1st Source Corporation Reports Record Annual Earnings,
Cash Dividend Declared, History of Increased Dividends Continues
FULL YEAR AND QUARTERLY HIGHLIGHTS
•Net income was a record $120.51 million for the year of 2022, up 1.67% from 2021 and was $31.07 million for the fourth quarter of 2022, down 5.10% from the previous quarter and up 12.07% from the fourth quarter of 2021. Diluted net income per common share was a record $4.84 for the year of 2022, up 2.98% from 2021 and was $1.25 for the fourth quarter of 2022, down 5.30% from the previous quarter and up 12.61% from the prior year’s fourth quarter.
•Cash dividend of $0.32 per common share was approved, up 3.23% from the cash dividend declared a year ago.
•Average loans and leases net of Paycheck Protection Program (PPP) loans grew $402.04 million in 2022, up 7.82% from 2021 and grew $215.70 million during the fourth quarter, up 3.84% (15.36% annualized growth) from the previous quarter.
•Tax-equivalent net interest income was $264.10 million for the year, up 11.39% from 2021 and was $71.67 million in the fourth quarter, up 3.70% from the previous quarter and up 19.10% from the fourth quarter of 2021. Tax-equivalent net interest margin was 3.45% for 2022, up 22 basis points from 2021 and was 3.69% for the fourth quarter of 2022, up nine basis points from the prior quarter and up 60 basis points from the fourth quarter of 2021.
•Due to strong loan growth, $13.25 million was provided and charged against earnings to the provision for credit losses for the full year of 2022 compared to the recognition of a $4.30 million recovery in the provision for credit losses during 2021. During the fourth quarter, $5.34 million was recognized in the provision for credit losses compared to a provision of $3.17 million in the previous quarter and a recovery in the provision of $1.12 million in the fourth quarter of 2021.
South Bend, IN — 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record net income of $120.51 million for 2022, an increase of 1.67% compared to $118.53 million earned in 2021. Fourth quarter net income was $31.07 million, an increase of 12.07% compared to $27.72 million earned in the fourth quarter of 2021. Diluted net income per common share for the year was a record $4.84, up 2.98% from the $4.70 earned a year earlier. Diluted net income per common share for the fourth quarter was $1.25, up 12.61% from the $1.11 earned in the fourth quarter of the previous year.
At its January 2023 meeting, the Board of Directors approved a cash dividend of $0.32 per common share, up 3.23% from the $0.31 per common share declared a year ago. The cash dividend is payable to shareholders of record on February 6, 2023 and will be paid on February 16, 2023.
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Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to announce record net income for the second year in a row and we reached our 35th consecutive year of dividend growth. We were able to grow average loans and leases by $402.04 million or 7.82% net of PPP from 2021. Given such strong loan and lease growth, we added $13.25 million to our provision for credit losses during the year compared to a $4.30 million recovery of provision for credit losses recorded during 2021. Our tax-equivalent net interest margin was 3.45% for the year compared to 3.23% in the prior year. As mentioned previously, the expansion in our net interest margin has largely been the result of seven Federal Reserve rate increases during 2022. We are hopeful that these rate increases will successfully stymie historically elevated levels of inflation but anticipate pressure on our net interest margin as we move forward into 2023. Our credit quality remained stable as we had net charge-offs to average loans and leases of only 0.03% in 2022 compared to 0.16% in 2021. I am extremely proud my colleagues were able to achieve such positive results during 2022.
“I am pleased also to report the U.S. Small Business Administration (SBA), Indiana District, recently recognized 1st Source Bank with a Gold Level Award in the Community Lender category for the tenth 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. Over the last decade our team members have proven their commitment to our values and mission in serving our business clients well. This award is a tremendous testament to them and the trust our clients have put in us, and we are proud to support our clients as they strive to start, grow and expand their community-based businesses.
