1st Source Corporation Reports Record Second Quarter Results, Cash Dividend Increased
07/22/2021 - 04:00 PM
1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record quarterly net income of $30.22 million for the second quarter of 2021, up 63.35% from the $18.50 million reported in the second quarter a year ago, bringing the 2021 year-to-date net income to $58.33 million compared to $34.92 million in 2020, an increase of 67.06%. Diluted net income per common share for the second quarter of 2021 was up 65.28% to $1.19 versus $0.72 in the second quarter of 2020. Diluted net income per common share for the first half of 2021 was $2.29 compared to $1.36 a year earlier, a 68.38% increase.
Year-to-date net income and earnings per share were positively impacted by providing $22.36 million less in the provision for credit losses compared to the provision for the prior year. This is a result of improved economic conditions this year compared to the extraordinarily uncertain circumstances presented by the pandemic a year ago.
At its July 2021 meeting, the Board of Directors approved a cash dividend of $0.31 per common share, up 10.71% from the $0.28 per common share declared a year ago. The cash dividend is payable to shareholders of record on August 3, 2021 and will be paid on August 13, 2021.
Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to have achieved record net income for the second consecutive quarter. Credit uncertainty continues to improve substantially which resulted in a reduction to our provision for credit losses. In addition, our clients continued to receive Paycheck Protection Program (PPP) loan forgiveness during the second quarter. Total PPP loans forgiven during 2021 were $291.32 million which provided $5.68 million in accelerated fee income. We are optimistic that continued vaccination adoption among the communities and businesses we serve will sustain the positive economic momentum we have seen over the last three months.
“Throughout the pandemic, our focus has remained on keeping our clients, our colleagues and families safe so we can deliver the highest level of service. Vaccination rates among our colleagues has grown steadily, and as an organization, we have reached a high level of inoculation. As mentioned last quarter, our lobbies are open, and once again our bankers are able to more freely meet with business and consumer clients (following CDC guidelines with masking and social distancing recommendations) than was the case in the last year. We’re confident we are doing our best to ensure the safety and well-being of all those we serve and employ while also getting back to a sense of ‘business as usual’ for all our clients. As new variants of COVID develop, we will continue to review and analyze data from local health departments to make the best decisions possible for the health and safety of our team members, clients and communities.
“We were very pleased to learn during the second quarter that 1st Source had been named among the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll for the third consecutive year. We are proud to be one of the 16 honorees to earn this recognition out of 365 banking institutions analyzed. To be considered, banks must be publicly traded institutions with more than $500 million in total assets and must have had 10 consecutive years of increased earnings per share. For the 2021 list, to account for the impact that the adoption of the current expected credit loss (CECL) accounting methodology had on 2020 earnings, KBW modified some inclusion criteria. Banks that met the annual earnings per share growth requirements for all years save 2020 were eligible for inclusion, if in 2020, they reported an annual profit and annual pre-tax, pre-provision net income per share growth. It is a focus on quality earnings, investing for the future, building a strong balance sheet, capital, and reserves that earned 1st Source this recognition and has allowed us to continue to meet the challenges that the pandemic has presented. Receiving this recognition for the third year in a row is a great honor, and it’s a welcome confirmation, after a year of unprecedented challenges, that our focus on the long-term has been successful.
“Lastly, we announced the election of Tracy D. Graham, Managing Principal of Graham Allen Partners, LLC and Chief Executive Officer of Aunalytics, Inc., and Ronda Shrewsbury, President and Chief Executive Officer of RealAmerica, LLC to our Board of Directors. We are pleased our shareholders voted to add these strong leaders to our Board of Directors and we are certain they 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. Their backgrounds and experience blend well with our already strong Board, and their strategic guidance, and diversity of thought and perspective will add value to the future of our organization. Also, two current members, Melody Birmingham, who serves as Senior Vice President and Chief Administrative Officer of Duke Energy, and Mark D. Schwabero, retired Chairman, Chief Executive Officer and Director of Brunswick Corporation in 2018, were reelected to the Board of 1st Source Corporation. All four directors have been elected to terms that end April 2024 and will be subject to reelection at that time,” Mr. Murphy concluded.
