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 $124.93 million for 2023, up 3.67% from 2022, but net income for the fourth quarter was $28.43 million, a decrease of 8.49% compared to the previous year. The company approved a cash dividend of $0.34 per common share, up 6.25% from a year ago. Average loans and leases grew by $637.16 million in 2023, up 11.45% from 2022. Tax-equivalent net interest margin expanded to 3.51% in 2023, up six basis points from 2022. Noninterest income decreased by 0.70% in 2023, mainly due to lower equipment rental income and realized losses from repositioning the available-for-sale investment securities portfolio. Noninterest expense increased by 9.22% in 2023, primarily due to higher base salaries, software maintenance costs, and increased FDIC insurance premiums. The allowance for loan and lease losses as of December 31, 2023, was 2.26% of total loans and leases. The common equity-to-assets ratio was 11.34% as of December 31, 2023.

Positive

• Record net income of $124.93 million for 2023, up 3.67% from 2022
• Cash dividend of $0.34 per common share, up 6.25% from a year ago
• Average loans and leases grew by $637.16 million in 2023, up 11.45% from 2022
• Tax-equivalent net interest margin expanded to 3.51% in 2023, up six basis points from 2022
• Positive credit quality with net recoveries to average loans and leases of 0.04% in 2023

Negative

• Net income for the fourth quarter was $28.43 million, a decrease of 8.49% compared to the previous year
• Noninterest income decreased by 0.70% in 2023
• Noninterest expense increased by 9.22% in 2023
• Realized losses of $2.88 million from repositioning the available-for-sale investment securities portfolio

Insights

Financial Analyst

The reported record net income and the increase in cash dividend are indicative of a robust financial performance by 1st Source Corporation for the year 2023. The uptick in net income suggests efficient operational management and profitability, which can be a positive signal to investors about the company's ability to generate earnings. However, the decline in the fourth quarter net income compared to the previous quarter and the same quarter in the previous year could raise concerns about potential headwinds or market challenges the company may be facing.

The increase in average loans and leases reflects strong credit growth, which is a critical driver for revenue generation in the banking sector. The expansion of the tax-equivalent net interest margin (NIM) points to improved interest income relative to interest expenses, which is a key performance metric for banks. However, the slight decrease in NIM in the fourth quarter year-over-year could be a point of vigilance for future interest income stability.

From a capital management perspective, the repositioning of the investment securities portfolio and the charitable contribution are strategic decisions that may affect short-term earnings but could potentially align with the company's long-term strategic goals and social responsibility commitments.

Market Research Analyst

The growth in average loans and leases suggests that 1st Source Corporation has been successful in expanding its lending activities, which is particularly significant in the context of a competitive banking environment. The increased demand within specific portfolios, such as Auto and Light Truck and Construction Equipment, indicates a strategic focus on sectors that may be experiencing growth. This targeted approach to lending could position the company favorably in the market.

Regarding the deposit growth, the shift in client behavior towards higher-yielding certificates of deposit and money market accounts is reflective of the current interest rate environment. This shift may impact the bank's cost of funds and, consequently, its net interest margin. Understanding these dynamics is essential for stakeholders to assess the sustainability of the bank's deposit strategy.

The expansion into new markets, such as Lake County and Indianapolis, highlights the company's strategic growth initiatives and its commitment to increasing its commercial banking footprint. This expansion could lead to future revenue streams and diversification of the bank's loan portfolio.

Legal and Regulatory Expert

The Common Equity Tier 1 ratio reported by 1st Source Corporation remains well above the regulatory minimum, indicating a strong capital position and resilience to potential financial shocks. This is an important consideration for stakeholders concerned with the bank's compliance and stability in the face of regulatory requirements.

The share repurchase activity in 2023, although halted in the fourth quarter, reflects a proactive approach to capital distribution. Share repurchases can signal management's confidence in the company's valuation and future prospects, but they also reduce the equity base, which can impact financial ratios and shareholder equity.

The provision for credit losses and the reported net recoveries are critical in assessing the quality of the loan portfolio and the adequacy of the bank's reserves for potential loan losses. The decrease in provision expense due to net recoveries is a positive sign of credit quality, but it is essential to monitor these metrics for trends that may indicate changes in the risk profile of the bank's lending activities.

