1st Source Corporation Reports Record Third Quarter Results, Cash Dividend Declared

Rhea-AI Summary

1st Source Corporation reported a record net income of $32.48 million for Q3 2021, a 61.95% increase from Q3 2020. Diluted net income per share surged to $1.29, up from $0.78 last year. The Board declared a cash dividend of $0.31, up 10.71% year-over-year, payable on November 12, 2021. The company recognized $6.69 million from PPP loan fees and a $2.56 million recovery in provision for credit losses. Average loans rose to $5.43 billion, with deposits increasing to $6.40 billion.

Positive

• Record net income of $32.48 million, up 61.95% from Q3 2020.
• Diluted net income per share increased to $1.29, a 65.38% rise year-over-year.
• Declared a cash dividend of $0.31 per share, marking a 10.71% increase from last year.
• Recognized $6.69 million in PPP-related loan fees.
• Recovery of $2.56 million in provision for credit losses indicates improved credit quality.
• Average loans and leases increased to $5.43 billion, up 1.54% from last year.
• Average deposits grew by 8.70% to $6.40 billion.

Negative

• Noninterest income decreased by 9.07% compared to Q3 2020, mainly from reduced mortgage banking income.
• Noninterest expense rose by 2.17% primarily due to a $3 million charitable contribution and increased salaries.

QUARTERLY HIGHLIGHTS

• Net income was a record $32.48 million for the quarter, up 7.48% from the second quarter and up 61.95% from the third quarter of 2020. Diluted net income per common share was also a record at $1.29, up compared to the $1.19 in the previous quarter and up from the prior year’s third quarter of $0.78.
• Cash dividend of $0.31 per common share was approved by our Board, up 10.71% from the $0.28 per common share declared a year ago.
• Small Business Administration (SBA) forgiveness and customer pay downs of Paycheck Protection Program (PPP) loans amounted to approximately $150.16 million during the quarter which contributed to the recognition of $6.69 million in PPP-related loan fees in the quarter.
• Due to improvement in overall credit quality, we recognized a recovery in our provision for credit losses of $2.56 million for the third quarter of 2021 compared to a $9.30 million increase in the provision for credit losses during the same period last year.
• Charitable contribution of $3 million was made to the 1st Source Foundation during the quarter 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 quarterly net income of $32.48 million for the third quarter of 2021, up 61.95% from the $20.06 million reported in the third quarter a year ago, bringing the 2021 year-to-date net income to $90.81 million compared to $54.97 million in 2020, an increase of 65.19%. Diluted net income per common share for the third quarter of 2021 was up 65.38% to $1.29 versus $0.78 in the third quarter of 2020. Diluted net income per common share for the first nine months of 2021 was $3.59 compared to $2.14 a year earlier, a 67.76% increase.

At its October 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 November 2, 2021 and will be paid on November 12, 2021.

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are happy to report record net income for the third consecutive quarter. Credit quality improvements continued during the third quarter which resulted in a reduction to our allowance for loan and lease losses. Virtually all COVID-19 related loan and lease modifications ended their deferment during the quarter. In addition, our clients continued to receive Paycheck Protection Program (PPP) loan forgiveness during the third quarter. Total PPP loans forgiven in 2021 were $441.48 million which has provided $13.26 million in fee income. The Bank contributed $3 million of the PPP income to the 1st Source Foundation to help with COVID-19 related initiatives in the communities we serve. 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.

“We continue to remain focused on keeping our clients, colleagues and families safe so we can deliver the highest level of service and encourage all colleagues and those in our communities to get vaccinated to best protect themselves and others from the virus. As new variants of COVID develop, we will continue to review and analyze data from the CDC and local health departments to make the best decisions possible for the health and safety of our team members, clients and communities. To that end, masking requirements remain in effect for our team members and clients due to current infection rates in the communities we serve. This measure ensures that our colleagues are less likely to inadvertently expose themselves or others to the latest variant of the virus. Our lobbies are open, allowing our bankers to meet with business and consumer clients and safely participate in community activities about which they are passionate. We’re confident we are doing our best to ensure the safety and well-being of all those we serve and employ while also conducting ‘business as usual’ for all our clients.

“During the third quarter, it was announced our Board of Directors had approved the promotion of Mr. Brett Bauer to Chief Financial Officer and Treasurer of 1st Source Corporation and 1st Source Bank with responsibility for Accounting, Finance, Asset Liability Management, Treasury Management and Investor Relations; and that of Mr. John Bedient to Chief Operations Officer of 1st Source Bank overseeing a new Operations Group combining both deposit and loan operations. Prior to this appointment, Mr. Bauer had served as Chief Investment Officer since late 2012. In this role he has been responsible for managing 1st Source’s funding and treasury functions, bank liquidity, municipal and large CD pricing and services, a $1 billion-plus investment portfolio, and setting and managing the Bank’s asset liability policy and approach. He has also played a key role in vetting tax equity investments in 1st Source’s solar financing business and recently took over responsibility for the company’s Financial Analysis unit. Mr. Bedient had most recently served as 1st Source’s Group Head of Administrative Services and Retail Operations and has been a leader in the Bank’s retail and deposit services areas in various capacities since 2008. Both colleagues were promoted due to their long-term service and success at 1st Source, as well as their service, dedication and desire to live the 1st Source values. These new responsibilities harness the unique capabilities of each for the benefit of the company, their colleagues, and most importantly, our clients and shareholders.

