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 $118.53 million for the year of 2021, up 45.55% from 2020 and was $27.72 million for the fourth quarter of 2021, down 14.65% from the previous quarter and up 4.76% from the fourth quarter of 2020.
•Cash dividend of $0.31 per common share approved, up 6.90% from the $0.29 per common share declared a year ago.
•Diluted net income per common share was a record $4.70 for the year of 2021, up 48.26% from 2020 and was $1.11 for the fourth quarter of 2021, down 13.95% from the previous quarter and up 7.77% from the prior year’s fourth quarter.
•Small Business Administration (SBA) forgiveness and customer pay downs of Paycheck Protection Program (PPP) loans amounted to approximately $543.59 million in 2021 and were $102.11 million for the fourth quarter which contributed to the recognition of $16.84 million in PPP-related loan fees during 2021 including $3.58 million for the fourth quarter.
•Due to improvement in overall credit quality, we recognized a recovery in the provision for credit losses of $4.30 million for the full year of 2021 compared to a $36.00 million increase in the provision for credit losses during 2020. We recognized a recovery in the provision for credit losses of $1.12 million during the fourth quarter compared to a recovery in the provision of $2.56 million in the previous quarter and a provision of $4.97 million in the fourth quarter of 2020.
•Charitable contributions of $3 million were made to the 1st Source Foundation during the year to support previously funded COVID-19 initiatives in our Community Bank markets.
South Bend, IN — 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record net income of $118.53 million for 2021, an increase of 45.55% compared to $81.44 million earned in 2020. Fourth quarter net income was $27.72 million, an increase of 4.76% compared to $26.46 million earned in the fourth quarter of 2020. Diluted net income per common share for the year was a record $4.70, up 48.26% from the $3.17 earned a year earlier. Diluted net income per common share for the fourth quarter was $1.11, up 7.77% from the $1.03 earned in the fourth quarter of the previous year.
At its January 2022 meeting, the Board of Directors approved a cash dividend of $0.31 per common share, up 6.90% from the $0.29 per common share declared a year ago. The cash dividend is payable to shareholders of record on February 8, 2022 and will be paid on February 16, 2022.
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Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “With the Paycheck Protection Program (PPP) fee income and the ability to relieve our allowance for loan and lease losses, we are pleased to report record net income for the year. In many ways this averages out the performance of the last two years since 2020’s income was down compared to prior years as we anticipated more losses from the impact of COVID-19. This was also the 34th consecutive year of dividend growth. We welcome the positive impact provided by the PPP, the Federal Reserve’s extremely accommodative monetary policy and other government fiscal stimulus programs in response to the pandemic. They have collectively led to a stronger economic recovery than we anticipated for us, our clients and the communities we serve. This has resulted in sustained credit quality improvements during 2021 and a thoughtful and measured reduction to our allowance for loan and lease losses. In addition, our clients continued to receive PPP loan forgiveness during 2021. Total PPP loans forgiven in 2021 were $543.59 million which has provided $16.84 million in fee income. Furthermore, liquidity remains elevated and we are focused on its deployment through growing our loan and lease portfolio by deepening existing client relationships as well as developing new ones.
“Clearly, this past year proved to be difficult as we continued to deal with the challenges of the COVID-19 pandemic. We’ve worked hard to keep our 1st Source family healthy while providing our clients with the exceptional quality service expected from us. In December, we awarded 10 shares of 1st Source stock plus a $250 cash bonus to those colleagues who either had their first shot of the vaccine and were scheduled for their second or were fully vaccinated. We did this to recognize the Bank’s collective effort to mitigate both the personal risk and our community’s risk of infection.
“I am pleased to report that during the fourth quarter, the U.S. Small Business Administration (SBA), Indiana District, recognized 1st Source Bank with a Gold Level Award in the Community Lender category. The award honors 1st Source Bank for delivering the greatest number of SBA loans in Indiana in 2021 among Community Banks with less than $10 billion in assets. We have earned this award for nine years in a row and are proud to support our clients as they strive to start, grow, and expand their community-based businesses during an unprecedented time.