FULL YEAR AND QUARTERLY HIGHLIGHTS

• Net income was a record $124.93 million for the year of 2023, up 3.67% from 2022 and was $28.43 million for the fourth quarter of 2023, down 13.69% from the previous quarter and down 8.49% from the fourth quarter of 2022. Diluted net income per common share was a record $5.03 for the year of 2023, up 3.93% from 2022 and was $1.15 for the fourth quarter of 2023, down 12.88% from the previous quarter and down 8.00% from the prior year's fourth quarter due primarily to repositioning of the investment securities portfolio and a contribution to the 1st Source Foundation as described below.
• Cash dividend of $0.34 per common share was approved, up 6.25% from the cash dividend declared a year ago.
• Average loans and leases grew $637.16 million in 2023, up 11.45% from 2022 and grew $141.98 million during the fourth quarter, up 2.27% (9.08% annualized growth) from the previous quarter.
• Tax-equivalent net interest margin was 3.51% for 2023, up six basis points from 2022 and was 3.51% for the fourth quarter of 2023, up five basis points from the prior quarter and down 18 basis points from the fourth quarter of 2022.
• During the fourth quarter, repositioning of the investment securities portfolio resulted in losses of $2.88 million on the sale of available-for-sale securities. Approximately $40 million of securities with an average yield of 1.10% were sold and used to purchase approximately $40 million of securities with an average yield of 4.80%.
• Charitable contribution of $1 million was made to the 1st Source Foundation during the fourth quarter.
• During 2023, gains on the sale of renewable energy tax equity investments of $3.43 million were recognized - $1.11 million during the first quarter and $2.32 million during the third quarter.

South Bend, Indiana--(Newsfile Corp. - January 18, 2024) - 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record net income of $124.93 million for 2023, an increase of 3.67% compared to $120.51 million earned in 2022. Fourth quarter net income was $28.43 million, a decrease of 8.49% compared to $31.07 million earned in the fourth quarter of 2022 after losses due to repositioning the Company's investment securities portfolio and a contribution to the 1st Source Foundation. Diluted net income per common share for the year was a record $5.03, up 3.93% from the $4.84 earned a year earlier. Diluted net income per common share for the fourth quarter was $1.15, down 8.00% from the $1.25 earned in the fourth quarter of the previous year.

At its January 2024 meeting, the Board of Directors approved a cash dividend of $0.34 per common share, up 6.25% from the $0.32 per common share declared a year ago. The cash dividend is payable to shareholders of record on February 5, 2024 and will be paid on February 15, 2024.

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, "We are pleased to announce record net income for the third year in a row and we reached our 36th consecutive year of dividend growth. We were able to grow average loans and leases by $637.16 million or 11.45% from 2022. Our tax-equivalent net interest margin expanded during 2023 to 3.51% from 3.45% in 2022. During the fourth quarter, we also experienced margin expansion of six basis points after experiencing slight compression during the third quarter. New loans at higher rates, variable rate loan repricing and management of deposit rates contributed to the improvement. Our credit quality remained very strong as we had net recoveries to average loans and leases of 0.04% in 2023 compared to net charge-offs to average loans and leases of only 0.03% in 2022. I am extremely proud my colleagues were able to achieve such positive results during the unique challenges of 2023.

"In addition, we were most pleased to learn that 1st Source Bank received the Gold Level Award in the Community Lender category from the U.S. Small Business Administration (SBA) for the 11th consecutive year. The award, which focused on community banks headquartered in Indiana with less than $10 billion in assets, recognizes 1st Source Bank for delivering the greatest number of SBA loans in the State of Indiana in 2023. Since the inception of the award, it has been an honor to see the great work done by our SBA team and it is a testament to 1st Source Bank's commitment to serving local small businesses in all our markets.

"In alignment with that commitment and our strategic initiative to grow 1st Source's commercial banking footprint, we opened a loan production office in Lake County, Indiana in early January 2024. It is currently open by appointment only and serves the community with small business loans and other commercial credit needs. We are thrilled to expand into Lake County to help businesses in the area grow. Also, in line with our growth initiative, we have been moving forward with our efforts in Indianapolis. We opened a loan production office in the second quarter of 2023, and we have been continuing to build our presence in this market.

"Finally, in an ongoing effort to help our clients and to continue investment in our traditional markets, we are happy to announce that our new Niles Banking Center located at 1401 S. 11th St. in Niles, Michigan is now open to serve our clients. Recognizing the need for a new space as well as a drive-thru in Niles, the location opened successfully on December 21, 2023, and we are welcoming clients to come and experience enhanced levels of convenience and service," Mr. Murphy concluded.

FULL YEAR AND FOURTH QUARTER 2023 FINANCIAL RESULTS

Loans

Annual average loans and leases of $6.20 billion increased $637.16 million, up 11.45% loans from the full year 2022. Quarterly average loans and leases of $6.39 billion increased $547.27 million, up 9.37% loans in the fourth quarter of 2023 from the year ago quarter and have increased $141.98 million, up 2.27% from the third quarter. Strong growth primarily within our Auto and Light Truck and Construction Equipment portfolios and selective growth in our Commercial Real Estate portfolio drove total average loans and leases higher during the year.

