1st Source Corporation Reports Second Quarter Results,
a record quarter adjusted for PPP income due to Government response to COVID-19
Cash Dividend Increased
QUARTERLY HIGHLIGHTS
•Net income was $29.31 million for the quarter, down $0.91 million or 3.01% from the second quarter of 2021. Excluding tax-effected PPP income, net income was a record $28.47 million for the quarter, up $1.06 million or 3.87% from the second quarter of 2021. Diluted net income per common share was $1.18, down $0.01 from the prior year’s second quarter of $1.19.
•Cash dividend of $0.32 per common share was approved, up 3.22% from the cash dividend declared a year ago.
•Small Business Administration (SBA) forgiveness and customer pay downs of Paycheck Protection Program (PPP) loans amounted to $29.84 million during the quarter which contributed to the recognition of $1.03 million in PPP-related loan fees in the quarter down from $158.41 million in forgiveness and $2.59 million in fees in the second quarter of 2021.
•Average loans and leases net PPP loans grew $168.96 million in the second quarter, up 3.20% (12.8% annualized growth) from the previous quarter and $335.87 million, up 6.58% from the second quarter of 2021.
•Tax-equivalent net interest margin was 3.32%, up 17 basis points from the second quarter a year ago.
•Mortgage banking income was $1.06 million, down $1.80 million, or 62.85% from the second quarter a year ago.
South Bend, IN - 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported quarterly net income of $29.31 million for the second quarter of 2022, down 3.01% from the $30.22 million reported in the second quarter a year ago, bringing the 2022 year-to-date net income to $56.70 million compared to $58.33 million in 2021. Excluding tax-effected PPP income, net income was a record $28.47 million for the quarter, up $1.06 million or 3.87% from the second quarter of 2021. Diluted net income per common share for the second quarter of 2022 was $1.18 versus $1.19 in the second quarter of 2021. Diluted net income per common share for the first half of 2022 was $2.28 compared to $2.29 a year earlier.
At its July 2022 meeting, the Board of Directors approved a cash dividend of $0.32 per common share, up 3.22% from the $0.31 per common share declared a year ago. The cash dividend is payable to shareholders of record on August 2, 2022 and will be paid on August 12, 2022.
- 1 -
Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to announce another strong quarter. Average loans grew $335.87 million or 6.58% net of Paycheck Protection Program (PPP) loans from the second quarter last year. Average deposits increased $517.14 million, up 8.24% from the prior year second quarter. At the end of the second quarter, we had helped clients submit PPP loan forgiveness to the SBA for over 99% of all PPP loans we originated. Our tax-equivalent net interest margin for the quarter was 3.32% compared to 3.15% in the prior year second quarter. The increase in margin this quarter helped defray the expected reduction in PPP loan fees and mortgage banking income since the same period last year. It remains to be seen whether the numerous Federal Reserve rate hikes during the first half of 2022 and any future adjustments can successfully tame runaway inflation as we move further into 2022 and beyond.
“We were very pleased to learn during the second quarter that 1st Source was the recipient of multiple honors that recognize our commitment to our clients, shareholders and team members. 1st Source was named among the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll for the fourth consecutive year. We are proud to be one of the 17 honorees, placing us among the top 5% of eligible banks in the country. To be considered, banks must be publicly traded institutions with more than $500 million in total assets and 10 consecutive years of increased earnings per share. It is our focus on quality earnings, investing for the future, building a strong balance sheet, capital, and reserves that earned 1st Source this recognition and allowed us to continue to meet the challenges the pandemic presented. Receiving this recognition for the fourth year in a row is a great honor, and welcome confirmation of the success of our continued focus on the long-term has been successful.
“1st Source was also recognized by Forbes twice in recent months. We were named to the Forbes ‘Best Employers for Diversity’ list. We were also included on the Forbes ‘Best In State Banks’ list, ranking #3 in Indiana. Both lists were compiled in partnership with market research firm Statista, and both were the result of surveys conducted of our employees and clients, respectively. First and foremost, an inclusive culture that welcomes and values all people as part of our workforce is extremely important to us and to our future success as a financial institution and employer. Being named to this list signals to us that our momentum in the vital area of diversity, equity and inclusion is being felt, embraced, and celebrated by our team. Additionally, being named among the ‘Best In State Banks’ in Indiana by our clients is an equally important and gratifying recognition for us. We strive every day to show our clients they have made the right choice for their financial future by entrusting us to be their partner. Being named one of the best banks in Indiana by our clients lets us know that hard work is paying off, and that we are living our mission to help people achieve security, build wealth and realize their dreams in all that we do.