SECOND QUARTER 2021 FINANCIAL RESULTS
Loans
Average loans and leases of $5.52 billion decreased $49.77 million, or 0.89% in the second quarter of 2021 from the year ago quarter and were relatively flat from the previous quarter. Year-to-date average loans and leases of $5.51 billion increased $175.46 million, up 3.29% from the first six months of 2020. Loan runoff is primarily from SBA forgiveness of PPP loans offset by growth in the solar and aircraft portfolios when compared to the second quarter of 2020. During the second quarter 2021, SBA forgiveness totaled $158.41 million which was offset by PPP originations of $29.02 million. During the first six months of 2021, SBA forgiveness totaled $291.32 million which was offset by PPP originations of $261.46 million. PPP loans amounted to $315.09 million as of June 30, 2021.
Deposits
Average deposits of $6.28 billion grew $468.08 million for the quarter ended June 30, 2021, up 8.06% from the year ago quarter and increased $298.18 million, up 4.99% from the previous quarter. Average deposits for the first six months of 2021 were $6.13 billion, an increase of $588.91 million, up 10.63% from the same period a year ago. Deposit growth is primarily from PPP loan fundings, increased consumer deposit levels compared to 2020 and seasonal public fund activity.
Net Interest Income and Net Interest Margin
Second quarter 2021 tax-equivalent net interest income of $57.05 million increased $2.92 million, or 5.38% from the second quarter a year ago and decreased $0.48 million, or 0.83% from the first quarter of 2021. For the first six months of 2021, tax-equivalent net interest income was $114.59 million, an increase of $5.45 million, or 5.00% compared to the same period a year ago.
Second quarter 2021 net interest margin was 3.14%, a decrease of nine basis points from the 3.23% for the same period in 2020 and a decrease of 21 basis points from the previous quarter. Second quarter 2021 net interest margin on a fully tax-equivalent basis was 3.15%, a decrease of nine basis points from the 3.24% for the same period in 2020 and was lower by 20 basis points compared to the previous quarter. The margin continues to experience pressure from the low interest rate environment and excess liquidity. PPP loans had a positive impact on the net interest margin of one basis point for the quarter due to accelerated PPP loan origination fee amortization as a result of SBA forgiveness compared to a negative impact of four basis points in the same period a year ago. We recognized $2.59 million in PPP loan fees during the second quarter of 2021. During the prior quarter, PPP loans had a positive impact on the net interest margin of 10 basis points and we recognized $3.98 million in PPP loan fees.
Net interest margin for the first six months of 2021 was 3.24%, a decrease of 15 basis points from the 3.39% for the same period in 2020. Net interest margin on a fully-taxable-equivalent basis for the first half of 2021 was 3.25%, a decrease of 15 basis points from the 3.40% for the first half of 2020. The margin continues to experience pressure from the low interest rate environment and excess liquidity. PPP loans had a positive impact on the net interest margin of five basis points for the first half of 2021 compared to a negative impact of five basis points during the first half of 2020.
Noninterest Income
Second quarter 2021 noninterest income of $24.90 million decreased $0.34 million, or 1.36% from the second quarter a year ago and decreased $0.97 million, or 3.75% from the first quarter of 2021. For the first six months of 2021, noninterest income was $50.77 million, an increase of $0.90 million, up 1.81% from the same period a year ago.
Noninterest income was lower compared to the second quarter a year ago mainly from less equipment rental income as demand for leases declined, realized losses on the sale of available-for-sale debt securities due to repositioning in the investment portfolio and reduced mortgage banking income resulting from a lower sales volume offset by increased debit card income as transaction levels improved, higher trust and wealth advisory fees as market values improved on assets under management, and a rise in service charges on deposit accounts.
