debt and mandatorily redeemable securities

746

610

647

2,868

2,905

Total interest expense

6,471

8,049

14,247

37,211

59,011

Net interest income

62,107

54,868

55,296

225,820

223,866

Provision for credit losses

4,970

9,303

2,951

36,001

15,833

Net interest income after provision for credit losses

57,137

45,565

52,345

189,819

208,033

Noninterest income:

Trust and wealth advisory

5,524

5,153

5,269

21,114

20,692

Service charges on deposit accounts

2,634

2,336

2,835

9,485

11,010

Debit card

3,990

4,019

3,593

14,983

14,209

Mortgage banking

3,549

6,474

1,401

15,674

4,698

Insurance commissions

1,624

1,825

1,466

7,025

6,761

Equipment rental

5,167

5,593

7,372

23,380

30,741

Gains on investment securities available-for-sale

279

Other

3,497

2,641

3,641

11,949

13,019

Total noninterest income

25,985

28,041

25,577

103,889

101,130

Noninterest expense:

Salaries and employee benefits

27,547

25,609

25,382

101,556

97,098

Net occupancy

2,539

2,512

2,640

10,276

10,528

Furniture and equipment

6,776

6,247

6,475

25,688

24,815

Depreciation — leased equipment

4,940

4,694

6,006

20,203

25,128

Professional fees

1,576

2,041

2,045

6,317

6,952

Supplies and communication

1,234

1,305

1,710

5,563

6,454

FDIC and other insurance

851

868

282

2,606

1,795

Business development and marketing

754

923

1,832

4,157

6,303

Loan and lease collection and repossession

444

1,054

1,114

3,099

3,402

Other

2,303

1,790

1,860

7,902

6,534

Total noninterest expense

48,964

47,043

49,346

187,367

189,009

Income before income taxes

34,158

26,563

28,576

106,341

120,154

Income tax expense

7,695

6,509

6,622

24,880

28,139

Net income

26,463

20,054

21,954

81,461

92,015

Net loss (income) attributable to noncontrolling interests

1

4

(13)

(24)

(55)

Net income available to common shareholders

$

26,464

$

20,058

$

21,941

$

81,437

$

91,960

Per common share:

Basic net income per common share

$

1.03

$

0.78

$

0.86

$

3.17

$

3.57

Diluted net income per common share

$

1.03

$

0.78

$

0.86

$

3.17

$

3.57

Cash dividends

$

0.28

$

0.28

$

0.29

$

1.13

$

1.10

Basic weighted average common shares outstanding

25,492,140

25,552,374

25,509,240

25,527,154

25,600,138

Diluted weighted average common shares outstanding

25,492,140

25,552,374

25,509,240

25,527,154

25,600,138

*ASU 2016-13 adopted during the fourth quarter of 2020 with a cumulative effective adjustment dated January 1, 2020 therefore September 30, 2020 provision amounts reflect the incurred loss calculation.

1st SOURCE CORPORATION

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL

(Unaudited - Dollars in thousands)

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

Average
Balance

Interest
Income/Expense

Yield/
Rate

Average
Balance

Interest
Income/Expense

Yield/
Rate

Average
Balance

Interest
Income/Expense

Yield/
Rate

ASSETS

Investment securities available-for-sale:

Taxable

$

1,056,727

$

3,940

1.48

%

$

1,012,703

$

4,103

1.61

%

$

982,839

$

5,189

2.09

%

Tax-exempt(1)

41,345

237

2.28

%

45,077

257

2.26

%

62,078

365

2.33

%

Mortgages held for sale

17,844

120

2.68

%

26,327

186

2.81

%

21,489

192

3.54

%

Loans and leases, net of unearned discount(1)

5,517,707

64,075

4.62

%

5,669,615

58,210

4.08

%

5,046,639

63,159

4.97

%

Other investments

347,837

333

0.38

%

87,998

289

1.31

%

145,893

798

2.17

%

Total earning assets(1)

6,981,460

68,705

3.92

%

6,841,720

63,045

3.67

%

6,258,938

69,703

4.42

%

Cash and due from banks

75,055

72,474

73,438

Allowance for loan and lease losses

(143,888)