- 2 -
“In addition, 1st Source was recognized by the Business Development Corporation (BDC) as the top lender of SBA 504 loans for the years 2020 and 2021 and one of the top long term small business lenders in the state. In both years, 1st Source had the highest number of SBA 504 loan approvals, as well as the highest dollar amount in approvals with the BDC. This honor as top SBA 504 lender by the BDC is our latest recognition for small business lending. We have also received the Community Lender ‘Gold Level Award’ by the Indiana District of the U.S. Small Business Administration as the top SBA lender of banks our size in the state nine years in a row (which was detailed in a previous earning release). Small businesses have been challenged greatly throughout the pandemic, and we made it our focus to serve small businesses in any way we were able. This recognition shows the positive impact of our laser-like focus on small businesses, and we’re proud of the dedication and superior service our business banking and support teams have provided along the way.
“Lastly, we announced in April the election of Isaac P. Torres to our Board of Directors. Mr. Torres is President and Chief Executive Officer of InterCambio Express, Inc., an internet-based money transfer service with a U.S.A. headquarters in Elkhart, Ind. and a Mexican subsidiary located in Puebla, Mexico. Mr. Torres has expertise in internet-based industries and international payment systems as well as extensive skills in finance, accounting, compliance and international business. We are pleased our shareholders voted to add such a strong leader to our Board of Directors and we are certain Mr. Torres will help the Company deliver on its mission to help our clients achieve security, build wealth and realize their dreams by living our values and keeping our clients’ best interest in mind for the long-term. His background and experience blend well with our already strong Board, and his strategic guidance and unique perspective will add value to the future of our organization. At the time of this election, three current board members - John F. Affleck-Graves, Chaired Professor of Finance, and former Executive Vice President and Chief Financial Officer of the University of Notre Dame, Daniel B. Fitzpatrick, founder, Chairman and Chief Executive Officer of Quality Dining, Inc., and Christopher J. Murphy IV, co-founder, owner and Chief Executive Officer of Catharsis Productions, LLC - were also re-elected to continue their service on the 1st Source Corporation Board of Directors. All four above mentioned directors have been elected to terms that end April 2025 and will be subject to re-election at that time,” Mr. Murphy concluded.
SECOND QUARTER 2022 FINANCIAL RESULTS
Loans
Second quarter average loans and leases of $5.47 billion increased $335.87 million, up 6.58% net of PPP loans from the year ago quarter and increased $168.96 million, up 3.20% net of PPP loans from the previous quarter. Year-to-date average loans and leases of $5.40 billion increased $261.18 million, up 5.12% net of PPP loans from the first six months of 2021. PPP forgiveness and customer payments totaled $29.84 million in the second quarter of 2022 and $66.44 million in the first half of 2022. PPP loans of $9.13 million remained outstanding which is net of $0.21 million in unearned fees as of June 30, 2022. The solar, auto and light truck, aircraft and construction equipment portfolios all grew in the second quarter of 2022 compared to the second quarter of 2021 and the previous quarter.
- 3 -
Deposits
Average deposits of $6.80 billion grew $517.14 million for the quarter ended June 30, 2022, up 8.24% from the year ago quarter and increased $178.92 million, up 2.70% from the previous quarter. Average deposits for the first six months of 2022 were $6.71 billion, an increase of $576.44 million, up 9.40% from the same period a year ago. Deposit growth over the last year came from business and consumer clients while brokered deposits have declined. The second quarter increase over the linked quarter was primarily attributable to seasonal public fund deposit inflows.
Net Interest Income and Net Interest Margin
Second quarter 2022 tax-equivalent net interest income of $63.59 million increased $6.53 million, up 11.45% from the second quarter a year ago and grew $3.86 million, up 6.46% from the previous quarter. For the first six months of 2022, tax-equivalent net interest income was $123.31 million, an increase of $8.73 million, up 7.61% from the first half of 2021. We recognized $1.03 million in PPP loan fees during the quarter and $2.50 million during the first half of 2022 compared to $2.59 million in the previous year quarter and $6.57 million during the first half of 2021.