The decrease in noninterest income from the prior quarter was mainly due to reduced mortgage banking income resulting from lower sales volume, realized losses on the sale of available-for-sale debt securities due to repositioning in the investment portfolio and fewer contingent insurance commissions offset by higher trust and wealth advisory fees as market values improved on assets under management and a rise in debit card income as transaction levels improved.
Additionally, we recognized $0.59 million in impairment recoveries on our mortgage servicing rights during 2021.
Noninterest Expense
Second quarter 2021 noninterest expense was relatively flat from the second quarter a year ago and increased $1.06 million, or 2.40% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were up 4.95% from the second quarter a year ago and up 3.17% from the prior quarter. For the first six months of 2021, noninterest expense was $89.34 million, a decrease of $2.02 million, down 2.21% compared to the same period a year ago.
The increase in noninterest expense from the prior quarter was primarily the result of a higher valuation provision for interest rate swaps with customers, higher salaries and wages due to incentive awards and normal merit increases, and a rise in legal and consulting fees offset by a decrease in the provision for unfunded loan commitments and lower leased equipment depreciation as the average equipment rental portfolio continues to decline.
Credit
The allowance for loan and lease losses as of June 30, 2021 was 2.49% of total loans and leases compared to 2.53% at March 31, 2021 and 2.31% at June 30, 2020 (incurred loss method). The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding these loans from the calculation results in an allowance of 2.63% at June 30, 2021, compared to 2.74% at March 31, 2021 and 2.73% at December 31, 2020. Net charge-offs of $0.16 million were recorded for the second quarter of 2021 compared with net recoveries of $0.11 million in the same quarter a year ago and $3.50 million of net charge-offs in the prior quarter. The majority of charge-offs in 2021 were related to the bus division of the auto and light truck portfolio which continues to be impacted by the lingering impact the pandemic has had on events and tourism.
The provision for credit losses was a recovery of $3.03 million for the second quarter of 2021, a decrease of $13.40 million compared with the same period in 2020 and a decrease of $5.42 million from the first quarter of 2021. The ratio of nonperforming assets to loans and leases was 1.06% as of June 30, 2021, compared to 1.12% on March 31, 2021 and 1.20% on June 30, 2020. Excluding PPP loans, the ratio of non-performing assets to loans and leases was 1.13% at June 30, 2021, 1.22% at March 31, 2021 and 1.33% at June 30, 2020.
Capital
As of June 30, 2021, the common equity-to-assets ratio was 11.68%, compared to 11.87% at March 31, 2021 and 11.74% a year ago. The tangible common equity-to-tangible assets ratio was 10.70% at June 30, 2021 compared to 10.87% at March 31, 2021 and 10.73% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.62% at June 30, 2021 compared to 13.43% at March 31, 2021 and 12.76% a year ago. During the second quarter of 2021, 283,759 shares were repurchased for treasury reducing common shareholders’ equity by $13.78 million. On July 22, 2021, the Board of Directors authorized the repurchase of 2,000,000 common shares under the Company’s stock repurchase plan when favorable conditions exist on the open market.
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,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.
1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which filings are available from the SEC. 1st Source undertakes no obligation to publicly update or revise any forward-looking statements.
NON-GAAP FINANCIAL MEASURES
The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently.
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses and lease depreciation), measures how much it costs to produce one dollar of revenue. Securities gains or losses and lease depreciation are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity-to-tangible assets ratio and tangible book value per common share as useful measurements of the Company’s equity.
See the table marked “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of certain non-GAAP financial measures used by the Company with their most closely related GAAP measures.