Deposits

Annual average deposits for 2023 were $6.96 billion, an increase of $245.87 million, up 3.66% from 2022. Quarterly average deposits of $7.07 billion grew $310.20 million, up 4.59% for the quarter ended December 31, 2023 compared to the year ago quarter and have increased $118.56 million, up 1.71% compared to the third quarter. Deposit growth over the last year came from increased time deposits, public funds, and brokered deposits. The deposit mix change from 2022 continued through 2023 with clients moving their funds from non-maturity accounts to higher yielding certificates of deposit and money market accounts due to the interest rate environment.

Net Interest Income and Net Interest Margin

For the twelve months of 2023, tax-equivalent net interest income was $279.39 million, an increase of $15.29 million, up 5.79% compared to the full year 2022. Fourth quarter 2023 tax-equivalent net interest income of $71.50 million decreased $0.17 million, down 0.24% from the fourth quarter a year ago and increased $2.09 million, or 3.01% from the third quarter.

Net interest margin for the year ending December 31, 2023 was 3.50%, an increase of six basis points from the 3.44% for the year ending December 31, 2022. Net interest margin on a tax-equivalent basis for the year ending December 31, 2023 was 3.51%, an increase of six basis points from the 3.45% for the year ending December 31, 2022. Net interest recoveries positively contributed two basis points to the tax-equivalent net interest margin compared to a positive three basis point impact during 2022.

Fourth quarter 2023 net interest margin was 3.51%, a decrease of 17 basis points from the 3.68% for the same period in 2022 and an increase of six basis points from the prior quarter. Fourth quarter 2023 net interest margin on a fully tax-equivalent basis was 3.51%, a decrease of 18 basis points from the 3.69% for the same period in 2022 and an increase of five basis points from the 3.46% in the prior quarter. Net interest recoveries had a positive four basis point impact on the fourth quarter net interest margin compared to a one basis point impact during the fourth quarter of 2022.

Noninterest Income

Noninterest income for the twelve months ended December 31, 2023 was $90.62 million, down $0.64 million or 0.70% compared to the twelve months ended December 31, 2022. Fourth quarter 2023 noninterest income of $20.08 million decreased $3.20 million, or 13.76% from the fourth quarter a year ago and decreased $4.38 million or 17.91% from the third quarter.

Noninterest income during the twelve months ended December 31, 2023 was lower compared to a year ago mainly from lower equipment rental income due to a decrease in the size of the equipment rental portfolio as demand for operating leases continues to decline. Also contributing to lower income was realized losses of $2.88 million from repositioning the available-for-sale investment securities portfolio during the fourth quarter. Noninterest income in 2023 was also impacted by reduced mortgage banking origination volumes resulting in lower income from loans sold into the secondary market. These decreases were offset by partnership investment gains on sale of renewable energy tax equity investments of $3.43 million, a rise in interest rate swap fees, and higher deposit account fees.

The decrease in noninterest income from the third quarter was mainly due to the losses on the sale of available-for-sale securities of $2.88 million as explained above and lower partnership investment gains mainly from the sale of renewable energy tax equity investments of $2.32 million during the third quarter. These were offset by increased trust and wealth advisory income primarily from the positive market performance during the quarter.

Noninterest Expense

Noninterest expense for the twelve months ended December 31, 2023 was $201.72 million, an increase of $17.03 million, or 9.22% compared to the same period a year ago. Fourth quarter 2023 noninterest expense of $52.97 million rose $4.60 million, or 9.50% from the fourth quarter a year ago and increased $2.81 million or 5.59% from the prior quarter.

The increase in noninterest expense for 2023 from 2022 was primarily due to higher base salaries as a result of normal merit increases, the impact of wage inflation and an increase in the number of employees filling prior open positions, lower turn-over and a rise in group insurance claims. There was also increased software maintenance costs related to technology projects, higher FDIC insurance premiums due to a two basis point increase in assessment rates during the first quarter of 2023, an increase in the provision for unfunded loan commitments and a $1 million charitable contribution. These increases were offset by lower leased equipment depreciation and a decrease in professional consulting fees.

The increase in noninterest expense from the third quarter was mainly due to the earlier mentioned $1 million charitable contribution, higher legal fees and increased computer equipment replacement expense. These increases were offset by a lower provision for unfunded loan commitments and reduced leased equipment depreciation.

Credit

The allowance for loan and lease losses as of December 31, 2023 was 2.26% of total loans and leases compared to 2.27% at September 30, 2023 and 2.32% at December 31, 2022.

Net recoveries that have been recorded for the full year of 2023 were $2.42 million compared to net charge-offs of $1.47 million in 2022. This resulted in net recoveries to average loans and leases of 0.04% for 2023 compared to a net charge off ratio of 0.03% for 2022. Net recoveries in the fourth quarter of 2023 were $1.57 million compared with net charge-offs of $1.81 million in the same quarter a year ago and $0.33 million of net charge-offs in the previous quarter.