Second quarter 2022 net interest margin was 3.31%, an increase of 17 basis points from the 3.14% for the same period in 2021 and an increase of 14 basis points from the previous quarter. On a fully tax-equivalent basis, second quarter 2022 net interest margin was 3.32%, an increase of 17 basis points from the 3.15% for the same period in 2021 and was higher by 14 basis points compared to the previous quarter. Non-recurring items during the quarter contributed 11 basis points of the 17-basis point increase. Those items include PPP loans of two basis points, lower interest expense on mandatorily redeemable securities due to book value adjustments of four basis points and net interest recoveries of five basis points.
Net interest margin for the first six months of 2022 was 3.24% which was equal to the first six months of 2021. Similarly, net interest margin on a fully-tax-equivalent basis for the first half of 2022 was 3.25% which was equal to the prior year. PPP loans had a positive impact on the net margin of six basis points for the first half of 2022 and the first half of 2021.
Multiple Federal Reserve rate increases during 2022 contributed to net interest margin expansion as loans repriced faster than deposits during the second quarter of 2022 following significant compression after rate decreases during the first quarter of 2020 in response to the COVID-19 pandemic.
Noninterest Income
Second quarter 2022 noninterest income of $22.83 million decreased $2.07 million, or 8.31% from the second quarter a year ago and decreased $0.32 million, or 1.36% from the first quarter of 2022. For the first six months of 2022, noninterest income was $45.98 million, a decrease of $4.79 million, or 9.44% from the same period a year ago.
- 4 -
The reduction for both periods is mainly from reduced mortgage banking volumes resulting in lower income from loans retained and those originated and sold in the secondary market. Demand for mortgages has continued to decline as refinancing slowed and the number of homes for sale remains low. Equipment rental income continued to shrink as demand for leases declined. This was offset by a rise in service charges on deposit accounts and the absence of losses on the sale of investment securities. In addition to these, the decrease in noninterest income from the prior quarter was mainly due to decreased insurance commissions due to seasonal contingent commissions and this was offset by increased debit card income from a higher volume of debit card transactions.
Noninterest Expense
Second quarter 2022 noninterest expense of $45.66 million increased $0.46 million, or 1.01% from the second quarter a year ago and increased $0.32 million, or 0.70% from the prior quarter. For the first six months of 2022, noninterest expense was $90.99 million, an increase of $1.65 million, or 1.85% compared to the same period in 2021.
The increase in noninterest expense from the second quarter a year ago was mainly the result of a higher loan loss provision for unfunded loan commitments, increased data processing charges for technology projects, and higher business development costs tied to fewer COVID-19 restrictions and offset by decreased leased equipment depreciation as the average equipment rental portfolio continues to decline and lower collection and repossession expense.
The increase in noninterest expense from the prior quarter was primarily the result of increased legal and professional consulting fees, a rise in business development and marketing expense tied to marketing campaigns and higher data processing charges offset by a decrease in collection and repossession expense, lower net occupancy expense from snow removal costs during the previous quarter and decreased leased equipment depreciation.
Credit
The allowance for loan and lease losses as of June 30, 2022 was 2.39% of total loans and leases compared to 2.41% at March 31, 2022 and 2.49% at June 30, 2021. The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding these loans from the calculation results in an allowance of 2.40% at June 30, 2022, compared to 2.43% at March 31, 2022 and 2.63% at June 30, 2021. Net recoveries of $0.40 million were recorded for the second quarter of 2022 compared with net charge-offs of $0.16 million in the same quarter a year ago and $0.23 million of net recoveries in the prior quarter. The majority of recoveries during the quarter were related to the aircraft and consumer portfolios.
The provision for credit losses was $2.50 million for the second quarter of 2022, an increase of $5.53 million compared with the same period in 2021 and an increase of $0.27 million from the previous quarter. The ratio of nonperforming assets to loans and leases was 0.60% as of June 30, 2022, compared to 0.66% on March 31, 2022 and 1.06% on June 30, 2021. Excluding PPP loans, the ratio of non-performing assets to loans and leases was unchanged at June 30, 2022, 0.67% at March 31, 2021 and 1.13% at June 30, 2021. While nonperforming assets showed improvement during the quarter, the allowance for loan and lease losses increased at June 30, 2022 due to loan growth, economic uncertainty stemming from the war in Ukraine, inflationary pressures and prolonged supply chain disruptions.