“Most importantly, I’m pleased to share that two board members were recently named to Savoy magazine’s 2021 Most Influential Black Corporate Directors list. Savoy magazine, the leading African American business, culture, and lifestyle publication, said the Most Influential Black Corporate Directors list is a prestigious acknowledgment of African American executives, influencers, and achievers active on the boards of the world’s leading corporations and organizations. Melody Birmingham, Senior Vice President and Chief Administrative Officer at Duke Energy, has served on the 1st Source Corporation Board of Directors since 2018, while Tracy Graham, Managing Principal of Graham Allen Partners, LLC and Chief Executive Officer of Aunalytics, Inc., has served on the 1st Source Corporation board from 2012-2014, and again in 2021. He has served on the Board of Directors for 1st Source Bank since 2012. 1st Source has been proud of its board’s diversity and has always benefited from the advice, perspectives, and skills of its directors of many different backgrounds. We thank Savoy and join them in recognizing these two as energized, smart, and insightful members of our board of directors. 1st Source Corporation is stronger and more client-centric because of them,” Mr. Murphy concluded.
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FULL YEAR AND FOURTH QUARTER 2021 FINANCIAL RESULTS
Loans
Annual average loans and leases of $5.44 billion increased $53.41 million, up 1.05% net of PPP loans from the full year 2020. Quarterly average loans and leases of $5.31 billion increased $162.66 million, up 3.23% net of PPP loans in the fourth quarter of 2021 from the year ago quarter and have increased $35.77 million net of PPP loans from the third quarter. PPP forgiveness and customer payments totaled $102.11 million in the fourth quarter of 2021 and $543.59 million for the full year of 2021 offset by PPP originations of $261.46 million during 2021. Loan runoff is primarily from SBA forgiveness of PPP loans offset by growth in the aircraft, solar and auto and light truck portfolios when compared to 2020.
Deposits
Annual average deposits for 2021 were $6.34 billion, an increase of $605.93 million, up 10.56% from 2020. Quarterly average deposits of $6.70 billion grew $730.80 million, up 12.24% for the quarter ended December 31, 2021 compared to the year ago quarter and have increased $298.73 million, up 4.67% compared to the third quarter. Deposit growth is primarily from PPP loan fundings and increased consumer deposit levels compared to 2020 and increased consumer and business deposit levels as well as seasonal public fund activity compared to the previous quarter.
Net Interest Income and Net Interest Margin
For the twelve months of 2021, tax-equivalent net interest income was $237.10 million, an increase of $10.73 million, up 4.74% compared to the full year 2020. Fourth quarter 2021 tax-equivalent net interest income of $60.18 million decreased $2.06 million, or 3.31% from the fourth quarter a year ago and decreased $2.16 million, or 3.46% from the third quarter which was mainly the result of fewer PPP loan fees recognized during the quarter.
Net interest margin for the year ending December 31, 2021 was 3.22%, a decrease of 16 basis points from the 3.38% for the year ending December 31, 2020. Net interest margin on a tax-equivalent basis for the year ending December 31, 2021 was 3.23%, a decrease of 16 basis points from the 3.39% for the year ending December 31, 2020. Fees for PPP loans had a positive impact on the net interest margin of 15 basis points for the year compared to a positive three basis points impact a year ago. We recognized $16.84 million in PPP loan fees during 2021 compared to $12.06 million during 2020. The margin continues to experience pressure from the low interest rate environment and excess liquidity.
Fourth quarter 2021 net interest margin was 3.09%, a reduction of 45 basis points from the 3.54% for the same period in 2020 and a decrease of 24 basis points from the prior quarter. Fourth quarter 2021 net interest margin on a fully tax-equivalent basis was 3.09%, a decrease of 46 basis points from the 3.55% for the same period in 2020 and a reduction of 25 basis points from the 3.34% in the prior quarter. PPP loans had a positive impact on the net interest margin of 16 basis points for the quarter compared to a positive 27 basis points impact during the fourth quarter of 2020. We recognized $3.58 million in PPP loan fees in fourth quarter 2021 versus $7.84 million in fourth quarter 2020.
