1st Source Corporation Reports Record Annual Earnings, Cash Dividend Declared, History of Increased Dividends Continues

Rhea-AI Summary

1st Source Corporation (NASDAQ: SRCE) reported record net income of $118.53 million for 2021, up 45.55% from 2020. Fourth quarter net income was $27.72 million, showing an increase of 4.76% year-over-year. Diluted net income per share reached a record $4.70, up 48.26%, while the Q4 figure was $1.11, up 7.77%. The company declared a cash dividend of $0.31 per share, a 6.90% increase from last year. Loan forgiveness amounted to $543.59 million for the year, contributing to a recovery in credit losses. Overall liquidity remains strong.

Positive

• Record net income of $118.53 million for 2021, a 45.55% increase from 2020.
• Diluted net income per share reached $4.70, up 48.26% year-over-year.
• Cash dividend increased by 6.90% to $0.31 per share, marking the 34th consecutive year of dividend growth.
• PPP loan forgiveness contributed $543.59 million in 2021, enhancing financial stability.
• Improvement in nonperforming assets ratio to 0.77% compared to 1.16% a year ago.

Negative

• Fourth quarter net income decreased by 14.65% from the previous quarter.
• Noninterest income fell by 3.65% for the year, primarily due to lower equipment rental and mortgage banking income.
• Net interest margin decreased to 3.22%, down 16 basis points from 2020, reflecting a low interest rate environment.
• Increase in net charge-offs in the fourth quarter to $5.15 million, compared to $3.72 million in Q4 2020.

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, Ind.--(BUSINESS WIRE)-- 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.

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.

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.

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.

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.

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
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.

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

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

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:
Securities 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.

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.

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)

Please contact us at shareholder@1stsource.com

View source version on businesswire.com: https://www.businesswire.com/news/home/20220120005872/en/

Brett Bauer

574-235-2000

Source: 1st Source Corporation

FAQ

What were the net income results for SRCE in 2021?

1st Source Corporation reported a record net income of $118.53 million for the year 2021.

How much was the cash dividend declared by SRCE?

The Board approved a cash dividend of $0.31 per common share, up 6.90% from last year.

What is the impact of PPP loans on SRCE's financials for 2021?

PPP loan forgiveness amounted to $543.59 million in 2021, contributing positively to net income and credit quality.

What trends were observed in SRCE's net interest margin for the fourth quarter of 2021?

The net interest margin for Q4 2021 decreased to 3.09%, a reduction of 45 basis points from the same period in 2020.

How did SRCE's diluted net income per share compare in Q4 2021?

The diluted net income per common share for Q4 2021 was $1.11, an increase of 7.77% from the previous year.