- 5 -
Capital
As of June 30, 2022, the common equity-to-assets ratio was 10.66%, compared to 10.79% at March 31, 2022 and 11.68% a year ago. The tangible common equity-to-tangible assets ratio was 9.72% at June 30, 2022 compared to 9.85% at March 31, 2022 and 10.70% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.79% at June 30, 2022 compared to 13.88% at March 31, 2022 and 13.62% a year ago. During the second quarter of 2022, 104,400 shares were repurchased for treasury reducing common shareholders’ equity by $4.66 million.
Book value per share declined to $34.74 primarily due to non-credit-related, negative market value adjustments to our investment securities available-for-sale portfolio during the quarter. Market value adjustments were the result of changes in interest rates, market spreads and market conditions subsequent to purchase.
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, 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,” “hope,” “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.
- 6 -
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.
# # #
(charts attached)
- 7 -
1st SOURCE CORPORATION
2nd QUARTER 2022 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2022
2022
2021
2022
2021
AVERAGE BALANCES
Assets
$
8,092,316
$
8,008,738
$
7,657,276
$
8,050,758
$
7,504,692
Earning assets
7,685,631
7,620,248
7,264,886
7,653,120
7,113,559
Investments
1,835,974
1,887,055
1,339,551
1,861,374
1,285,564
Loans and leases
5,467,808
5,324,344
5,515,387
5,396,472
5,507,243
Deposits
6,795,793
6,616,869
6,278,654
6,706,826
6,130,386
Interest bearing liabilities
5,049,145
4,913,453
4,785,800
4,981,675
4,682,307
Common shareholders’ equity
861,134
910,793
898,388
885,826
896,481
Total equity
915,714
964,156
942,821
939,801
940,648
INCOME STATEMENT DATA
Net interest income
$
63,462
$
59,618
$
56,935
$
123,080
$
114,347
Net interest income - FTE(1)
63,585
59,726
57,053
123,311
114,586
Provision (recovery of provision) for credit losses
2,503
2,233
(3,025)
4,736
(627)
Noninterest income
22,830
23,145
24,898
45,975
50,767
Noninterest expense
45,655
45,336
45,198
90,991
89,338
Net income
29,330
27,401
30,235
56,731
58,341
Net income available to common shareholders
29,314
27,390
30,223
56,704
58,328
PER SHARE DATA
Basic net income per common share
$
1.18
$
1.10
$
1.19
$
2.28
$
2.29
Diluted net income per common share
1.18
1.10
1.19
2.28
2.29
Common cash dividends declared
0.31
0.31
0.30
0.62
0.59
Book value per common share(2)
34.74
34.97
36.05
34.74
36.05
Tangible book value per common share(1)
31.33
31.57
32.69
31.33
32.69
Market value - High
48.42
52.70
51.02
52.70
51.02
Market value - Low
42.29
45.78
45.22
42.29
38.73
Basic weighted average common shares outstanding
24,691,747
24,743,790
25,143,712
24,717,625
25,231,789
Diluted weighted average common shares outstanding
24,691,747
24,743,790
25,143,712
24,717,625
25,231,789
KEY RATIOS
Return on average assets
1.45
%
1.39
%
1.58
%
1.42
%
1.57
%
Return on average common shareholders’ equity
13.65
12.20
13.49
12.91
13.12
Average common shareholders’ equity to average assets
10.64
11.37
11.73
11.00
11.95
End of period tangible common equity to tangible assets(1)
9.72
9.85
10.70
9.72
10.70
Risk-based capital - Common Equity Tier 1(3)
13.79
13.88
13.62
13.79
13.62
Risk-based capital - Tier 1(3)
15.53
15.67
15.32
15.53
15.32
Risk-based capital - Total(3)
16.79
16.93
16.58
16.79
16.58
Net interest margin
3.31
3.17
3.14
3.24
3.24
Net interest margin - FTE(1)