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The margin continues to experience pressure from the low interest rate environment and excess liquidity. We do not expect significant impact from PPP fees in 2022 as PPP loans continue to be forgiven. As of December 31, 2021, $75.79 million of PPP loans originated remained outstanding with $2.71 million in unearned fees.
Noninterest Income
Noninterest income for the twelve months ended December 31, 2021 was $100.09 million, down $3.80 million or 3.65% compared to the twelve months ended December 31, 2020. Fourth quarter 2021 noninterest income of $23.83 million decreased $2.16 million, or 8.30% from the fourth quarter a year ago and decreased $1.67 million or 6.55% from the third quarter.
Noninterest income during the twelve months ended December 31, 2021 was lower compared to a year ago mainly from reduced equipment rental income due to a decrease in the size of the average equipment rental portfolio as demand for operating leases declined and a decrease in mortgage banking income driven by lower sales volume. These decreases were offset by increased debit card income as transaction levels grew, higher trust and wealth advisory fees as market values improved on assets under management and a rise in service charges on deposit accounts. Additionally, we recognized $0.81 million in impairment recoveries on our mortgage servicing rights during 2021.
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 a $0.22 million impairment recovery on mortgage servicing rights recognized during the third quarter, decreased insurance commissions and lower partnership investment gains due to a $0.24 million write-down on one investment.
Noninterest Expense
Noninterest expense for the twelve months ended December 31, 2021 was $186.15 million, a decrease of $1.22 million, or 0.65% compared to the same period a year ago. Fourth quarter 2021 noninterest expense of $48.75 million decreased $0.22 million, or 0.45% from the fourth quarter a year ago and increased $0.68 million or 1.42% from the prior quarter.
The decrease in noninterest expense for 2021 from 2020 was primarily due to lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, reduced collection and repossession expenses due to lower general expenses and fewer negative valuation adjustments on repossessed assets, a lower valuation provision for interest rate swaps with customers, and a reduction in the provision for unfunded loan commitments.
The increase in noninterest expense from the third quarter was mainly due to higher salaries and employee benefits as a result of increased group insurance claims and increased incentive awards including a one-time special reward of $0.64 million announced during the fourth quarter for our colleagues who were vaccinated against COVID-19, higher legal fees, increased professional consulting fees and a rise in insurance expense due to a one-time $0.38 million decrease recognized during the third quarter. These increases were offset by a $3.00 million charitable contribution made during the third quarter that was not present in the fourth quarter.
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Credit
The allowance for loan and lease losses as of December 31, 2021 was 2.38% of total loans and leases compared to 2.50% at September 30, 2021 and 2.56% at December 31, 2020. The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding those loans from the calculation results in an allowance of 2.42% at December 31, 2021 compared to 2.58% at September 30, 2021 and 2.73% at December 31, 2020.
Net charge-offs that have been recorded for the full year of 2021 were $8.86 million compared to net charge-offs of $9.19 million in 2020. This resulted in a charge-off ratio of 0.16% for 2021 compared to 0.17% for 2020. Net charge-offs of $5.15 million were recorded for the fourth quarter of 2021 compared with net charge-offs of $3.72 million in the same quarter a year ago and $0.04 million of net charge-offs in the previous quarter. The majority of charge-offs in 2021 were related to the bus division of the auto and light truck portfolio which continued to be impacted by the lingering effects of the pandemic on events and tourism.
The provision for credit losses was a recovery of $4.30 million for the twelve months ended December 31, 2021 and a recovery of $1.12 million for the fourth quarter of 2021, a decrease of $40.30 million and $6.09 million, respectively, compared with the same periods in 2020. The ratio of nonperforming assets to loans and leases was 0.77% as of December 31, 2021, compared to 0.84% on September 30, 2021 and 1.16% on December 31, 2020. Excluding PPP loans, the ratio of nonperforming assets to loans and leases was 0.78% at December 31, 2021 compared to 0.87% at September 30, 2021 and 1.24% at December 31, 2020. Nonperforming assets saw improvement in the fourth quarter as a result of lower nonaccrual loans.