The provision for credit losses was $5.87 million for the twelve months ended December 31, 2023 and included $1.91 million for the fourth quarter of 2023, a decrease of $7.38 million and $3.43 million, respectively, compared with the same periods in 2022. The decrease in the provision expense was mainly due to net recoveries. The ratio of nonperforming assets to loans and leases was 0.37% as of December 31, 2023, compared to 0.27% on September 30, 2023 and 0.45% on December 31, 2022.

Capital

As of December 31, 2023, the common equity-to-assets ratio was 11.34%, compared to 10.84% at September 30, 2023 and 10.36% a year ago. The tangible common equity-to-tangible assets ratio was 10.48% at December 31, 2023 compared to 9.96% at September 30, 2023 and 9.45% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.22% at December 31, 2023 compared to 13.31% at September 30, 2023 and 13.19% a year ago.

During 2023, 310,522 shares were repurchased for treasury reducing common shareholders' equity by $12.47 million. No shares were repurchased during the fourth quarter 2023.

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 78 banking centers, 18 1st Source Bank Specialty Finance Group locations nationwide, nine Wealth Advisory Services locations, 10 1st Source Insurance offices, and three loan production 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.

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Category: Earnings

1st SOURCE CORPORATION
4th QUARTER 2023 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,
		2023			2023			2022			2023			2022
AVERAGE BALANCES
Assets	$	8,553,500		$	8,417,391		$	8,171,095		$	8,414,797		$	8,073,111
Earning assets		8,071,861			7,963,537			7,707,769			7,956,604			7,661,168
Investments		1,596,602			1,645,906			1,795,200			1,676,650			1,845,351
Loans and leases		6,387,858			6,245,883			5,840,593			6,203,857			5,566,701
Deposits		7,068,668			6,950,105			6,758,465			6,957,244			6,711,376
Interest bearing liabilities		5,678,546			5,566,874			5,086,446			5,522,793			5,002,168
Common shareholders' equity		949,939			940,544			846,449			926,935			872,721
Total equity		1,013,114			999,552			906,613			987,196			929,321
INCOME STATEMENT DATA
Net interest income	$	71,330		$	69,236		$	71,455		$	278,647		$	263,469
Net interest income - FTE(1)		71,496			69,406			71,670			279,388			264,097
Provision for credit losses		1,911			859			5,342			5,866			13,245
Noninterest income		20,076			24,455			23,280			90,623			91,262
Noninterest expense		52,972			50,166			48,377			201,724			184,699
Net income		28,417			32,939			31,056			124,934			120,532
Net income available to common shareholders		28,429			32,939			31,068			124,927			120,509
PER SHARE DATA
Basic net income per common share	$	1.15		$	1.32		$	1.25		$	5.03		$	4.84
Diluted net income per common share		1.15			1.32			1.25			5.03			4.84
Common cash dividends declared		0.34			0.32			0.32			1.30			1.26
Book value per common share(2)		40.50			37.83			35.04			40.50			35.04
Tangible book value per common share(1)		37.06			34.40			31.63			37.06			31.63
Market value - High		56.59			49.36			59.94			56.59			59.94
Market value - Low		41.30			40.96			46.40			38.77			42.29
Basic weighted average common shares outstanding		24,430,477			24,660,508			24,658,294			24,615,546			24,687,324
Diluted weighted average common shares outstanding		24,430,477			24,660,508			24,658,294			24,615,546			24,687,324
KEY RATIOS
Return on average assets		1.32 %			1.55 %			1.51 %			1.48 %			1.49 %
Return on average common shareholders' equity		11.87			13.89			14.56			13.48			13.81
Average common shareholders' equity to average assets		11.11			11.17			10.36			11.02			10.81
End of period tangible common equity to tangible assets(1)		10.48			9.96			9.45			10.48			9.45
Risk-based capital - Common Equity Tier 1(3)		13.22			13.31			13.19			13.22			13.19
Risk-based capital - Tier 1(3)		14.99			14.86			14.84			14.99			14.84
Risk-based capital - Total(3)		16.25			16.12			16.10			16.25			16.10
Net interest margin		3.51			3.45			3.68			3.50			3.44
Net interest margin - FTE(1)		3.51			3.46			3.69			3.51			3.45
Efficiency ratio: expense to revenue		57.95			53.54			51.07			54.63			52.07
Efficiency ratio: expense to revenue - adjusted(1)		56.40			54.24			51.05			54.21			51.13
Net (recoveries) charge offs to average loans and leases		(0.10	)		0.02			0.12			(0.04	)		0.03
Loan and lease loss allowance to loans and leases		2.26			2.27			2.32			2.26			2.32
Nonperforming assets to loans and leases		0.37			0.27			0.45			0.37			0.45
		December 31,			September 30,			June 30,			March 31,			December 31,
		2023			2023			2023			2023			2022
END OF PERIOD BALANCES
Assets	$	8,727,958		$	8,525,058		$	8,414,818		$	8,329,803		$	8,339,416
Loans and leases		6,518,505			6,353,648			6,215,343			6,116,716			6,011,162
Deposits		7,038,581			6,967,492			6,976,518			6,801,464			6,928,265
Allowance for loan and lease losses		147,552			144,074			143,542			142,511			139,268
Goodwill and intangible assets		83,916			83,921			83,897			83,901			83,907
Common shareholders' equity		989,568			924,250			921,020			909,159			864,068
Total equity		1,068,263			982,997			980,087			968,444			923,766
ASSET QUALITY
Loans and leases past due 90 days or more	$	149		$	154		$	56		$	24		$	54
Nonaccrual loans and leases		23,381			16,617			20,481			18,062			26,420
Other real estate		—			117			193			117			104
Repossessions		705			233			47			445			327
Equipment owned under operating leases		—			—			—			—			22
Total nonperforming assets	$	24,235		$	17,121		$	20,777		$	18,648		$	26,927