“Lastly, as recently reported, our Board of Directors made two promotions with an eye on the future of our organization. Effective December 1, 2022, Andrea G. Short, President of 1st Source Bank also became the Bank’s CEO. In her new role, Ms. Short has Personal Banking, Business Banking, Specialty Finance, Wealth Advisory Services, Credit, and the Operations functions of the Bank reporting up through her. She remains an Executive Vice President of 1st Source Corporation. Ms. Short is a CPA and joined 1st Source’s Tax Department in 1998 and in 2001 was promoted to Assistant Vice President and Tax Director. She successfully moved up the ranks as Senior Vice President and Controller, then Executive Vice President and Chief Financial Officer, and finally as President of the Bank and Executive Vice President of the Corporation. In addition, Kevin C. Murphy has been named Chief Digital Officer and been promoted to Executive Vice President of the Bank and 1st Source Corporation. Other than interning with 1st Source as a CSR during his high school and college years, Mr. Murphy officially joined the Bank in 2006. His career has taken him through many different areas and management roles in the Bank: IT Web Development, Branch Systems, Treasury Products and Customer Support, Electronic Banking, Central Region President, Chief Information Officer and most recently as Group Head of IT, Marketing, and Digital Strategy. These two colleagues have demonstrated their belief in our values, selfless leadership, and their long-term commitment to the Mission and success of 1st Source. I continue as Chairman, President, and CEO of 1st Source Corporation and Chairman of 1st Source Bank, and look forward to continuing to work closely with Ms. Short and Mr. Murphy as well as the rest of our leadership team to build a strong and stable future for 1st Source, our clients, and shareholders,” Mr. Murphy concluded.
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FULL YEAR AND FOURTH QUARTER 2022 FINANCIAL RESULTS
Loans
Annual average loans and leases of $5.57 billion increased $402.04 million, up 7.82% net of PPP loans from the full year 2021. Quarterly average loans and leases of $5.84 billion increased $631.29 million, up 12.13% net of PPP loans in the fourth quarter of 2022 from the year ago quarter and have increased $215.70 million net of PPP loans from the third quarter. PPP forgiveness and customer payments totaled $74.88 million for the full year of 2022 with less than $1 million remaining. Strong growth primarily within our specialty finance group portfolios drove total average loans and leases higher during the year.
Deposits
Annual average deposits for 2022 were $6.71 billion, an increase of $368.85 million, up 5.82% from 2021. Quarterly average deposits of $6.76 billion grew $57.89 million, up 0.86% for the quarter ended December 31, 2022 compared to the year ago quarter and have increased $85.23 million, up 1.28% compared to the third quarter. Deposit growth over the last year came from increased business, consumer and public funds. The deposit mix changed as the year progressed with clients moving their funds from non-maturity accounts to certificates of deposit due to the rate environment. Additionally, brokered deposits grew during the fourth quarter compared to the third quarter and the prior year’s fourth quarter.
Net Interest Income and Net Interest Margin
For the twelve months of 2022, tax-equivalent net interest income was $264.10 million, an increase of $27.00 million, up 11.39% compared to the full year 2021. Fourth quarter 2022 tax-equivalent net interest income of $71.67 million increased $11.49 million, up 19.10% from the fourth quarter a year ago and increased $2.55 million, or 3.70% from the third quarter. We recognized $2.70 million in PPP loan fees during the full year of 2022 and $0.12 million during the fourth quarter compared to $16.84 million in 2021 and $3.58 million in the previous fourth quarter.
Net interest margin for the year ending December 31, 2022 was 3.44%, an increase of 22 basis points from the 3.22% for the year ending December 31, 2021. Net interest margin on a tax-equivalent basis for the year ending December 31, 2022 was 3.45%, an increase of 22 basis points from the 3.23% for the year ending December 31, 2021. Non-recurring items during the year including PPP loans fees and net interest recoveries contributed six-basis points to the 22-basis point increase.
Fourth quarter 2022 net interest margin was 3.68%, an increase of 59 basis points from the 3.09% for the same period in 2021 and an increase of nine basis points from the prior quarter. Fourth quarter 2022 net interest margin on a fully tax-equivalent basis was 3.69%, an increase of 60 basis points from the 3.09% for the same period in 2021 and an increase of nine basis points from the 3.60% in the prior quarter. PPP loan fees and net interest recoveries had a positive three-basis point impact on the fourth quarter net interest margin compared to a positive 17-basis point impact during the fourth quarter of 2021.
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Seven Federal Reserve rate increases totaling 425 basis points during 2022 contributed to net interest margin expansion as loans repriced faster than deposits during the year.