Capital
As of December 31, 2021, the common equity-to-assets ratio was 11.32%, compared to 11.44% at September 30, 2021 and 12.12% a year ago. The tangible common equity-to-tangible assets ratio was 10.39% at December 31, 2021 compared to 10.50% at September 30, 2021 and 11.10% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.72% at December 31, 2021 compared to 13.65% at September 30, 2021 and 13.06% a year ago. During the fourth quarter of 2021, 63,786 shares were repurchased for treasury reducing common shareholders’ equity by $3.07 million.
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, 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,” “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 2021 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,
2021
2021
2020
2021
2020
AVERAGE BALANCES
Assets
$
8,111,055
$
7,796,763
$
7,402,431
$
7,731,147
$
7,120,009
Earning assets
7,715,838
7,404,252
6,981,460
7,338,639
6,684,246
Investments
1,715,227
1,482,016
1,098,072
1,443,380
1,058,060
Loans and leases
5,311,964
5,427,080
5,517,707
5,437,817
5,463,436
Deposits
6,700,575
6,401,844
5,969,776
6,342,527
5,736,602
Interest bearing liabilities
4,959,322
4,811,516
4,635,661
4,784,697
4,546,548
Common shareholders’ equity
918,950
915,552
884,530
906,951
865,278
Total equity
966,063
960,235
921,913
951,991
896,956
INCOME STATEMENT DATA
Net interest income
$
60,067
$
62,224
$
62,107
$
236,638
$
225,820
Net interest income - FTE(1)
60,176
62,335
62,234
237,097
226,363
(Recovery of) provision for credit losses
(1,117)
(2,559)
4,970
(4,303)
36,001
Noninterest income
23,828
25,497
25,985
100,092
103,889
Noninterest expense
48,746
48,064
48,964
186,148
187,367
Net income
27,735
32,481
26,463
118,557
81,461
Net income available to common shareholders
27,723
32,483
26,464
118,534
81,437
PER SHARE DATA
Basic net income per common share
$
1.11
$
1.29
$
1.03
$
4.70
$
3.17
Diluted net income per common share
1.11
1.29
1.03
4.70
3.17
Common cash dividends declared
0.31
0.31
0.28
1.21
1.13
Book value per common share(2)
37.04
36.75
34.93
37.04
34.93
Tangible book value per common share(1)
33.64
33.37
31.62
33.64
31.62
Market value - High
51.20
48.63
41.10
51.20
52.16
Market value - Low
45.91
41.19
30.33
38.73
26.07
Basic weighted average common shares outstanding
24,775,288
24,919,956
25,492,140
25,038,127
25,527,154
Diluted weighted average common shares outstanding
24,775,288
24,919,956
25,492,140
25,038,127
25,527,154
KEY RATIOS
Return on average assets
1.36
%
1.65
%
1.42
%
1.53
%
1.14
%
Return on average common shareholders’ equity
11.97
14.08
11.90
13.07
9.41
Average common shareholders’ equity to average assets
11.33
11.74
11.95
11.73
12.15
End of period tangible common equity to tangible assets(1)
10.39
10.50
11.10
10.39
11.10
Risk-based capital - Common Equity Tier 1(3)
13.72
13.65
13.06
13.72
13.06
Risk-based capital - Tier 1(3)
15.50
15.33
14.73
15.50
14.73
Risk-based capital - Total(3)
16.76
16.59
15.99
16.76
15.99
Net interest margin
3.09
3.33
3.54
3.22
3.38
Net interest margin - FTE(1)
3.09
3.34
3.55
3.23
3.39
Efficiency ratio: expense to revenue
58.10
54.79
55.58
55.28
56.83
Efficiency ratio: expense to revenue - adjusted(1)
56.60
53.38
53.32
53.48
54.20
Net charge offs to average loans and leases
0.38
0.00
0.27
0.16
0.17
Loan and lease loss allowance to loans and leases
2.38
2.50
2.56
2.38
2.56