 

(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 as the sum of available-for-sale securities and loan and leases that mature in over 5 years as a percent of total assets.

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
		December 31,			September 30,			June 30,			December 31,
		2023			2023			2023			2022
ASSETS
Cash and due from banks	$	77,474		$	75,729		$	86,742		$	84,703
Federal funds sold and interest bearing deposits with other banks		52,194			35,406			25,933			38,094
Investment securities available-for-sale		1,622,600			1,605,242			1,661,405			1,775,128
Other investments		25,075			25,075			25,320			25,293
Mortgages held for sale		1,442			3,118			2,321			3,914
Loans and leases, net of unearned discount:
Commercial and agricultural		766,223			763,051			797,188			812,031
Renewable energy		399,708			364,949			376,905			381,163
Auto and light truck		966,912			901,484			901,054			808,117
Medium and heavy duty truck		311,947			323,202			319,634			313,862
Aircraft		1,078,172			1,079,581			1,060,340			1,077,722
Construction equipment		1,084,752			1,062,097			1,012,969			938,503
Commercial real estate		1,129,861			1,088,199			985,323			943,745
Residential real estate and home equity		637,973			627,515			617,495			584,737
Consumer		142,957			143,570			144,435			151,282
Total loans and leases		6,518,505			6,353,648			6,215,343			6,011,162
Allowance for loan and lease losses		(147,552	)		(144,074	)		(143,542	)		(139,268	)
Net loans and leases		6,370,953			6,209,574			6,071,801			5,871,894
Equipment owned under operating leases, net		20,366			24,096			26,582			31,700
Net premises and equipment		46,159			43,951			44,089			44,773
Goodwill and intangible assets		83,916			83,921			83,897			83,907
Accrued income and other assets		427,779			418,946			386,728			380,010
Total assets	$	8,727,958		$	8,525,058		$	8,414,818		$	8,339,416
LIABILITIES
Deposits:
Noninterest bearing demand	$	1,655,728		$	1,680,725		$	1,721,947		$	1,998,151
Interest-bearing deposits:
Interest-bearing demand		2,430,833			2,416,864			2,528,231			2,591,464
Savings		1,213,334			1,180,837			1,163,166			1,198,191
Time		1,738,686			1,689,066			1,563,174			1,140,459
Total interest-bearing deposits		5,382,853			5,286,767			5,254,571			4,930,114
Total deposits		7,038,581			6,967,492			6,976,518			6,928,265
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase		55,809			48,335			69,308			141,432
Other short-term borrowings		256,550			223,757			118,377			74,097
Total short-term borrowings		312,359			272,092			187,685			215,529
Long-term debt and mandatorily redeemable securities		47,911			46,533			46,649			46,555
Subordinated notes		58,764			58,764			58,764			58,764
Accrued expenses and other liabilities		202,080			197,180			165,115			166,537
Total liabilities		7,659,695			7,542,061			7,434,731			7,415,650
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, 2023, September 30, 2023, June 30, 2023, and December 31, 2022, respectively		436,538			436,538			436,538			436,538
Retained earnings		789,842			769,603			744,442			694,862
Cost of common stock in treasury (3,771,070, 3,776,591, 3,523,113, and 3,543,388 shares at December 31, 2023, September 30, 2023, June 30, 2023, and December 31, 2022, respectively)		(130,489	)		(130,579	)		(120,410	)		(119,642	)
Accumulated other comprehensive loss		(106,323	)		(151,312	)		(139,550	)		(147,690	)
Total shareholders' equity		989,568			924,250			921,020			864,068
Noncontrolling interests		78,695			58,747			59,067			59,698
Total equity		1,068,263			982,997			980,087			923,766
Total liabilities and equity	$	8,727,958		$	8,525,058		$	8,414,818		$	8,339,416