Noninterest Income
Noninterest income for the twelve months ended December 31, 2022 was $91.26 million, down $8.83 million or 8.82% compared to the twelve months ended December 31, 2021. Fourth quarter 2022 noninterest income of $23.28 million decreased $0.55 million, or 2.30% from the fourth quarter a year ago and increased $1.27 million or 5.78% from the third quarter.
Noninterest income during the twelve months ended December 31, 2022 was lower compared to a year ago mainly from a decline in mortgage banking origination volumes resulting in lower income from loans sold in the secondary market. Demand for mortgages has continued to decline with steep increases in interest rates that drove a precipitous decline in market activity. Noninterest income in 2022 was also impacted by lower equipment rental income due to a decrease in the size of the average equipment rental portfolio as demand for operating leases continues to decline, reduced trust and wealth advisory income based on lower market valuations of assets under management, fewer insurance commissions and a one-time write down of $0.37 million on small business capital investments. These decreases were offset by partnership investment gains on sale of renewable energy tax equity investments of $2.24 million, and increased deposit fee income.
The increase in noninterest income from the third quarter was mainly due to the aforementioned higher partnership investment gains on sale of renewable energy tax equity investments of $2.24 million offset by the aforementioned one-time $0.37 million write-down on small business capital investments and losses on the sale of available-for-sale securities.
Noninterest Expense
Noninterest expense for the twelve months ended December 31, 2022 was $184.70 million, a decrease of $1.45 million, or 0.78% compared to the same period a year ago. Fourth quarter 2022 noninterest expense of $48.38 million declined $0.37 million, or 0.76% from the fourth quarter a year ago and increased $3.05 million or 6.72% from the prior quarter.
The decrease in noninterest expense for 2022 from 2021 was primarily due to lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, a $3.00 million charitable contribution made in 2021 not present in 2022, reduced legal fees, less incentive compensation awards and fewer group insurance claims. Those decreases were offset mainly by higher base salaries due to normal merit increases, an increase in the provision for unfunded loan commitments, a rise in software maintenance costs related to technology projects, and a higher valuation provision for interest rate swaps with customers.
The increase in noninterest expense from the third quarter was mainly due to a seasonal increase in group insurance claims, a rise in the provision for unfunded loan commitments, higher legal fees, and increased snow removal costs due to seasonal weather conditions offset by a lower valuation provision for interest rate swaps with customers.
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Additionally, we had a one-time federal income tax adjustment during the fourth quarter 2022 related to disallowed compensation of $0.44 million which increased our fourth quarter effective tax rate.
Credit
The allowance for loan and lease losses as of December 31, 2022 was 2.32% of total loans and leases compared to 2.36% at September 30, 2022 and 2.38% at December 31, 2021. The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding those loans from the calculation results in an allowance which was unchanged at December 31, 2022 and September 30, 2022 and 2.42% at December 31, 2021.
Net charge-offs that have been recorded for the full year of 2022 were $1.47 million compared to net charge-offs of $8.86 million in 2021. This resulted in a charge-off ratio of 0.03% for 2022 compared to 0.16% for 2021. Net charge-offs of $1.81 million were recorded for the fourth quarter of 2022 compared with net charge-offs of $5.15 million in the same quarter a year ago and $0.30 million of net charge-offs in the previous quarter. Overall, construction equipment accounted for 75% of the net charge-offs for the year.
The provision for credit losses was $13.25 million for the twelve months ended December 31, 2022 and $5.34 million for the fourth quarter of 2022, an increase of $17.55 million and $6.46 million, respectively, compared with the same periods in 2021. The ratio of nonperforming assets to loans and leases was 0.45% as of December 31, 2022, compared to 0.48% on September 30, 2022 and 0.77% on December 31, 2021.
Capital
As of December 31, 2022, the common equity-to-assets ratio was 10.36%, compared to 10.20% at September 30, 2022 and 11.32% a year ago. The tangible common equity-to-tangible assets ratio was 9.45% at December 31, 2022 compared to 9.26% at September 30, 2022 and 10.39% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.19% at December 31, 2022 compared to 13.50% at September 30, 2022 and 13.72% a year ago.