Category: Earnings
1st SOURCE CORPORATION
2nd QUARTER 2021 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,
2021
2021
2020
2021
2020
AVERAGE BALANCES
Assets
$
7,657,276
$
7,350,413
$
7,185,406
$
7,504,692
$
6,898,264
Earning assets
7,264,886
6,960,551
6,727,011
7,113,559
6,454,403
Investments
1,339,551
1,230,977
1,045,310
1,285,564
1,037,975
Loans and leases
5,515,387
5,499,009
5,565,160
5,507,243
5,331,779
Deposits
6,278,654
5,980,471
5,810,578
6,130,386
5,541,477
Interest bearing liabilities
4,785,800
4,577,664
4,580,419
4,682,307
4,497,986
Common shareholders’ equity
898,388
894,553
862,209
896,481
853,467
Total equity
942,821
938,451
891,606
940,648
879,605
INCOME STATEMENT DATA
Net interest income
$
56,935
$
57,412
$
54,001
$
114,347
$
108,845
Net interest income - FTE(1)
57,053
57,533
54,138
114,586
109,133
(Recovery of) provision for credit losses
(3,025)
2,398
10,375
(627)
21,728
Noninterest income
24,898
25,869
25,241
50,767
49,863
Noninterest expense
45,198
44,140
44,825
89,338
91,360
Net income
30,235
28,106
18,526
58,341
34,944
Net income available to common shareholders
30,223
28,105
18,502
58,328
34,915
PER SHARE DATA
Basic net income per common share
$
1.19
$
1.10
$
0.72
$
2.29
$
1.36
Diluted net income per common share
1.19
1.10
0.72
2.29
1.36
Common cash dividends declared
0.30
0.29
0.28
0.59
0.57
Book value per common share(2)
36.05
35.27
33.85
36.05
33.85
Tangible book value per common share(1)
32.69
31.95
30.57
32.69
30.57
Market value - High
51.02
50.38
38.70
51.02
52.16
Market value - Low
45.22
38.73
26.72
38.73
26.07
Basic weighted average common shares outstanding
25,143,712
25,320,930
25,540,855
25,231,789
25,532,105
Diluted weighted average common shares outstanding
25,143,712
25,320,930
25,540,855
25,231,789
25,532,105
KEY RATIOS
Return on average assets
1.58
%
1.55
%
1.04
%
1.57
%
1.02
%
Return on average common shareholders’ equity
13.49
12.74
8.63
13.12
8.23
Average common shareholders’ equity to average assets
11.73
12.17
12.00
11.95
12.37
End of period tangible common equity to tangible assets(1)
10.70
10.87
10.73
10.70
10.73
Risk-based capital - Common Equity Tier 1(3)
13.62
13.43
12.76
13.62
12.76
Risk-based capital - Tier 1(3)
15.32
15.12
14.32
15.32
14.32
Risk-based capital - Total(3)
16.58
16.39
15.58
16.58
15.58
Net interest margin
3.14
3.35
3.23
3.24
3.39
Net interest margin - FTE(1)
3.15
3.35
3.24
3.25
3.40
Efficiency ratio: expense to revenue
55.23
53.00
56.57
54.11
57.56
Efficiency ratio: expense to revenue - adjusted(1)
52.89
50.99
53.63
51.94
54.71
Net charge offs to average loans and leases
0.01
0.26
(0.01)
0.13
0.06
Loan and lease loss allowance to loans and leases
2.49
2.53
2.31
2.49
2.31
Nonperforming assets to loans and leases
1.06
1.12
1.20
1.06
1.20
June 30,
March 31,
December 31,
September 30,
June 30,
2021
2021
2020
2020
2020
END OF PERIOD BALANCES
Assets
$
7,718,694
$
7,511,931
$
7,316,411
$
7,290,949
$
7,365,146
Loans and leases
5,483,045
5,523,085
5,489,301
5,627,036
5,692,322
Deposits
6,345,410
6,131,341
5,946,028
5,896,855
5,993,456
Allowance for loan and lease losses
136,361
139,550
140,654
136,817
131,283
Goodwill and intangible assets
83,937
83,942
83,948
83,953
83,959
Common shareholders’ equity
901,226
891,295
886,845
877,754
864,995
Total equity
945,457
935,759
930,670
915,015
901,653
ASSET QUALITY
Loans and leases past due 90 days or more
$
44
$
66
$
115
$
81
$
256
Nonaccrual loans and leases
55,864
58,513
60,388
70,595
62,800
Other real estate
—
369
359
303
303
Repossessions
1,213
2,214
1,976
4,639
6,132
Equipment owned under operating leases
1,728
1,647
1,695
136
57
Total nonperforming assets
$
58,849
$
62,809
$
64,533
$
75,754
$
69,548
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.