Nonperforming assets to loans and leases
0.77
0.84
1.16
0.77
1.16
December 31,
September 30,
June 30,
March 31,
December 31,
2021
2021
2021
2021
2020
END OF PERIOD BALANCES
Assets
$
8,096,289
$
7,964,092
$
7,718,694
$
7,511,931
$
7,316,411
Loans and leases
5,346,214
5,358,797
5,483,045
5,523,085
5,489,301
Deposits
6,679,065
6,522,505
6,345,410
6,131,341
5,946,028
Allowance for loan and lease losses
127,492
133,755
136,361
139,550
140,654
Goodwill and intangible assets
83,926
83,931
83,937
83,942
83,948
Common shareholders’ equity
916,255
911,333
901,226
891,295
886,845
Total equity
969,464
956,397
945,457
935,759
930,670
ASSET QUALITY
Loans and leases past due 90 days or more
$
249
$
96
$
44
$
66
$
115
Nonaccrual loans and leases
38,706
43,166
55,864
58,513
60,388
Other real estate
—
—
—
369
359
Repossessions
861
690
1,213
2,214
1,976
Equipment owned under operating leases
1,518
1,598
1,728
1,647
1,695
Total nonperforming assets
$
41,334
$
45,550
$
58,849
$
62,809
$
64,533
(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,
2021
2021
2021
2020
ASSETS
Cash and due from banks
$
54,420
$
77,740
$
69,101
$
74,186
Federal funds sold and interest bearing deposits with other banks
470,767
559,542
400,346
168,861
Investment securities available-for-sale
1,863,041
1,583,240
1,413,022
1,197,467
Other investments
27,189
27,189
27,429
27,429
Mortgages held for sale
13,284
34,594
6,453
12,885
Loans and leases, net of unearned discount:
Commercial and agricultural
918,712
1,005,849
1,125,965
1,186,118
Solar
348,302
303,995
305,250
292,604
Auto and light truck
603,775
605,258
595,326
542,369
Medium and heavy duty truck
259,740
248,604
256,169
279,172
Aircraft
898,401
900,077
883,559
861,460
Construction equipment
754,273
729,412
729,055
714,888
Commercial real estate
929,341
939,131
966,171
969,864
Residential real estate and home equity
500,590
492,893
492,552
511,379
Consumer
133,080
133,578
128,998
131,447
Total loans and leases
5,346,214
5,358,797
5,483,045
5,489,301
Allowance for loan and lease losses
(127,492)
(133,755)
(136,361)
(140,654)
Net loans and leases
5,218,722
5,225,042
5,346,684
5,348,647
Equipment owned under operating leases, net
48,433
51,478
56,011
65,040
Net premises and equipment
47,038
46,748
47,617
49,373
Goodwill and intangible assets
83,926
83,931
83,937
83,948
Accrued income and other assets
269,469
274,588
268,094
288,575
Total assets
$
8,096,289
$
7,964,092
$
7,718,694
$
7,316,411
LIABILITIES
Deposits:
Noninterest bearing demand
$
2,052,981
$
2,012,389
$
1,851,932
$
1,636,684
Interest-bearing deposits:
Interest-bearing demand
2,455,580
2,358,512
2,318,210
2,059,139
Savings
1,286,367
1,214,088
1,182,643
1,082,848
Time
884,137
937,516
992,625
1,167,357
Total interest-bearing deposits
4,626,084
4,510,116
4,493,478
4,309,344
Total deposits
6,679,065
6,522,505
6,345,410
5,946,028
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase
194,727
210,275
167,097
143,564
Other short-term borrowings
5,300
5,390
5,247
7,077
Total short-term borrowings
200,027
215,665
172,344
150,641
Long-term debt and mandatorily redeemable securities
71,251
81,301
81,330
81,864
Subordinated notes
58,764
58,764
58,764
58,764
Accrued expenses and other liabilities
117,718
129,460
115,389
148,444
Total liabilities
7,126,825
7,007,695
6,773,237
6,385,741
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, 2021, September 30, 2021, June 30, 2021, and December 31, 2020, respectively