Book value per share declined to $35.04 primarily due to non-credit-related, negative market value adjustments to our investment securities available-for-sale portfolio during the year. Market value adjustments of $137.83 million reduced common shareholders’ equity and were the result of interest rate increases, market spreads and market conditions subsequent to purchase.
During 2022, 149,819 shares were repurchased for treasury reducing common shareholders’ equity by $6.84 million. No shares were repurchased during the fourth quarter 2022.
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.
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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, 19 1st Source Bank Specialty Finance Group locations nationwide, nine Wealth Advisory Services locations and 10 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.
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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.
# # #
(charts attached)
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1st SOURCE CORPORATION
4th QUARTER 2022 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,
2022
2022
2021
2022
2021
AVERAGE BALANCES
Assets
$
8,171,095
$
8,019,104
$
8,111,055
$
8,073,111
$
7,731,147
Earning assets
7,707,769
7,615,593
7,715,838
7,661,168
7,338,639
Investments
1,795,200
1,863,979
1,715,227
1,845,351
1,443,380
Loans and leases
5,840,593
5,627,718
5,311,964
5,566,701
5,437,817
Deposits
6,758,465
6,673,239
6,700,575
6,711,376
6,342,527
Interest bearing liabilities
5,086,446
4,958,209
4,959,322
5,002,168
4,784,697
Common shareholders’ equity
846,449
873,209
918,950
872,721
906,951
Total equity
906,613
931,412
966,063
929,321
951,991
INCOME STATEMENT DATA
Net interest income
$
71,455
$
68,934
$
60,067
$
263,469
$
236,638
Net interest income - FTE(1)
71,670
69,116
60,176
264,097
237,097
Provision (recovery of provision) for credit losses
5,342
3,167
(1,117)
13,245
(4,303)
Noninterest income
23,280
22,007
23,828
91,262
100,092
Noninterest expense
48,377
45,331
48,746
184,699
186,148
Net income
31,056
32,745
27,735
120,532
118,557
Net income available to common shareholders
31,068
32,737
27,723
120,509
118,534
PER SHARE DATA
Basic net income per common share
$
1.25
$
1.32
$
1.11
$
4.84
$
4.70
Diluted net income per common share
1.25
1.32
1.11
4.84
4.70
Common cash dividends declared
0.32
0.32
0.31
1.26
1.21
Book value per common share(2)
35.04
33.50
37.04
35.04
37.04
Tangible book value per common share(1)
31.63
30.10
33.64
31.63
33.64
Market value - High
59.94
51.29
51.20
59.94
51.20
Market value - Low
46.40
42.38
45.91
42.29
38.73
Basic weighted average common shares outstanding
24,658,294
24,656,736
24,775,288
24,687,324
25,038,127
Diluted weighted average common shares outstanding
24,658,294
24,656,736
24,775,288
24,687,324
25,038,127
KEY RATIOS
Return on average assets
1.51
%
1.62
%
1.36
%
1.49
%
1.53
%
Return on average common shareholders’ equity
14.56
14.87
11.97
13.81
13.07
Average common shareholders’ equity to average assets
10.36
10.89
11.33
10.81
11.73
End of period tangible common equity to tangible assets(1)
9.45
9.26
10.39
9.45
10.39
Risk-based capital - Common Equity Tier 1(3)
13.19
13.50
13.72
13.19
13.72
Risk-based capital - Tier 1(3)
14.84
15.24
15.50
14.84
15.50
Risk-based capital - Total(3)
16.10
16.50
16.76
16.10
16.76
Net interest margin
3.68
3.59
3.09
3.44
3.22
Net interest margin - FTE(1)
3.69
3.60
3.09
3.45
3.23
Efficiency ratio: expense to revenue
51.07
49.85
58.10
52.07
55.28
Efficiency ratio: expense to revenue - adjusted(1)
51.05
48.71
56.60
51.13
53.48
Net charge offs to average loans and leases
0.12
0.02
0.38
0.03
0.16
Loan and lease loss allowance to loans and leases
2.32
2.36
2.38
2.32
2.38
Nonperforming assets to loans and leases
0.45
0.48
0.77
0.45
0.77
December 31,
September 30,
June 30,
March 31,
December 31,
2022
2022
2022
2022
2021
END OF PERIOD BALANCES
Assets
$
8,339,416
$
8,097,486
$
8,029,359
$
8,012,463
$
8,096,289
Loans and leases
6,011,162
5,762,078
5,551,216
5,394,003
5,346,214
Deposits
6,928,265
6,621,231
6,744,896
6,673,092
6,679,065
Allowance for loan and lease losses
139,268
135,736
132,865
129,959
127,492
Goodwill and intangible assets
83,907
83,911
83,916
83,921
83,926
Common shareholders’ equity
864,068
826,059
856,251
864,850
916,255
Total equity
923,766
886,360
910,667
919,470
969,464
ASSET QUALITY
Loans and leases past due 90 days or more
$
54
$
165
$
50
$
274
$
249
Nonaccrual loans and leases
26,420
27,813
33,490
35,435
38,706
Other real estate
104
—
—
—
—
Repossessions
327
26
102
73
861
Equipment owned under operating leases
22
1
43
343
1,518
Total nonperforming assets
$
26,927
$
28,005
$
33,685
$
36,125
$
41,334
(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.