(3) Calculated under banking regulatory guidelines.
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
June 30,
March 31,
December 31,
June 30,
2021
2021
2020
2020
ASSETS
Cash and due from banks
$
69,101
$
69,683
$
74,186
$
67,591
Federal funds sold and interest bearing deposits with other banks
400,346
266,271
168,861
112,645
Investment securities available-for-sale
1,413,022
1,291,340
1,197,467
1,055,797
Other investments
27,429
27,429
27,429
30,619
Mortgages held for sale
6,453
9,351
12,885
36,508
Loans and leases, net of unearned discount:
Commercial and agricultural
1,125,965
1,238,708
1,186,118
1,469,839
Solar
305,250
296,124
292,604
240,873
Auto and light truck
595,326
552,676
542,369
563,606
Medium and heavy duty truck
256,169
268,636
279,172
284,432
Aircraft
883,559
873,770
861,460
782,160
Construction equipment
729,055
705,744
714,888
739,027
Commercial real estate
966,171
975,383
969,864
942,971
Residential real estate and home equity
492,552
486,156
511,379
531,972
Consumer
128,998
125,888
131,447
137,442
Total loans and leases
5,483,045
5,523,085
5,489,301
5,692,322
Allowance for loan and lease losses*
(136,361)
(139,550)
(140,654)
(131,283)
Net loans and leases
5,346,684
5,383,535
5,348,647
5,561,039
Equipment owned under operating leases, net
56,011
61,395
65,040
86,183
Net premises and equipment
47,617
48,288
49,373
51,486
Goodwill and intangible assets
83,937
83,942
83,948
83,959
Accrued income and other assets
268,094
270,697
288,575
279,319
Total assets
$
7,718,694
$
7,511,931
$
7,316,411
$
7,365,146
LIABILITIES
Deposits:
Noninterest-bearing demand
$
1,851,932
$
1,833,116
$
1,636,684
$
1,684,102
Interest-bearing deposits:
Interest-bearing demand
2,318,210
2,068,382
2,059,139
1,866,415
Savings
1,182,643
1,148,823
1,082,848
942,891
Time
992,625
1,081,020
1,167,357
1,500,048
Total interest-bearing deposits
4,493,478
4,298,225
4,309,344
4,309,354
Total deposits
6,345,410
6,131,341
5,946,028
5,993,456
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase
167,097
173,302
143,564
169,483
Other short-term borrowings
5,247
7,299
7,077
7,536
Total short-term borrowings
172,344
180,601
150,641
177,019
Long-term debt and mandatorily redeemable securities
81,330
81,722
81,864
81,760
Subordinated notes
58,764
58,764
58,764
58,764
Accrued expenses and other liabilities
115,389
123,744
148,444
152,494
Total liabilities
6,773,237
6,576,172
6,385,741
6,463,493
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, 2021, March 31, 2021, December 31, 2020, and June 30, 2020, respectively
436,538
436,538
436,538
436,538
Retained earnings
558,795
535,737
514,176
484,491
Cost of common stock in treasury (3,204,947, 2,936,987, 2,816,557, and 2,655,319 shares at June 30, 2021, March 31, 2021, December 31, 2020, and
June 30, 2020, respectively)
(101,711)
(88,223)
(82,240)
(75,922)
Accumulated other comprehensive income
7,604
7,243
18,371
19,888
Total shareholders’ equity
901,226
891,295
886,845
864,995
Noncontrolling interests
44,231
44,464
43,825
36,658
Total equity
945,457
935,759
930,670
901,653
Total liabilities and equity
$
7,718,694
$
7,511,931
$
7,316,411
$
7,365,146
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore June 30, 2020 allowance amount reflects the incurred loss method.