 

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,
		2023			2023			2022			2023			2022
Interest income:
Loans and leases	$	107,103		$	100,206		$	79,244		$	387,298		$	263,894
Investment securities, taxable		5,989			5,918			6,970			24,501			26,294
Investment securities, tax-exempt		314			319			419			1,445			1,049
Other		1,165			883			627			3,663			2,579
Total interest income		114,571			107,326			87,260			416,907			293,816
Interest expense:
Deposits		38,624			34,405			12,746			123,162			25,231
Short-term borrowings		1,878			2,136			1,070			7,032			1,497
Subordinated notes		1,066			1,060			972			4,174			3,550
Long-term debt and mandatorily redeemable securities		1,673			489			1,017			3,892			69
Total interest expense		43,241			38,090			15,805			138,260			30,347
Net interest income		71,330			69,236			71,455			278,647			263,469
Provision for credit losses		1,911			859			5,342			5,866			13,245
Net interest income after provision for credit losses		69,419			68,377			66,113			272,781			250,224
Noninterest income:
Trust and wealth advisory		5,912			5,648			5,608			23,706			23,107
Service charges on deposit accounts		3,331			3,297			3,172			12,749			12,146
Debit card		4,395			4,377			4,669			17,980			18,052
Mortgage banking		772			971			819			3,471			4,122
Insurance commissions		1,527			1,714			1,535			6,911			6,703
Equipment rental		1,907			2,101			2,556			8,837			12,274
Losses on investment securities available-for-sale		(2,882	)		—			(184	)		(2,926	)		(184	)
Other		5,114			6,347			5,105			19,895			15,042
Total noninterest income		20,076			24,455			23,280			90,623			91,262
Noninterest expense:
Salaries and employee benefits		29,913			28,866			27,695			115,612			105,110
Net occupancy		2,925			2,867			2,811			11,090			10,728
Furniture and equipment		1,715			1,217			1,397			5,653			5,448
Data processing		6,341			6,289			5,963			25,055			22,375
Depreciation — leased equipment		1,523			1,672			2,111			7,093			10,023
Professional fees		2,556			1,763			2,039			6,705			7,280
FDIC and other insurance		1,624			1,598			943			5,926			3,625
Business development and marketing		2,335			1,201			1,471			7,157			5,823
Other		4,040			4,693			3,947			17,433			14,287
Total noninterest expense		52,972			50,166			48,377			201,724			184,699
Income before income taxes		36,523			42,666			41,016			161,680			156,787
Income tax expense		8,106			9,727			9,960			36,746			36,255
Net income		28,417			32,939			31,056			124,934			120,532
Net loss (income) attributable to noncontrolling interests		12			—			12			(7	)		(23	)
Net income available to common shareholders	$	28,429		$	32,939		$	31,068		$	124,927		$	120,509
Per common share:
Basic net income per common share	$	1.15		$	1.32		$	1.25		$	5.03		$	4.84
Diluted net income per common share	$	1.15		$	1.32		$	1.25		$	5.03		$	4.84
Cash dividends	$	0.34		$	0.32		$	0.32		$	1.30		$	1.26
Basic weighted average common shares outstanding		24,430,477			24,660,508			24,658,294			24,615,546			24,687,324
Diluted weighted average common shares outstanding		24,430,477			24,660,508			24,658,294			24,615,546			24,687,324

 