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1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
December 31,
September 30,
June 30,
December 31,
2022
2022
2022
2021
ASSETS
Cash and due from banks
$
84,703
$
86,952
$
116,915
$
54,420
Federal funds sold and interest bearing deposits with other banks
38,094
30,652
164,848
470,767
Investment securities available-for-sale
1,775,128
1,801,194
1,836,389
1,863,041
Other investments
25,293
25,538
25,538
27,189
Mortgages held for sale
3,914
3,058
5,525
13,284
Loans and leases, net of unearned discount:
Commercial and agricultural
812,031
835,762
842,618
918,712
Solar
381,163
358,635
350,472
348,302
Auto and light truck
808,117
743,324
708,720
603,775
Medium and heavy duty truck
313,862
293,068
278,334
259,740
Aircraft
1,077,722
997,995
959,876
898,401
Construction equipment
938,503
878,692
803,734
754,273
Commercial real estate
943,745
937,423
931,058
929,341
Residential real estate and home equity
584,737
568,602
535,589
500,590
Consumer
151,282
148,577
140,815
133,080
Total loans and leases
6,011,162
5,762,078
5,551,216
5,346,214
Allowance for loan and lease losses
(139,268)
(135,736)
(132,865)
(127,492)
Net loans and leases
5,871,894
5,626,342
5,418,351
5,218,722
Equipment owned under operating leases, net
31,700
32,964
36,579
48,433
Net premises and equipment
44,773
44,837
45,250
47,038
Goodwill and intangible assets
83,907
83,911
83,916
83,926
Accrued income and other assets
380,010
362,038
296,048
269,469
Total assets
$
8,339,416
$
8,097,486
$
8,029,359
$
8,096,289
LIABILITIES
Deposits:
Noninterest bearing demand
$
1,998,151
$
2,047,328
$
2,032,566
$
2,052,981
Interest-bearing deposits:
Interest-bearing demand
2,591,464
2,527,461
2,644,590
2,455,580
Savings
1,198,191
1,267,531
1,282,791
1,286,367
Time
1,140,459
778,911
784,949
884,137
Total interest-bearing deposits
4,930,114
4,573,903
4,712,330
4,626,084
Total deposits
6,928,265
6,621,231
6,744,896
6,679,065
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase
141,432
145,192
162,649
194,727
Other short-term borrowings
74,097
195,270
5,190
5,300
Total short-term borrowings
215,529
340,462
167,839
200,027
Long-term debt and mandatorily redeemable securities
46,555
47,587
48,459
71,251
Subordinated notes
58,764
58,764
58,764
58,764
Accrued expenses and other liabilities
166,537
143,082
98,734
117,718
Total liabilities
7,415,650
7,211,126
7,118,692
7,126,825
SHAREHOLDERS’ EQUITY
Preferred stock; no par value
Authorized 10,000,000 shares; none issued or outstanding
—
—
—
—
Common stock; no par value Authorized 40,000,000 shares; issued 28,205,674 shares at December 31, 2022, September 30, 2022, June 30, 2022, and December 31, 2021, respectively
436,538
436,538
436,538
436,538
Retained earnings
694,862
671,541
646,600
603,787
Cost of common stock in treasury (3,543,388, 3,548,496, 3,555,267, and 3,466,162 shares at December 31, 2022, September 30, 2022, June 30, 2022, and December 31, 2021, respectively)
(119,642)
(119,743)
(119,876)
(114,209)
Accumulated other comprehensive loss
(147,690)
(162,277)
(107,011)
(9,861)
Total shareholders’ equity
864,068
826,059
856,251
916,255
Noncontrolling interests
59,698
60,301
54,416
53,209
Total equity
923,766
886,360
910,667
969,464