3.32
3.18
3.15
3.25
3.25
Efficiency ratio: expense to revenue
52.91
54.78
55.23
53.82
54.11
Efficiency ratio: expense to revenue - adjusted(1)
51.72
53.29
52.89
52.49
51.94
Net (recoveries) charge offs to average loans and leases
(0.03)
(0.02)
0.01
(0.02)
0.13
Loan and lease loss allowance to loans and leases
2.39
2.41
2.49
2.39
2.49
Nonperforming assets to loans and leases
0.60
0.66
1.06
0.60
1.06
June 30,
March 31,
December 31,
September 30,
June 30,
2022
2022
2021
2021
2021
END OF PERIOD BALANCES
Assets
$
8,029,359
$
8,012,463
$
8,096,289
$
7,964,092
$
7,718,694
Loans and leases
5,551,216
5,394,003
5,346,214
5,358,797
5,483,045
Deposits
6,744,896
6,673,092
6,679,065
6,522,505
6,345,410
Allowance for loan and lease losses
132,865
129,959
127,492
133,755
136,361
Goodwill and intangible assets
83,916
83,921
83,926
83,931
83,937
Common shareholders’ equity
856,251
864,850
916,255
911,333
901,226
Total equity
910,667
919,470
969,464
956,397
945,457
ASSET QUALITY
Loans and leases past due 90 days or more
$
50
$
274
$
249
$
96
$
44
Nonaccrual loans and leases
33,490
35,435
38,706
43,166
55,864
Repossessions
102
73
861
690
1,213
Equipment owned under operating leases
43
343
1,518
1,598
1,728
Total nonperforming assets
$
33,685
$
36,125
$
41,334
$
45,550
$
58,849
(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.
- 8 -
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
June 30,
March 31,
December 31,
June 30,
2022
2022
2021
2021
ASSETS
Cash and due from banks
$
116,915
$
69,195
$
54,420
$
69,101
Federal funds sold and interest bearing deposits with other banks
164,848
347,697
470,767
400,346
Investment securities available-for-sale
1,836,389
1,857,431
1,863,041
1,413,022
Other investments
25,538
25,538
27,189
27,429
Mortgages held for sale
5,525
4,757
13,284
6,453
Loans and leases, net of unearned discount:
Commercial and agricultural
842,618
869,093
918,712
1,125,965
Solar
350,472
337,485
348,302
305,250
Auto and light truck
708,720
629,780
603,775
595,326
Medium and heavy duty truck
278,334
255,277
259,740
256,169
Aircraft
959,876
957,040
898,401
883,559
Construction equipment
803,734
775,972
754,273
729,055
Commercial real estate
931,058
920,807
929,341
966,171
Residential real estate and home equity
535,589
510,537
500,590
492,552
Consumer
140,815
138,012
133,080
128,998
Total loans and leases
5,551,216
5,394,003
5,346,214
5,483,045
Allowance for loan and lease losses
(132,865)
(129,959)
(127,492)
(136,361)
Net loans and leases
5,418,351
5,264,044
5,218,722
5,346,684
Equipment owned under operating leases, net
36,579
41,792
48,433
56,011
Net premises and equipment
45,250
45,960
47,038
47,617
Goodwill and intangible assets
83,916
83,921
83,926
83,937
Accrued income and other assets
296,048
272,128
269,469
268,094
Total assets
$
8,029,359
$
8,012,463
$
8,096,289
$
7,718,694
LIABILITIES
Deposits:
Noninterest-bearing demand
$
2,032,566
$
2,061,111
$
2,052,981
$
1,851,932
Interest-bearing deposits:
Interest-bearing demand
2,644,590
2,430,979
2,455,580
2,318,210
Savings
1,282,791
1,328,981
1,286,367
1,182,643
Time
784,949
852,021
884,137
992,625
Total interest-bearing deposits
4,712,330
4,611,981
4,626,084
4,493,478
Total deposits
6,744,896
6,673,092
6,679,065
6,345,410
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase
162,649
193,798
194,727
167,097
Other short-term borrowings
5,190
5,360
5,300
5,247
Total short-term borrowings
167,839
199,158
200,027
172,344
Long-term debt and mandatorily redeemable securities