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,
2021
2021
2020
2021
2020
Interest income:
Loans and leases
$
57,144
$
57,864
$
58,815
$
115,008
$
120,341
Investment securities, taxable
4,155
3,988
4,487
8,143
10,037
Investment securities, tax-exempt
154
174
232
328
496
Other
317
266
316
583
662
Total interest income
61,770
62,292
63,850
124,062
131,536
Interest expense:
Deposits
3,202
3,526
8,265
6,728
19,116
Short-term borrowings
29
36
90
65
344
Subordinated notes
814
818
835
1,632
1,719
Long-term debt and mandatorily redeemable securities
790
500
659
1,290
1,512
Total interest expense
4,835
4,880
9,849
9,715
22,691
Net interest income
56,935
57,412
54,001
114,347
108,845
(Recovery of) provision for credit losses*
(3,025)
2,398
10,375
(627)
21,728
Net interest income after provision for loan and lease losses
59,960
55,014
43,626
114,974
87,117
Noninterest income:
Trust and wealth advisory
6,466
5,481
5,589
11,947
10,437
Service charges on deposit accounts
2,508
2,447
1,910
4,955
4,515
Debit card
4,754
4,182
3,601
8,936
6,974
Mortgage banking
2,859
3,901
3,315
6,760
5,651
Insurance commissions
1,684
2,152
1,695
3,836
3,576
Equipment rental
4,255
4,629
5,990
8,884
12,620
(Losses) gains on investment securities available-for-sale
(680)
—
(1)
(680)
279
Other
3,052
3,077
3,142
6,129
5,811
Total noninterest income
24,898
25,869
25,241
50,767
49,863
Noninterest expense:
Salaries and employee benefits
25,510
25,196
23,999
50,706
48,400
Net occupancy
2,527
2,719
2,504
5,246
5,225
Furniture and equipment
6,337
6,458
6,258
12,795
12,665
Depreciation – leased equipment
3,550
3,773
5,142
7,323
10,569
Professional fees
2,146
1,613
1,258
3,759
2,700
Supplies and communication
1,430
1,475
1,390
2,905
3,024
FDIC and other insurance
772
665
599
1,437
887
Business development and marketing
1,351
997
1,121
2,348
2,480
Loan and lease collection and repossession
486
129
838
615
1,601
Other
1,089
1,115
1,716
2,204
3,809
Total noninterest expense
45,198
44,140
44,825
89,338
91,360
Income before income taxes
39,660
36,743
24,042
76,403
45,620
Income tax expense
9,425
8,637
5,516
18,062
10,676
Net income
30,235
28,106
18,526
58,341
34,944
Net (income) loss attributable to noncontrolling interests
(12)
(1)
(24)
(13)
(29)
Net income available to common shareholders
$
30,223
$
28,105
$
18,502
$
58,328
$
34,915
Per common share:
Basic net income per common share
$
1.19
$
1.10
$
0.72
$
2.29
$
1.36
Diluted net income per common share
$
1.19
$
1.10
$
0.72
$
2.29
$
1.36
Cash dividends
$
0.30
$
0.29
$
0.28
$
0.59
$
0.57
Basic weighted average common shares outstanding
25,143,712
25,320,930
25,540,855
25,231,789
25,532,105
Diluted weighted average common shares outstanding
25,143,712
25,320,930
25,540,855
25,231,789
25,532,105
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore June 30, 2020 provision amount reflects the incurred loss method.