Total liabilities and equity
$
8,339,416
$
8,097,486
$
8,029,359
$
8,096,289
– 9 –
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,
2022
2022
2021
2022
2021
Interest income:
Loans and leases
$
79,244
$
69,027
$
58,327
$
263,894
$
235,031
Investment securities, taxable
6,970
6,691
5,091
26,294
17,767
Investment securities, tax-exempt
419
339
133
1,049
601
Other
627
421
430
2,579
1,373
Total interest income
87,260
76,478
63,981
293,816
254,772
Interest expense:
Deposits
12,746
6,556
2,624
25,231
12,276
Short-term borrowings
1,070
380
25
1,497
115
Subordinated notes
972
904
819
3,550
3,267
Long-term debt and mandatorily redeemable securities
1,017
(296)
446
69
2,476
Total interest expense
15,805
7,544
3,914
30,347
18,134
Net interest income
71,455
68,934
60,067
263,469
236,638
Provision (recovery of provision) for credit losses
5,342
3,167
(1,117)
13,245
(4,303)
Net interest income after provision for credit losses
66,113
65,767
61,184
250,224
240,941
Noninterest income:
Trust and wealth advisory
5,608
5,498
5,949
23,107
23,782
Service charges on deposit accounts
3,172
3,240
2,867
12,146
10,589
Debit card
4,669
4,628
4,619
18,052
18,125
Mortgage banking
819
864
1,913
4,122
11,822
Insurance commissions
1,535
1,695
1,549
6,703
7,247
Equipment rental
2,556
2,761
3,817
12,274
16,647
Losses on investment securities available-for-sale
(184)
—
—
(184)
(680)
Other
5,105
3,321
3,114
15,042
12,560
Total noninterest income
23,280
22,007
23,828
91,262
100,092
Noninterest expense:
Salaries and employee benefits
27,695
26,386
28,128
105,110
105,808
Net occupancy
2,811
2,582
2,624
10,728
10,524
Furniture and equipment
1,397
1,372
1,589
5,448
5,977
Data processing
5,963
5,802
5,026
22,375
19,877
Depreciation — leased equipment
2,111
2,233
3,132
10,023
13,694
Professional fees
2,039
1,539
3,102
7,280
8,676
FDIC and other insurance
943
939
844
3,625
2,677
Business development and marketing
1,471
1,415
1,200
5,823
8,013
Other
3,947
3,063
3,101
14,287
10,902
Total noninterest expense
48,377
45,331
48,746
184,699
186,148
Income before income taxes
41,016
42,443
36,266
156,787
154,885
Income tax expense
9,960
9,698
8,531
36,255
36,328
Net income
31,056
32,745
27,735
120,532
118,557
Net loss (income) attributable to noncontrolling interests
12
(8)
(12)
(23)
(23)
Net income available to common shareholders
$
31,068
$
32,737
$
27,723
$
120,509
$
118,534
Per common share:
Basic net income per common share
$
1.25
$
1.32
$
1.11
$
4.84
$
4.70
Diluted net income per common share
$
1.25
$
1.32
$
1.11
$
4.84
$
4.70
Cash dividends
$
0.32
$
0.32
$
0.31
$
1.26
$
1.21
Basic weighted average common shares outstanding
24,658,294
24,656,736
24,775,288
24,687,324
25,038,127
Diluted weighted average common shares outstanding
24,658,294
24,656,736
24,775,288
24,687,324
25,038,127
– 10 –
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Three Months Ended
December 31, 2022
September 30, 2022
December 31, 2021
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
$
1,742,567
$
6,970
1.59
%
$
1,816,138
$
6,691
1.46
%
$
1,686,231
$
5,091
1.20
%
Tax-exempt(1)
52,633
525
3.96
%
47,841
426
3.53
%
28,996
163
2.23
%
Mortgages held for sale
2,834
40
5.60
%
4,272
58
5.39
%
28,693
188
2.60
%
Loans and leases, net of unearned discount(1)