48,459
69,563
71,251
81,330
Subordinated notes
58,764
58,764
58,764
58,764
Accrued expenses and other liabilities
98,734
92,416
117,718
115,389
Total liabilities
7,118,692
7,092,993
7,126,825
6,773,237
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 June 30, 2022, March 31, 2022, December 31, 2021, and June 30, 2021, respectively
436,538
436,538
436,538
436,538
Retained earnings
646,600
624,503
603,787
558,795
Cost of common stock in treasury (3,555,267, 3,473,139, 3,466,162, and 3,204,947 shares at June 30, 2022, March 31, 2022, December 31, 2021, and
June 30, 2021, respectively)
(119,876)
(115,654)
(114,209)
(101,711)
Accumulated other comprehensive (loss) income
(107,011)
(80,537)
(9,861)
7,604
Total shareholders’ equity
856,251
864,850
916,255
901,226
Noncontrolling interests
54,416
54,620
53,209
44,231
Total equity
910,667
919,470
969,464
945,457
Total liabilities and equity
$
8,029,359
$
8,012,463
$
8,096,289
$
7,718,694
- 9 -
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2022
2022
2021
2022
2021
Interest income:
Loans and leases
$
60,415
$
55,208
$
57,144
$
115,623
$
115,008
Investment securities, taxable
6,289
6,344
4,155
12,633
8,143
Investment securities, tax-exempt
157
134
154
291
328
Other
1,168
363
317
1,531
583
Total interest income
68,029
62,049
61,770
130,078
124,062
Interest expense:
Deposits
3,553
2,376
3,202
5,929
6,728
Short-term borrowings
23
24
29
47
65
Subordinated notes
851
823
814
1,674
1,632
Long-term debt and mandatorily redeemable securities
140
(792)
790
(652)
1,290
Total interest expense
4,567
2,431
4,835
6,998
9,715
Net interest income
63,462
59,618
56,935
123,080
114,347
Provision (recovery of provision) for credit losses
2,503
2,233
(3,025)
4,736
(627)
Net interest income after provision for credit losses
60,959
57,385
59,960
118,344
114,974
Noninterest income:
Trust and wealth advisory
6,087
5,914
6,466
12,001
11,947
Service charges on deposit accounts
2,942
2,792
2,508
5,734
4,955
Debit card
4,561
4,194
4,754
8,755
8,936
Mortgage banking
1,062
1,377
2,859
2,439
6,760
Insurance commissions
1,568
1,905
1,684
3,473
3,836
Equipment rental
3,295
3,662
4,255
6,957
8,884
Losses on investment securities available-for-sale
—
—
(680)
—
(680)
Other
3,315
3,301
3,052
6,616
6,129
Total noninterest income
22,830
23,145
24,898
45,975
50,767
Noninterest expense:
Salaries and employee benefits
25,562
25,467
25,510
51,029
50,706
Net occupancy
2,524
2,811
2,527
5,335
5,246
Furniture and equipment
1,384
1,295
1,420
2,679
2,894
Data processing
5,402
5,208
4,917
10,610
9,901
Depreciation – leased equipment
2,664
3,015
3,550
5,679
7,323
Professional fees
2,094
1,608
2,146
3,702
3,759
FDIC and other insurance
893
850
772
1,743
1,437
Business development and marketing
1,669
1,268
1,351
2,937
2,348
Loan and lease collection and repossession
(265)
134
486
(131)
615
Other
3,728
3,680
2,519
7,408
5,109
Total noninterest expense
45,655
45,336
45,198
90,991
89,338
Income before income taxes
38,134
35,194
39,660
73,328
76,403
Income tax expense
8,804
7,793
9,425
16,597
18,062
Net income
29,330
27,401
30,235
56,731
58,341
Net (income) loss attributable to noncontrolling interests
(16)
(11)
(12)
(27)
(13)
Net income available to common shareholders
$
29,314
$
27,390
$
30,223
$
56,704
$
58,328
Per common share:
Basic net income per common share
$
1.18
$
1.10
$
1.19
$
2.28
$
2.29
Diluted net income per common share
$
1.18
$
1.10
$
1.19
$
2.28
$
2.29
Cash dividends
$
0.31
$
0.31
$
0.30
$
0.62
$
0.59