(134,824)

(110,209)

Other assets

489,804

502,172

486,308

Total assets

$

7,402,431

$

7,281,542

$

6,708,475

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

$

4,272,622

$

4,811

0.45

%

$

4,225,299

$

6,532

0.62

%

$

4,170,250

$

12,523

1.19

%

Short-term borrowings

222,699

90

0.16

%

187,912

83

0.18

%

183,244

170

0.37

%

Subordinated notes

58,764

824

5.58

%

58,764

824

5.58

%

58,764

907

6.12

%

Long-term debt and mandatorily redeemable securities

81,576

746

3.64

%

81,528

610

2.98

%

71,428

647

3.59

%

Total interest-bearing liabilities

4,635,661

6,471

0.56

%

4,553,503

8,049

0.70

%

4,483,686

14,247

1.26

%

Noninterest-bearing deposits

1,697,154

1,664,135

1,244,173

Other liabilities

147,703

149,978

136,169

Shareholders’ equity

884,530

876,992

824,361

Noncontrolling interests

37,383

36,934

20,086

Total liabilities and equity

$

7,402,431

$

7,281,542

$

6,708,475

Less: Fully tax-equivalent adjustments

(127)

(128)

(160)

Net interest income/margin (GAAP-derived)(1)

$

62,107

3.54

%

$

54,868

3.19

%

$

55,296

3.51

%

Fully tax-equivalent adjustments

127

128

160

Net interest income/margin - FTE(1)

$

62,234

3.55

%

$

54,996

3.20

%

$

55,456

3.52

%

(1) See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.

1st SOURCE CORPORATION

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL

(Unaudited - Dollars in thousands)

Twelve Months Ended

December 31, 2020

December 31, 2019

Average
Balance

Interest
Income/Expense

Yield/
Rate

Average
Balance

Interest
Income/Expense

Yield/
Rate

ASSETS

Investment securities available-for-sale:

Taxable

$

1,009,794

$

18,080

1.79

%

$

945,396

$

20,946

2.22

%

Tax-exempt(1)

48,266

1,105

2.29

%

69,263

1,662

2.40

%

Mortgages held for sale

20,628

600

2.91

%

15,601

610

3.91

%

Loans and leases, net of unearned discount(1)

5,463,436

242,505

4.44

%

5,000,161

258,113

5.16

%

Other investments

142,122

1,284

0.90

%

74,252

2,232

3.01

%

Total earning assets(1)

6,684,246

263,574

3.94

%

6,104,673

283,563

4.65

%

Cash and due from banks

71,626

67,726

Allowance for loan and lease losses

(130,776)

(105,340)

Other assets

494,913

461,215

Total assets

$

7,120,009

$

6,528,274

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

$

4,205,904

$

30,459

0.72

%

$

4,105,097

$

50,495

1.23

%

Short-term borrowings

201,165

517

0.26

%

205,911

1,934

0.94

%

Subordinated notes

58,764

3,367

5.73

%

58,764

3,677

6.26

%

Long-term debt and mandatorily redeemable securities

80,715

2,868

3.55

%

71,133

2,905

4.08

%

Total interest-bearing liabilities

4,546,548

37,211

0.82

%

4,440,905

59,011

1.33

%

Noninterest-bearing deposits

1,530,698

1,171,639

Other liabilities

145,807

106,945

Shareholders’ equity

865,278

799,736

Noncontrolling interests

31,678

9,049

Total liabilities and equity

$

7,120,009

$

6,528,274

Less: Fully tax-equivalent adjustments

(543)

(686)

Net interest income/margin (GAAP-derived)(1)

$

225,820

3.38

%

$

223,866

3.67

%

Fully tax-equivalent adjustments

543

686

Net interest income/margin - FTE(1)

$

226,363

3.39

%

$

224,552

3.68

%

(1) See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.