5,840,593
79,313
5.39
%
5,627,718
69,064
4.87
%
5,311,964
58,218
4.35
%
Other investments
69,142
627
3.60
%
119,624
421
1.40
%
659,954
430
0.26
%
Total earning assets(1)
7,707,769
87,475
4.50
%
7,615,593
76,660
3.99
%
7,715,838
64,090
3.30
%
Cash and due from banks
76,843
74,329
80,754
Allowance for loan and lease losses
(137,350)
(133,989)
(134,217)
Other assets
523,833
463,171
448,680
Total assets
$
8,171,095
$
8,019,104
$
8,111,055
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,718,303
$
12,746
1.07
%
$
4,634,092
$
6,556
0.56
%
$
4,628,802
$
2,624
0.22
%
Short-term borrowings:
Securties sold under agreements to repurchase
137,248
18
0.05
%
159,345
21
0.05
%
194,678
24
0.05
%
Other short-term borrowings
125,078
1,052
3.34
%
57,609
359
2.47
%
5,474
1
0.07
%
Subordinated notes
58,764
972
6.56
%
58,764
904
6.10
%
58,764
819
5.53
%
Long-term debt and mandatorily redeemable securities
47,053
1,017
8.58
%
48,399
(296)
(2.43)
%
71,604
446
2.47
%
Total interest-bearing liabilities
5,086,446
15,805
1.23
%
4,958,209
7,544
0.60
%
4,959,322
3,914
0.31
%
Noninterest-bearing deposits
2,040,162
2,039,147
2,071,773
Other liabilities
137,874
90,336
113,897
Shareholders’ equity
846,449
873,209
918,950
Noncontrolling interests
60,164
58,203
47,113
Total liabilities and equity
$
8,171,095
$
8,019,104
$
8,111,055
Less: Fully tax-equivalent adjustments
(215)
(182)
(109)
Net interest income/margin (GAAP-derived)(1)
$
71,455
3.68
%
$
68,934
3.59
%
$
60,067
3.09
%
Fully tax-equivalent adjustments
215
182
109
Net interest income/margin - FTE(1)
$
71,670
3.69
%
$
69,116
3.60
%
$
60,176
3.09
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
– 11 –
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Twelve Months Ended
December 31, 2022
December 31, 2021
Average Balance
Interest Income/Expense
Yield/ Rate
Average Balance
Interest Income/Expense
Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable
$
1,805,041
$
26,294
1.46
%
$
1,410,797
$
17,767
1.26
%
Tax-exempt(1)
40,310
1,311
3.25
%
32,583
741
2.27
%
Mortgages held for sale
5,178
217
4.19
%
17,026
448
2.63
%
Loans and leases, net of unearned discount(1)
5,566,701
264,043
4.74
%
5,437,817
234,902
4.32
%
Other investments
243,938
2,579
1.06
%
440,416
1,373
0.31
%
Total earning assets(1)
7,661,168
294,444
3.84
%
7,338,639
255,231
3.48
%
Cash and due from banks
75,836
77,275
Allowance for loan and lease losses
(133,028)
(139,141)
Other assets
469,135
454,374
Total assets
$
8,073,111
$
7,731,147
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,673,494
$
25,231
0.54
%
$
4,460,359
$
12,276
0.28
%
Short-term borrowings:
Securities sold under agreements to repurchase
166,254
85
0.05
%
180,610
112
0.06
%
Other short-term borrowings
48,716
1,412
2.90
%
6,119
3
0.05
%
Subordinated notes
58,764
3,550
6.04
%
58,764
3,267
5.56
%
Long-term debt and mandatorily redeemable securities
54,940
69
0.13
%
78,845
2,476
3.14
%
Total interest-bearing liabilities
5,002,168
30,347
0.61
%
4,784,697
18,134
0.38
%
Noninterest-bearing deposits
2,037,882
1,882,168
Other liabilities
103,740
112,291
Shareholders’ equity
872,721
906,951
Noncontrolling interests
56,600
45,040
Total liabilities and equity
$
8,073,111
$
7,731,147