Basic weighted average common shares outstanding
24,691,747
24,743,790
25,143,712
24,717,625
25,231,789
Diluted weighted average common shares outstanding
24,691,747
24,743,790
25,143,712
24,717,625
25,231,789
- 10 -
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Three Months Ended
June 30, 2022
March 31, 2022
June 30, 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
$
1,805,044
$
6,289
1.40
%
$
1,857,557
$
6,344
1.39
%
$
1,305,988
$
4,156
1.28
%
Tax exempt(1)
30,930
195
2.53
%
29,498
165
2.27
%
33,563
192
2.29
%
Mortgages held for sale
4,889
52
4.27
%
8,791
67
3.09
%
7,208
54
3.00
%
Loans and leases, net of unearned discount(1)
5,467,808
60,448
4.43
%
5,324,344
55,218
4.21
%
5,515,387
57,169
4.16
%
Other investments
376,960
1,168
1.24
%
400,058
363
0.37
%
402,740
317
0.32
%
Total earning assets(1)
7,685,631
68,152
3.56
%
7,620,248
62,157
3.31
%
7,264,886
61,888
3.42
%
Cash and due from banks
90,101
77,063
76,198
Allowance for loan and lease losses
(132,020)
(128,647)
(142,056)
Other assets
448,604
440,074
458,248
Total assets
$
8,092,316
$
8,008,738
$
7,657,276
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,753,331
$
3,553
0.30
%
$
4,587,242
$
2,376
0.21
%
$
4,458,915
$
3,202
0.29
%
Short-term borrowings:
Securities sold under agreements to repurchase
176,994
23
0.05
%
192,108
23
0.05
%
180,613
28
0.06
%
Other short-term borrowings
5,394
—
—
%
5,372
1
0.08
%
5,992
1
0.07
%
Subordinated notes
58,764
851
5.81
%
58,764
823
5.68
%
58,764
814
5.56
%
Long-term debt and mandatorily redeemable securities
54,662
140
1.03
%
69,967
(792)
(4.59)
%
81,516
790
3.89
%
Total interest-bearing liabilities
5,049,145
4,567
0.36
%
4,913,453
2,431
0.20
%
4,785,800
4,835
0.41
%
Noninterest-bearing deposits
2,042,462
2,029,627
1,819,739
Other liabilities
84,995
101,502
108,916
Shareholders’ equity
861,134
910,793
898,388
Noncontrolling interests
54,580
53,363
44,433
Total liabilities and equity
$
8,092,316
$
8,008,738
$
7,657,276
Less: Fully tax-equivalent adjustments
(123)
(108)
(118)
Net interest income/margin (GAAP-derived)(1)
$
63,462
3.31
%
$
59,618
3.17
%
$
56,935
3.14
%
Fully tax-equivalent adjustments
123
108
118
Net interest income/margin - FTE(1)
$
63,585
3.32
%
$
59,726
3.18
%
$
57,053
3.15
%
(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)
Six Months Ended
June 30, 2022
June 30, 2021
Average Balance
Interest Income/Expense
Yield/ Rate
Average Balance
Interest Income/Expense
Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable
$
1,831,156
$
12,633
1.39
%
$
1,250,096
$
8,143
1.31
%
Tax exempt(1)
30,218
360
2.40
%
35,468
406
2.31
%
Mortgages held for sale
6,829
119
3.51
%
10,727
140
2.63
%
Loans and leases, net of unearned discount(1)
5,396,472
115,666
4.32
%
5,507,243
115,029
4.21
%
Other investments
388,445
1,531
0.79
%
310,025
583
0.38
%
Total earning assets(1)
7,653,120
130,309
3.43
%
7,113,559
124,301
3.52
%
Cash and due from banks
83,618
75,691
Allowance for loan and lease losses
(130,343)
(142,628)
Other assets
444,363
458,070
Total assets
$
8,050,758
$
7,504,692
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
4,670,746
5,929
0.26
%
4,360,607
6,728
0.31
%
Short-term borrowings:
Securities sold under agreements to repurchase
184,509
46
0.05
%
174,928
63
0.07
%
Other short-term borrowings
5,383
1
0.04
%
6,765
2
0.06
%
Subordinated notes
58,764
1,674
5.74
%
58,764
1,632
5.60
%
Long-term debt and mandatorily redeemable securities
62,273
(652)
(2.11)
%
81,243
1,290
3.20
%
Total interest-bearing liabilities