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Three Months Ended
June 30, 2021
March 31, 2021
June 30, 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
$
1,305,988
$
4,156
1.28
%
$
1,193,583
$
3,987
1.35
%
$
995,776
$
4,487
1.81
%
Tax exempt(1)
33,563
192
2.29
%
37,394
214
2.32
%
49,534
286
2.32
%
Mortgages held for sale
7,208
54
3.00
%
14,285
86
2.44
%
27,016
198
2.95
%
Loans and leases, net of unearned discount(1)
5,515,387
57,169
4.16
%
5,499,009
57,860
4.27
%
5,565,160
58,700
4.24
%
Other investments
402,740
317
0.32
%
216,280
266
0.50
%
89,525
316
1.42
%
Total earning assets(1)
7,264,886
61,888
3.42
%
6,960,551
62,413
3.64
%
6,727,011
63,987
3.83
%
Cash and due from banks
76,198
75,178
73,523
Allowance for loan and lease losses
(142,056)
(143,206)
(124,186)
Other assets
458,248
457,890
509,058
Total assets
$
7,657,276
$
7,350,413
$
7,185,406
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,458,915
$
3,202
0.29
%
$
4,261,207
$
3,526
0.34
%
$
4,248,478
$
8,265
0.78
%
Short-term borrowings
186,605
29
0.06
%
176,726
36
0.08
%
191,411
90
0.19
%
Subordinated notes
58,764
814
5.56
%
58,764
818
5.65
%
58,764
835
5.71
%
Long-term debt and mandatorily redeemable securities
81,516
790
3.89
%
80,967
500
2.50
%
81,766
659
3.24
%
Total interest-bearing liabilities
4,785,800
4,835
0.41
%
4,577,664
4,880
0.43
%
4,580,419
9,849
0.86
%
Noninterest-bearing deposits
1,819,739
1,719,264
1,562,100
Other liabilities
108,916
115,034
151,281
Shareholders’ equity
898,388
894,553
862,209
Noncontrolling interests
44,433
43,898
29,397
Total liabilities and equity
$
7,657,276
$
7,350,413
$
7,185,406
Less: Fully tax-equivalent adjustments
(118)
(121)
(137)
Net interest income/margin (GAAP-derived)(1)
$
56,935
3.14
%
$
57,412
3.35
%
$
54,001
3.23
%
Fully tax-equivalent adjustments
118
121
137
Net interest income/margin - FTE(1)
$
57,053
3.15
%
$
57,533
3.35
%
$
54,138
3.24
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Six Months Ended
June 30, 2021
June 30, 2020
Average
Balance
Interest Income/Expense
Yield/
Rate
Average
Balance
Interest Income/Expense
Yield/
Rate
ASSETS
Investment securities available-for-sale:
Taxable
$
1,250,096
$
8,143
1.31
%
$
984,598
$
10,037
2.05
%
Tax exempt(1)
35,468
406
2.31
%
53,377
611
2.30
%
Mortgages held for sale
10,727
140
2.63
%
19,155
294
3.09
%
Loans and leases, net of unearned discount(1)
5,507,243
115,029
4.21
%
5,331,779
120,220
4.53
%
Other investments
310,025
583
0.38
%
65,494
662
2.03
%
Total earning assets(1)
7,113,559
124,301
3.52
%
6,454,403
131,824
4.11
%
Cash and due from banks
75,691
69,465
Allowance for loan and lease losses
(142,628)
(118,212)
Other assets
458,070
492,608
Total assets
$
7,504,692
$
6,898,264
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
4,360,607
6,728
0.31
%
4,162,374
19,116
0.92
%
Short-term borrowings
181,693
65
0.07
%
196,978
344
0.35
%
Subordinated notes
58,764
1,632
5.60
%
58,764
1,719
5.88
%
Long-term debt and mandatorily redeemable securities
81,243
1,290
3.20
%
79,870
1,512
3.81
%
Total interest-bearing liabilities
4,682,307
9,715
0.42
%
4,497,986
22,691
1.01
%
Noninterest-bearing deposits
1,769,779
1,379,103
Other liabilities
111,958
141,570
Shareholders’ equity
896,481
853,467
Noncontrolling interests
44,167
26,138
Total liabilities and equity
$
7,504,692
$
6,898,264
Less: Fully tax-equivalent adjustments