1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
											Three Months Ended
		December 31, 2023									September 30, 2023									December 31, 2022
		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	$	1,559,351		$	5,989			1.52 %		$	1,605,912		$	5,918			1.46 %		$	1,742,567		$	6,970			1.59 %
Tax-exempt(1)		37,251			392			4.17 %			39,994			397			3.94 %			52,633			525			3.96 %
Mortgages held for sale		2,010			41			8.09 %			3,169			54			6.76 %			2,834			40			5.60 %
Loans and leases, net of unearned discount(1)		6,387,858			107,150			6.65 %			6,245,883			100,244			6.37 %			5,840,593			79,313			5.39 %
Other investments		85,391			1,165			5.41 %			68,579			883			5.11 %			69,142			627			3.60 %
Total earning assets(1)		8,071,861			114,737			5.64 %			7,963,537			107,496			5.36 %			7,707,769			87,475			4.50 %
Cash and due from banks		70,352									68,640									76,843
Allowance for loan and lease losses		(146,076	)								(145,197	)								(137,350	)
Other assets		557,363									530,411									523,833
Total assets	$	8,553,500								$	8,417,391								$	8,171,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits	$	5,383,925		$	38,624			2.85 %		$	5,247,332		$	34,405			2.60 %		$	4,718,303		$	12,746			1.07 %
Short-term borrowings:
Securities sold under agreements to repurchase		52,278			29			0.22 %			60,736			35			0.23 %			137,248			18			0.05 %
Other short-term borrowings		136,814			1,849			5.36 %			153,523			2,101			5.43 %			125,078			1,052			3.34 %
Subordinated notes		58,764			1,066			7.20 %			58,764			1,060			7.16 %			58,764			972			6.56 %
Long-term debt and mandatorily redeemable securities		46,765			1,673			14.19 %			46,519			489			4.17 %			47,053			1,017			8.58 %
Total interest-bearing liabilities		5,678,546			43,241			3.02 %			5,566,874			38,090			2.71 %			5,086,446			15,805			1.23 %
Noninterest-bearing deposits		1,684,743									1,702,773									2,040,162
Other liabilities		177,097									148,192									137,874
Shareholders' equity		949,939									940,544									846,449
Noncontrolling interests		63,175									59,008									60,164
Total liabilities and equity	$	8,553,500								$	8,417,391								$	8,171,095
Less: Fully tax-equivalent adjustments					(166	)								(170	)								(215	)
Net interest income/margin (GAAP-derived)(1)				$	71,330			3.51 %					$	69,236			3.45 %					$	71,455			3.68 %
Fully tax-equivalent adjustments					166									170									215
Net interest income/margin - FTE(1)				$	71,496			3.51 %					$	69,406			3.46 %					$	71,670			3.69 %

 

(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, 2023									December 31, 2022
		Average Balance			Interest Income/ Expense			Yield/ Rate			Average Balance			Interest Income/ Expense			Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	1,632,567		$	24,501			1.50 %		$	1,805,041		$	26,294			1.46 %
Tax-exempt(1)		44,083			1,805			4.09 %			40,310			1,311			3.25 %
Mortgages held for sale		2,368			155			6.55 %			5,178			217			4.19 %
Loans and leases, net of unearned discount(1)		6,203,857			387,524			6.25 %			5,566,701			264,043			4.74 %
Other investments		73,729			3,663			4.97 %			243,938			2,579			1.06 %
Total earning assets(1)		7,956,604			417,648			5.25 %			7,661,168			294,444			3.84 %
Cash and due from banks		70,304									75,836
Allowance for loan and lease losses		(144,183	)								(133,028	)
Other assets		532,072									469,135
Total assets	$	8,414,797								$	8,073,111
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits	$	5,204,095		$	123,162			2.37 %		$	4,673,494		$	25,231			0.54 %
Short-term borrowings:
Securities sold under agreements to repurchase		78,928			136			0.17 %			166,254			85			0.05 %
Other short-term borrowings		134,683			6,896			5.12 %			48,716			1,412			2.90 %
Subordinated notes		58,764			4,174			7.10 %			58,764			3,550			6.04 %
Long-term debt and mandatorily redeemable securities		46,323			3,892			8.40 %			54,940			69			0.13 %
Total interest-bearing liabilities		5,522,793			138,260			2.50 %			5,002,168			30,347			0.61 %
Noninterest-bearing deposits		1,753,149									2,037,882
Other liabilities		151,659									103,740
Shareholders' equity		926,935									872,721
Noncontrolling interests		60,261									56,600
Total liabilities and equity	$	8,414,797								$	8,073,111
Less: Fully tax-equivalent adjustments					(741	)								(628	)
Net interest income/margin (GAAP-derived)(1)				$	278,647			3.50 %					$	263,469			3.44 %
Fully tax-equivalent adjustments					741									628
Net interest income/margin - FTE(1)				$	279,388			3.51 %					$	264,097			3.45 %

 