436,538
436,538
436,538
436,538
Retained earnings
603,787
583,631
558,795
514,176
Cost of common stock in treasury (3,466,162, 3,408,141, 3,204,947, and 2,816,557 shares at December 31, 2021, September 30, 2021, June 30, 2021, and December 31, 2020, respectively)
(114,209)
(111,253)
(101,711)
(82,240)
Accumulated other comprehensive (loss) income
(9,861)
2,417
7,604
18,371
Total shareholders’ equity
916,255
911,333
901,226
886,845
Noncontrolling interests
53,209
45,064
44,231
43,825
Total equity
969,464
956,397
945,457
930,670
Total liabilities and equity
$
8,096,289
$
7,964,092
$
7,718,694
$
7,316,411
– 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,
2021
2021
2020
2021
2020
Interest income:
Loans and leases
$
58,327
$
61,696
$
64,113
$
235,031
$
242,772
Investment securities, taxable
5,091
4,533
3,940
17,767
18,080
Investment securities, tax-exempt
133
140
192
601
895
Other
430
360
333
1,373
1,284
Total interest income
63,981
66,729
68,578
254,772
263,031
Interest expense:
Deposits
2,624
2,924
4,811
12,276
30,459
Short-term borrowings
25
25
90
115
517
Subordinated notes
819
816
824
3,267
3,367
Long-term debt and mandatorily redeemable securities
446
740
746
2,476
2,868
Total interest expense
3,914
4,505
6,471
18,134
37,211
Net interest income
60,067
62,224
62,107
236,638
225,820
(Recovery of) provision for credit losses
(1,117)
(2,559)
4,970
(4,303)
36,001
Net interest income after provision for credit losses
61,184
64,783
57,137
240,941
189,819
Noninterest income:
Trust and wealth advisory
5,949
5,886
5,524
23,782
21,114
Service charges on deposit accounts
2,867
2,767
2,634
10,589
9,485
Debit card
4,619
4,570
3,990
18,125
14,983
Mortgage banking
1,913
3,149
3,549
11,822
15,674
Insurance commissions
1,549
1,862
1,624
7,247
7,025
Equipment rental
3,817
3,946
5,167
16,647
23,380
(Losses) gains on investment securities available-for-sale
—
—
—
(680)
279
Other
3,114
3,317
3,497
12,560
11,949
Total noninterest income
23,828
25,497
25,985
100,092
103,889
Noninterest expense:
Salaries and employee benefits
28,128
26,974
27,547
105,808
101,556
Net occupancy
2,624
2,654
2,539
10,524
10,276
Furniture and equipment
6,615
6,444
6,776
25,854
25,688
Depreciation — leased equipment
3,132
3,239
4,940
13,694
20,203
Professional fees
3,102
1,815
1,576
8,676
6,317
Supplies and communication
1,610
1,427
1,234
5,942
5,563
FDIC and other insurance
844
396
851
2,677
2,606
Business development and marketing
1,200
4,465
754
8,013
4,157
Loan and lease collection and repossession
—
(585)
444
30
3,099
Other
1,491
1,235
2,303
4,930
7,902
Total noninterest expense
48,746
48,064
48,964
186,148
187,367
Income before income taxes
36,266
42,216
34,158
154,885
106,341
Income tax expense
8,531
9,735
7,695
36,328
24,880
Net income
27,735
32,481
26,463
118,557
81,461
Net (income) loss attributable to noncontrolling interests
(12)
2
1
(23)
(24)
Net income available to common shareholders
$
27,723
$
32,483
$
26,464
$
118,534
$
81,437
Per common share:
Basic net income per common share
$
1.11
$
1.29
$
1.03
$
4.70
$
3.17
Diluted net income per common share
$
1.11
$
1.29
$
1.03
$
4.70
$
3.17
Cash dividends
$
0.31
$
0.31
$
0.28
$
1.21
$
1.13
Basic weighted average common shares outstanding
24,775,288
24,919,956
25,492,140
25,038,127
25,527,154
Diluted weighted average common shares outstanding
24,775,288