1st SOURCE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited - Dollars in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Calculation of Net Interest Margin

(A)

Interest income (GAAP)

$

68,578

$

62,917

$

69,543

$

263,031

$

282,877

Fully tax-equivalent adjustments:

(B)

- Loans and leases

82

78

92

333

375

(C)

- Tax-exempt investment securities

45

50

68

210

311

(D)

Interest income - FTE (A+B+C)

68,705

63,045

69,703

263,574

283,563

(E)

Interest expense (GAAP)

6,471

8,049

14,247

37,211

59,011

(F)

Net interest income (GAAP) (A–E)

62,107

54,868

55,296

225,820

223,866

(G)

Net interest income - FTE (D–E)

62,234

54,996

55,456

226,363

224,552

(H)

Annualization factor

3.978

3.978

3.967

1.000

1.000

(I)

Total earning assets

$

6,981,460

$

6,841,720

$

6,258,938

$

6,684,246

$

6,104,673

Net interest margin (GAAP-derived) (F*H)/I

3.54

%

3.19

%

3.51

%

3.38

%

3.67

%

Net interest margin - FTE (G*H)/I

3.55

%

3.20

%

3.52

%

3.39

%

3.68

%

Calculation of Efficiency Ratio

(F)

Net interest income (GAAP)

$

62,107

$

54,868

$

55,296

$

225,820

$

223,866

(G)

Net interest income - FTE

62,234

54,996

55,456

226,363

224,552

(J)

Plus: noninterest income (GAAP)

25,985

28,041

25,577

103,889

101,130

(K)

Less: gains/losses on investment securities and partnership investments

(714)

(177)

(132)

(1,652)

(653)

(L)

Less: depreciation - leased equipment

(4,940)

(4,694)

(6,006)

(20,203)

(25,128)

(M)

Total net revenue (GAAP) (F+J)

88,092

82,909

80,873

329,709

324,996

(N)

Total net revenue - adjusted (G+J–K–L)

82,565

78,166

74,895

308,397

299,901

(O)

Noninterest expense (GAAP)

48,964

47,043

49,346

187,367

189,009

(L)

Less: depreciation - leased equipment

(4,940)

(4,694)

(6,006)

(20,203)

(25,128)

(P)

Noninterest expense - adjusted (O–L)

44,024

42,349

43,340

167,164

163,881

Efficiency ratio (GAAP-derived) (O/M)

55.58

%

56.74

%

61.02

%

56.83

%

58.16

%

Efficiency ratio - adjusted (P/N)

53.32

%

54.18

%

57.87

%

54.20

%

54.65

%

End of Period

December 31,

September 30,

December 31,

2020

2020

2019

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(Q)

Total common shareholders’ equity (GAAP)

$

886,845

$

877,754

$

828,277

(R)

Less: goodwill and intangible assets

(83,948)

(83,953)

(83,971)

(S)

Total tangible common shareholders’ equity (Q–R)

$

802,897

$

793,801

$

744,306

(T)

Total assets (GAAP)

7,316,411

7,290,949

6,622,776

(R)

Less: goodwill and intangible assets

(83,948)

(83,953)

(83,971)

(U)

Total tangible assets (T–R)

$

7,232,463

$

7,206,996

$

6,538,805

Common equity-to-assets ratio (GAAP-derived) (Q/T)

12.12

%

12.04

%

12.51

%

Tangible common equity-to-tangible assets ratio (S/U)

11.10

%

11.01

%

11.38

%

Calculation of Tangible Book Value per Common Share

(Q)

Total common shareholders’ equity (GAAP)

$

886,845

$

877,754

$

828,277

(V)

Actual common shares outstanding

25,389,117

25,553,644

25,509,474

Book value per common share (GAAP-derived) (Q/V)*1000

$

34.93

$

34.35

$

32.47

Tangible common book value per share (S/V)*1000

$

31.62

$

31.06

$

29.18

The NASDAQ Stock Market National Market Symbol: "SRCE" (CUSIP #336901 10 3)
Please contact us at shareholder@1stsource.com

View source version on businesswire.com: https://www.businesswire.com/news/home/20210121005867/en/

Contacts

Andrea Short
574-235-2000