(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,
			2023			2023			2022			2023			2022
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	114,571		$	107,326		$	87,260		$	416,907		$	293,816
	Fully tax-equivalent adjustments:
(B)	- Loans and leases		88			92			109			381			366
(C)	- Tax-exempt investment securities		78			78			106			360			262
(D)	Interest income - FTE (A+B+C)		114,737			107,496			87,475			417,648			294,444
(E)	Interest expense (GAAP)		43,241			38,090			15,805			138,260			30,347
(F)	Net interest income (GAAP) (A-E)		71,330			69,236			71,455			278,647			263,469
(G)	Net interest income - FTE (D-E)		71,496			69,406			71,670			279,388			264,097
(H)	Annualization factor		3.967			3.967			3.967			1.000			1.000
(I)	Total earning assets	$	8,071,861		$	7,963,637		$	7,707,769		$	7,956,604		$	7,661,168
	Net interest margin (GAAP-derived) (F*H)/I		3.51 %			3.45 %			3.68 %			3.50 %			3.44 %
	Net interest margin - FTE (G*H)/I		3.51 %			3.46 %			3.69 %			3.51 %			3.45 %
Calculation of Efficiency Ratio
(F)	Net interest income (GAAP)	$	71,330		$	69,236		$	71,455		$	278,647		$	263,469
(G)	Net interest income - FTE		71,496			69,406			71,670			279,388			264,097
(J)	Plus: noninterest income (GAAP)		20,076			24,455			23,280			90,623			91,262
(K)	Less: gains/losses on investment securities and partnership investments		1,173			(2,779	)		(2,216	)		(3,875	)		(3,714	)
(L)	Less: depreciation - leased equipment		(1,523	)		(1,672	)		(2,111	)		(7,093	)		(10,023	)
(M)	Total net revenue (GAAP) (F+J)		91,406			93,691			94,735			369,270			354,731
(N)	Total net revenue - adjusted (G+J-K-L)		91,222			89,410			90,623			359,043			341,622
(O)	Noninterest expense (GAAP)		52,972			50,166			48,377			201,724			184,699
(L)	Less: depreciation - leased equipment		(1,523	)		(1,672	)		(2,111	)		(7,093	)		(10,023	)
(P)	Noninterest expense - adjusted (O-L)		51,449			48,494			46,266			194,631			174,676
	Efficiency ratio (GAAP-derived) (O/M)		57.95 %			53.54 %			51.07 %			54.63 %			52.07 %
	Efficiency ratio - adjusted (P/N)		56.40 %			54.24 %			51.05 %			54.21 %			51.13 %
			End of Period
			December 31,			September 30,			December 31,
			2023			2023			2022
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)	Total common shareholders' equity (GAAP)	$	989,568		$	924,250		$	864,068
(R)	Less: goodwill and intangible assets		(83,916	)		(83,921	)		(83,907	)
(S)	Total tangible common shareholders' equity (Q-R)	$	905,652		$	840,329		$	780,161
(T)	Total assets (GAAP)		8,727,958			8,525,058			8,339,416
(R)	Less: goodwill and intangible assets		(83,916	)		(83,921	)		(83,907	)
(U)	Total tangible assets (T-R)	$	8,644,042		$	8,441,137		$	8,255,509
	Common equity-to-assets ratio (GAAP-derived) (Q/T)		11.34 %			10.84 %			10.36 %
	Tangible common equity-to-tangible assets ratio (S/U)		10.48 %			9.96 %			9.45 %
Calculation of Tangible Book Value per Common Share
(Q)	Total common shareholders' equity (GAAP)	$	989,568		$	924,250		$	864,068
(V)	Actual common shares outstanding		24,434,604			24,429,083			24,662,286
	Book value per common share (GAAP-derived) (Q/V)*1000	$	40.50		$	37.83		$	35.04
	Tangible common book value per share (S/V)*1000	$	37.06		$	34.40		$	31.63

 

The NASDAQ Stock Market National Market Symbol: "SRCE" (CUSIP #336901 10 3)
Please contact us at shareholder@1stsource.com

Brett Bauer
574-235-2000

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/194727

FAQ

What is the net income for 1st Source Corporation in 2023?

1st Source Corporation reported a record net income of $124.93 million for 2023.

What is the cash dividend per common share approved by 1st Source Corporation?

The company approved a cash dividend of $0.34 per common share, up 6.25% from a year ago.

How much did average loans and leases grow by in 2023 for 1st Source Corporation?

Average loans and leases grew by $637.16 million in 2023, up 11.45% from 2022.

What was the tax-equivalent net interest margin for 1st Source Corporation in 2023?

The tax-equivalent net interest margin expanded to 3.51% in 2023, up six basis points from 2022.

What was the net interest margin for the fourth quarter of 2023 for 1st Source Corporation?

The net interest margin for the fourth quarter of 2023 was 3.51%.

What was the decrease in noninterest income for 1st Source Corporation in 2023?

Noninterest income decreased by 0.70% in 2023, mainly due to lower equipment rental income and realized losses from repositioning the available-for-sale investment securities portfolio.

How much did noninterest expense increase by in 2023 for 1st Source Corporation?

Noninterest expense increased by 9.22% in 2023, primarily due to higher base salaries, software maintenance costs, and increased FDIC insurance premiums.

What was the allowance for loan and lease losses as of December 31, 2023, for 1st Source Corporation?

The allowance for loan and lease losses as of December 31, 2023, was 2.26% of total loans and leases.

What was the common equity-to-assets ratio as of December 31, 2023, for 1st Source Corporation?

The common equity-to-assets ratio was 11.34% as of December 31, 2023.