24,919,956
25,492,140
25,038,127
25,527,154
– 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, 2021
September 30, 2021
December 31, 2020
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
$
1,686,231
$
5,091
1.20
%
$
1,451,523
$
4,533
1.24
%
$
1,056,727
$
3,940
1.48
%
Tax-exempt(1)
28,996
163
2.23
%
30,493
172
2.24
%
41,345
237
2.28
%
Mortgages held for sale
28,693
188
2.60
%
17,750
120
2.68
%
17,844
120
2.68
%
Loans and leases, net of unearned discount(1)
5,311,964
58,218
4.35
%
5,427,080
61,655
4.51
%
5,517,707
64,075
4.62
%
Other investments
659,954
430
0.26
%
477,406
360
0.30
%
347,837
333
0.38
%
Total earning assets(1)
7,715,838
64,090
3.30
%
7,404,252
66,840
3.58
%
6,981,460
68,705
3.92
%
Cash and due from banks
80,754
76,915
75,055
Allowance for loan and lease losses
(134,217)
(137,206)
(143,888)
Other assets
448,680
452,802
489,804
Total assets
$
8,111,055
$
7,796,763
$
7,402,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,628,802
$
2,624
0.22
%
$
4,488,169
$
2,924
0.26
%
$
4,272,622
$
4,811
0.45
%
Short-term borrowings:
Securties sold under agreements to repurchase
194,678
24
0.05
%
177,720
24
0.05
%
215,770
88
0.16
%
Other short-term borrowings
5,474
1
0.07
%
5,492
1
0.07
%
6,929
2
0.11
%
Subordinated notes
58,764
819
5.53
%
58,764
816
5.51
%
58,764
824
5.58
%
Long-term debt and mandatorily redeemable securities
71,604
446
2.47
%
81,371
740
3.61
%
81,576
746
3.64
%
Total interest-bearing liabilities
4,959,322
3,914
0.31
%
4,811,516
4,505
0.37
%
4,635,661
6,471
0.56
%
Noninterest-bearing deposits
2,071,773
1,913,675
1,697,154
Other liabilities
113,897
111,337
147,703
Shareholders’ equity
918,950
915,552
884,530
Noncontrolling interests
47,113
44,683
37,383
Total liabilities and equity
$
8,111,055
$
7,796,763
$
7,402,431
Less: Fully tax-equivalent adjustments
(109)
(111)
(127)
Net interest income/margin (GAAP-derived)(1)
$
60,067
3.09
%
$
62,224
3.33
%
$
62,107
3.54
%
Fully tax-equivalent adjustments
109
111
127
Net interest income/margin - FTE(1)
$
60,176
3.09
%
$
62,335
3.34
%
$
62,234
3.55
%
(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, 2021
December 31, 2020
Average Balance
Interest Income/Expense
Yield/ Rate
Average Balance
Interest Income/Expense
Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable
$
1,410,797
$
17,767
1.26
%
$
1,009,794
$
18,080
1.79
%
Tax-exempt(1)
32,583
741
2.27
%
48,266
1,105
2.29
%
Mortgages held for sale
17,026
448
2.63
%
20,628
600
2.91
%
Loans and leases, net of unearned discount(1)
5,437,817
234,902
4.32
%
5,463,436
242,505
4.44
%
Other investments
440,416
1,373
0.31
%
142,122
1,284
0.90
%
Total earning assets(1)
7,338,639
255,231
3.48
%
6,684,246
263,574
3.94
%
Cash and due from banks
77,275
71,626
Allowance for loan and lease losses
(139,141)
(130,776)
Other assets
454,374
494,913
Total assets
$
7,731,147
$
7,120,009
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,460,359
$
12,276
0.28
%
$
4,205,904
$
30,459
0.72
%
Short-term borrowings:
Securities sold under agreements to repurchase
180,610
112
0.06
%
173,398
317
0.18
%
Other short-term borrowings
6,119
3
0.05
%
27,767
200
0.72
%
Subordinated notes
58,764
3,267
5.56
%
58,764
3,367
5.73
%
Long-term debt and mandatorily redeemable securities
78,845
2,476
3.14
%
80,715
2,868
3.55
%
Total interest-bearing liabilities
4,784,697
18,134
0.38
%
4,546,548
37,211
0.82
%
Noninterest-bearing deposits