Less: Fully tax-equivalent adjustments
(628)
(459)
Net interest income/margin (GAAP-derived)(1)
$
263,469
3.44
%
$
236,638
3.22
%
Fully tax-equivalent adjustments
628
459
Net interest income/margin - FTE(1)
$
264,097
3.45
%
$
237,097
3.23
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
– 12 –
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,
2022
2022
2021
2022
2021
Calculation of Net Interest Margin
(A)
Interest income (GAAP)
$
87,260
$
76,478
$
63,981
$
293,816
$
254,772
Fully tax-equivalent adjustments:
(B)
- Loans and leases
109
95
79
366
319
(C)
- Tax-exempt investment securities
106
87
30
262
140
(D)
Interest income - FTE (A+B+C)
87,475
76,660
64,090
294,444
255,231
(E)
Interest expense (GAAP)
15,805
7,544
3,914
30,347
18,134
(F)
Net interest income (GAAP) (A–E)
71,455
68,934
60,067
263,469
236,638
(G)
Net interest income - FTE (D–E)
71,670
69,116
60,176
264,097
237,097
(H)
Annualization factor
3.967
3.967
3.967
1.000
1.000
(I)
Total earning assets
$
7,707,769
$
7,615,593
$
7,715,838
$
7,661,168
$
7,338,639
Net interest margin (GAAP-derived) (F*H)/I
3.68
%
3.59
%
3.09
%
3.44
%
3.22
%
Net interest margin - FTE (G*H)/I
3.69
%
3.60
%
3.09
%
3.45
%
3.23
%
Calculation of Efficiency Ratio
(F)
Net interest income (GAAP)
$
71,455
$
68,934
$
60,067
$
263,469
$
236,638
(G)
Net interest income - FTE
71,670
69,116
60,176
264,097
237,097
(J)
Plus: noninterest income (GAAP)
23,280
22,007
23,828
91,262
100,092
(K)
Less: gains/losses on investment securities and partnership investments
(2,216)
(418)
(285)
(3,714)
(1,020)
(L)
Less: depreciation - leased equipment
(2,111)
(2,233)
(3,132)
(10,023)
(13,694)
(M)
Total net revenue (GAAP) (F+J)
94,735
90,941
83,895
354,731
336,730
(N)
Total net revenue - adjusted (G+J–K–L)
90,623
88,472
80,587
341,622
322,475
(O)
Noninterest expense (GAAP)
48,377
45,331
48,746
184,699
186,148
(L)
Less: depreciation - leased equipment
(2,111)
(2,233)
(3,132)
(10,023)
(13,694)
(P)
Noninterest expense - adjusted (O–L)
46,266
43,098
45,614
174,676
172,454
Efficiency ratio (GAAP-derived) (O/M)
51.07
%
49.85
%
58.10
%
52.07
%
55.28
%
Efficiency ratio - adjusted (P/N)
51.05
%
48.71
%
56.60
%
51.13
%
53.48
%
End of Period
December 31,
September 30,
December 31,
2022
2022
2021
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)
Total common shareholders’ equity (GAAP)
$
864,068
$
826,059
$
916,255
(R)
Less: goodwill and intangible assets
(83,907)
(83,911)
(83,926)
(S)
Total tangible common shareholders’ equity (Q–R)
$
780,161
$
742,148
$
832,329
(T)
Total assets (GAAP)
8,339,416
8,097,486
8,096,289
(R)
Less: goodwill and intangible assets
(83,907)
(83,911)
(83,926)
(U)
Total tangible assets (T–R)
$
8,255,509
$
8,013,575
$
8,012,363
Common equity-to-assets ratio (GAAP-derived) (Q/T)
10.36
%
10.20
%
11.32
%
Tangible common equity-to-tangible assets ratio (S/U)
9.45
%
9.26
%
10.39
%
Calculation of Tangible Book Value per Common Share
(Q)
Total common shareholders’ equity (GAAP)
$
864,068
$
826,059
$
916,255
(V)
Actual common shares outstanding
24,662,286
24,657,178
24,739,512
Book value per common share (GAAP-derived) (Q/V)*1000
$
35.04
$
33.50
$
37.04
Tangible common book value per share (S/V)*1000
$
31.63
$
30.10
$
33.64
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