4,981,675
6,998
0.28
%
4,682,307
9,715
0.42
%
Noninterest-bearing deposits
2,036,080
1,769,779
Other liabilities
93,202
111,958
Shareholders’ equity
885,826
896,481
Noncontrolling interests
53,975
44,167
Total liabilities and equity
$
8,050,758
$
7,504,692
Less: Fully tax-equivalent adjustments
(231)
(239)
Net interest income/margin (GAAP-derived)(1)
$
123,080
3.24
%
$
114,347
3.24
%
Fully tax-equivalent adjustments
231
239
Net interest income/margin - FTE(1)
$
123,311
3.25
%
$
114,586
3.25
%
(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
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2022
2022
2021
2022
2021
Calculation of Net Interest Margin
(A)
Interest income (GAAP)
$
68,029
$
62,049
$
61,770
$
130,078
$
124,062
Fully tax-equivalent adjustments:
(B)
– Loans and leases
85
77
80
162
161
(C)
– Tax exempt investment securities
38
31
38
69
78
(D)
Interest income – FTE (A+B+C)
68,152
62,157
61,888
130,309
124,301
(E)
Interest expense (GAAP)
4,567
2,431
4,835
6,998
9,715
(F)
Net interest income (GAAP) (A-E)
63,462
59,618
56,935
123,080
114,347
(G)
Net interest income - FTE (D-E)
63,585
59,726
57,053
123,311
114,586
(H)
Annualization factor
4.011
4.056
4.011
2.017
2.017
(I)
Total earning assets
$
7,685,631
$
7,620,248
$
7,264,886
$
7,653,120
$
7,113,559
Net interest margin (GAAP-derived) (F*H)/I
3.31
%
3.17
%
3.14
%
3.24
%
3.24
%
Net interest margin – FTE (G*H)/I
3.32
%
3.18
%
3.15
%
3.25
%
3.25
%
Calculation of Efficiency Ratio
(F)
Net interest income (GAAP)
$
63,462
$
59,618
$
56,935
$
123,080
$
114,347
(G)
Net interest income – FTE
63,585
59,726
57,053
123,311
114,586
(J)
Plus: noninterest income (GAAP)
22,830
23,145
24,898
45,975
50,767
(K)
Less: gains/losses on investment securities and partnership investments
(636)
(444)
348
(1,080)
(112)
(L)
Less: depreciation – leased equipment
(2,664)
(3,015)
(3,550)
(5,679)
(7,323)
(M)
Total net revenue (GAAP) (F+J)
86,292
82,763
81,833
169,055
165,114
(N)
Total net revenue – adjusted (G+J–K–L)
83,115
79,412
78,749
162,527
157,918
(O)
Noninterest expense (GAAP)
45,655
45,336
45,198
90,991
89,338
(L)
Less:depreciation – leased equipment
(2,664)
(3,015)
(3,550)
(5,679)
(7,323)
(P)
Noninterest expense – adjusted (O–L)
42,991
42,321
41,648
85,312
82,015
Efficiency ratio (GAAP-derived) (O/M)
52.91
%
54.78
%
55.23
%
53.82
%
54.11
%
Efficiency ratio – adjusted (P/N)
51.72
%
53.29
%
52.89
%
52.49
%
51.94
%
End of Period
June 30,
March 31,
June 30,
2022
2022
2021
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)
Total common shareholders’ equity (GAAP)
$
856,251
$
864,850
$
901,226
(R)
Less: goodwill and intangible assets
(83,916)
(83,921)
(83,937)
(S)
Total tangible common shareholders’ equity (Q–R)
$
772,335
$
780,929
$
817,289
(T)
Total assets (GAAP)
8,029,359
8,012,463
7,718,694
(R)
Less: goodwill and intangible assets
(83,916)
(83,921)
(83,937)
(U)
Total tangible assets (T–R)
$
7,945,443
$
7,928,542
$
7,634,757
Common equity-to-assets ratio (GAAP-derived) (Q/T)
10.66
%
10.79
%
11.68
%
Tangible common equity-to-tangible assets ratio (S/U)
9.72
%
9.85
%
10.70
%
Calculation of Tangible Book Value per Common Share
(Q)
Total common shareholders’ equity (GAAP)
$
856,251
$
864,850
$
901,226
(V)
Actual common shares outstanding
24,650,407
24,732,535
25,000,727
Book value per common share (GAAP-derived) (Q/V)*1000
$
34.74
$
34.97
$
36.05
Tangible common book value per share (S/V)*1000
$
31.33
$
31.57
$
32.69
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