1,882,168
1,530,698
Other liabilities
112,291
145,807
Shareholders’ equity
906,951
865,278
Noncontrolling interests
45,040
31,678
Total liabilities and equity
$
7,731,147
$
7,120,009
Less: Fully tax-equivalent adjustments
(459)
(543)
Net interest income/margin (GAAP-derived)(1)
$
236,638
3.22
%
$
225,820
3.38
%
Fully tax-equivalent adjustments
459
543
Net interest income/margin - FTE(1)
$
237,097
3.23
%
$
226,363
3.39
%
(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,
2021
2021
2020
2021
2020
Calculation of Net Interest Margin
(A)
Interest income (GAAP)
$
63,981
$
66,729
$
68,578
$
254,772
$
263,031
Fully tax-equivalent adjustments:
(B)
- Loans and leases
79
79
82
319
333
(C)
- Tax-exempt investment securities
30
32
45
140
210
(D)
Interest income - FTE (A+B+C)
64,090
66,840
68,705
255,231
263,574
(E)
Interest expense (GAAP)
3,914
4,505
6,471
18,134
37,211
(F)
Net interest income (GAAP) (A–E)
60,067
62,224
62,107
236,638
225,820
(G)
Net interest income - FTE (D–E)
60,176
62,335
62,234
237,097
226,363
(H)
Annualization factor
3.967
3.967
3.978
1.000
1.000
(I)
Total earning assets
$
7,715,838
$
7,404,252
$
6,981,460
$
7,338,639
$
6,684,246
Net interest margin (GAAP-derived) (F*H)/I
3.09
%
3.33
%
3.54
%
3.22
%
3.38
%
Net interest margin - FTE (G*H)/I
3.09
%
3.34
%
3.55
%
3.23
%
3.39
%
Calculation of Efficiency Ratio
(F)
Net interest income (GAAP)
$
60,067
$
62,224
$
62,107
$
236,638
$
225,820
(G)
Net interest income - FTE
60,176
62,335
62,234
237,097
226,363
(J)
Plus: noninterest income (GAAP)
23,828
25,497
25,985
100,092
103,889
(K)
Less: gains/losses on investment securities and partnership investments
(285)
(623)
(714)
(1,020)
(1,652)
(L)
Less: depreciation - leased equipment
(3,132)
(3,239)
(4,940)
(13,694)
(20,203)
(M)
Total net revenue (GAAP) (F+J)
83,895
87,721
88,092
336,730
329,709
(N)
Total net revenue - adjusted (G+J–K–L)
80,587
83,970
82,565
322,475
308,397
(O)
Noninterest expense (GAAP)
48,746
48,064
48,964
186,148
187,367
(L)
Less: depreciation - leased equipment
(3,132)
(3,239)
(4,940)
(13,694)
(20,203)
(P)
Noninterest expense - adjusted (O–L)
45,614
44,825
44,024
172,454
167,164
Efficiency ratio (GAAP-derived) (O/M)
58.10
%
54.79
%
55.58
%
55.28
%
56.83
%
Efficiency ratio - adjusted (P/N)
56.60
%
53.38
%
53.32
%
53.48
%
54.20
%
End of Period
December 31,
September 30,
December 31,
2021
2021
2020
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)
Total common shareholders’ equity (GAAP)
$
916,255
$
911,333
$
886,845
(R)
Less: goodwill and intangible assets
(83,926)
(83,931)
(83,948)
(S)
Total tangible common shareholders’ equity (Q–R)
$
832,329
$
827,402
$
802,897
(T)
Total assets (GAAP)
8,096,289
7,964,092
7,316,411
(R)
Less: goodwill and intangible assets
(83,926)
(83,931)
(83,948)
(U)
Total tangible assets (T–R)
$
8,012,363
$
7,880,161
$
7,232,463
Common equity-to-assets ratio (GAAP-derived) (Q/T)
11.32
%
11.44
%
12.12
%
Tangible common equity-to-tangible assets ratio (S/U)
10.39
%
10.50
%
11.10
%
Calculation of Tangible Book Value per Common Share
(Q)
Total common shareholders’ equity (GAAP)
$
916,255
$
911,333
$
886,845
(V)
Actual common shares outstanding
24,739,512
24,797,533
25,389,117
Book value per common share (GAAP-derived) (Q/V)*1000
$
37.04
$
36.75
$
34.93
Tangible common book value per share (S/V)*1000
$
33.64
$
33.37
$
31.62
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