(239)
(288)
Net interest income/margin (GAAP-derived)(1)
$
114,347
3.24
%
$
108,845
3.39
%
Fully tax-equivalent adjustments
239
288
Net interest income/margin - FTE(1)
$
114,586
3.25
%
$
109,133
3.40
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
1st SOURCE CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited - Dollars in thousands, except per share data)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2021
2021
2020
2021
2020
Calculation of Net Interest Margin
(A)
Interest income (GAAP)
$
61,770
$
62,292
$
63,850
$
124,062
$
131,536
Fully tax-equivalent adjustments:
(B)
– Loans and leases
80
81
83
161
173
(C)
– Tax exempt investment securities
38
40
54
78
115
(D)
Interest income – FTE (A+B+C)
61,888
62,413
63,987
124,301
131,824
(E)
Interest expense (GAAP)
4,835
4,880
9,849
9,715
22,691
(F)
Net interest income (GAAP) (A-E)
56,935
57,412
54,001
114,347
108,845
(G)
Net interest income - FTE (D-E)
57,053
57,533
54,138
114,586
109,133
(H)
Annualization factor
4.011
4.056
4.022
2.017
2.011
(I)
Total earning assets
$
7,264,886
$
6,960,551
$
6,727,011
$
7,113,559
$
6,454,403
Net interest margin (GAAP-derived) (F*H)/I
3.14
%
3.35
%
3.23
%
3.24
%
3.39
%
Net interest margin – FTE (G*H)/I
3.15
%
3.35
%
3.24
%
3.25
%
3.40
%
Calculation of Efficiency Ratio
(F)
Net interest income (GAAP)
$
56,935
$
57,412
$
54,001
$
114,347
$
108,845
(G)
Net interest income – FTE
57,053
57,533
54,138
114,586
109,133
(J)
Plus: noninterest income (GAAP)
24,898
25,869
25,241
50,767
49,863
(K)
Less: gains/losses on investment securities and partnership investments
348
(460)
(248)
(112)
(761)
(L)
Less: depreciation – leased equipment
(3,550)
(3,773)
(5,142)
(7,323)
(10,569)
(M)
Total net revenue (GAAP) (F+J)
81,833
83,281
79,242
165,114
158,708
(N)
Total net revenue – adjusted (G+J–K–L)
78,749
79,169
73,989
157,918
147,666
(O)
Noninterest expense (GAAP)
45,198
44,140
44,825
89,338
91,360
(L)
Less:depreciation – leased equipment
(3,550)
(3,773)
(5,142)
(7,323)
(10,569)
(P)
Noninterest expense – adjusted (O–L)
41,648
40,367
39,683
82,015
80,791
Efficiency ratio (GAAP-derived) (O/M)
55.23
%
53.00
%
56.57
%
54.11
%
57.56
%
Efficiency ratio – adjusted (P/N)
52.89
%
50.99
%
53.63
%
51.94
%
54.71
%
End of Period
June 30,
March 31,
June 30,
2021
2021
2020
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)
Total common shareholders’ equity (GAAP)
$
901,226
$
891,295
$
864,995
(R)
Less: goodwill and intangible assets
(83,937)
(83,942)
(83,959)
(S)
Total tangible common shareholders’ equity (Q–R)
$
817,289
$
807,353
$
781,036
(T)
Total assets (GAAP)
7,718,694
7,511,931
7,365,146
(R)
Less: goodwill and intangible assets
(83,937)
(83,942)
(83,959)
(U)
Total tangible assets (T–R)
$
7,634,757
$
7,427,989
$
7,281,187
Common equity-to-assets ratio (GAAP-derived) (Q/T)
11.68
%
11.87
%
11.74
%
Tangible common equity-to-tangible assets ratio (S/U)
10.70
%
10.87
%
10.73
%
Calculation of Tangible Book Value per Common Share
(Q)
Total common shareholders’ equity (GAAP)
$
901,226
$
891,295
$
864,995
(V)
Actual common shares outstanding
25,000,727
25,268,687
25,550,355
Book value per common share (GAAP-derived) (Q/V)*1000
$
36.05
$
35.27
$
33.85
Tangible common book value per share (S/V)*1000
$
32.69
$
31.95
$
30.57
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
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