“Lastly, I’m pleased to share that we opened a dedicated loan production office in southeast Fort Wayne, a historically underserved and majority- minority neighborhood in our community banking market. Under the leadership of Larry Mayers, our Fort Wayne regional president and business banking group head, the loan production office will serve the community’s consumer and small business loan, mortgage and other credit application needs. Our Fort Wayne colleagues will continue offering financial wellness education and support for minority and underrepresented entrepreneurs, which in turn will strengthen the business outlook for this area and the people who call southeast Fort Wayne home,” Mr. Murphy concluded.

THIRD QUARTER 2021 FINANCIAL RESULTS

Loans

Third quarter average loans and leases of $5.43 billion increased $78.54 million, up 1.54% net of PPP loans from the year ago quarter and increased $62.33 million, up 1.22% net of PPP loans from the previous quarter. Year-to-date average loans and leases of $5.48 billion increased $20.68 million, up 0.41% net PPP loans from the first nine months of 2020. PPP forgiveness and customer payments totaled $150.16 million in the third quarter of 2021 and $441.08 million during the first nine months of 2021 offset by PPP originations of $261.46 million during the first nine months of 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 the third quarter of 2020.

Deposits

Average deposits of $6.40 billion grew $512.41 million for the quarter ended September 30, 2021, up 8.70% from the year ago quarter and increased $123.19 million, up 1.96% from the previous quarter. Average deposits for the first nine months of 2021 were $6.22 billion, an increase of $563.56 million, up 9.96% from the same period a year ago. Deposit growth is primarily from PPP loan fundings and increased consumer deposit levels compared to 2020 and increased consumer and business deposit levels compared to the previous quarter.

Net Interest Income and Net Interest Margin

Third quarter 2021 tax-equivalent net interest income of $62.34 million increased $7.34 million, or 13.34% from the third quarter a year ago and increased $5.28 million, or 9.26% from the previous quarter of 2021. For the first nine months of 2021, tax-equivalent net interest income was $176.92 million, an increase of $12.79 million, or 7.79% compared to the same period a year ago.

Third quarter 2021 net interest margin was 3.33%, an increase of 14 basis points from the 3.19% for the same period in 2020 and an increase of 19 basis points from the previous quarter. Third quarter 2021 net interest margin on a fully tax-equivalent basis was 3.34%, an increase of 14 basis points from the 3.20% for the same period in 2020 and was higher by 19 basis points compared to the previous quarter. Fees for PPP loans had a positive impact on the net interest margin of 29 basis points for the quarter compared to a negative impact of six basis points in the same period a year ago. We recognized $6.69 million in PPP loan fees during the third quarter of 2021. During the prior quarter, PPP loans had a positive impact on the net interest margin of one basis point and we recognized $2.59 million in PPP loan fees. The margin continues to experience pressure from the low interest rate environment and excess liquidity.

Net interest margin for the first nine months of 2021 was 3.27%, a decrease of five basis points from the 3.32% for the same period in 2020. Net interest margin on a fully-taxable-equivalent basis for the first nine months of 2021 was 3.28%, a decrease of five basis points from the 3.33% 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 14 basis points for the first nine months of 2021 compared to a negative impact of six basis points during the first nine months of 2020. We do not expect significant impact from PPP fees in 2022 as PPP loans continue to be forgiven. As of September 30, 2021, approximately 21% of all PPP loans originated remained outstanding while approximately 79% had been forgiven by the SBA or paid down by customers.

Noninterest Income

Third quarter 2021 noninterest income of $25.50 million decreased $2.54 million, or 9.07% from the third quarter a year ago and increased $0.60 million, or 2.41% from the second quarter of 2021. For the first nine months of 2021, noninterest income was $76.26 million, a decrease of $1.64 million, or 2.11% from the same period a year ago.

Noninterest income was lower compared to the third quarter a year ago mainly from reduced mortgage banking income resulting from a lower sales volume and less equipment rental income as demand for leases declined. This was offset by higher trust and wealth advisory fees as market values improved on assets under management, increased debit card income as transaction levels grew, a rise in service charges on deposit accounts and higher gains on partnership investments.

The increase in noninterest income from the prior quarter was mainly due to repositioning the investment portfolio last quarter resulting in losses on investment security sales, increased mortgage banking income due to declining rates during most of the third quarter, and gains on partnership investments partially offset by seasonal trust tax return fees which reduced trust fees and aforementioned declines in lease demand which reduced equipment rental income.

Additionally, we recognized $0.81 million in impairment recoveries on our mortgage servicing rights during 2021.

Noninterest Expense

Third quarter 2021 noninterest expense of $48.06 million increased $1.02 million, or 2.17% from the third quarter a year ago and increased $2.87 million, or 6.34% from the prior quarter. For the first nine months of 2021, noninterest expense was $137.40 million, a decrease of $1.00 million, down 0.72% compared to the same period a year ago.

The increase in noninterest expense from the third quarter a year ago was mainly the result of $3.00 million in charitable contributions, increased salaries and wages due to incentive awards and normal merit increases, higher business development costs tied to fewer COVID-19 restrictions offset by reduced general collection and repossession expenses, lower valuation adjustments on repossessed assets and decreased leased equipment depreciation as the average equipment rental portfolio continues to decline.

The increase in noninterest expense from the prior quarter was primarily the result of $3.00 million in charitable contributions, higher salaries and wages due to incentive awards and normal merit increases and an increase in the provision for unfunded loan commitments offset by lower general collection and repossession expenses and gains on the sale of repossessed assets, lower FDIC and other insurance expenses related to a one-time $0.38 million recovery of an incurred but not reported insurance reserve and lower leased equipment depreciation as the average equipment rental portfolio continues to decline.

Credit

The allowance for loan and lease losses as of September 30, 2021 was 2.50% of total loans and leases compared to 2.49% at June 30, 2021 and 2.43% at September 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 2.58% at September 30, 2021, compared to 2.63% at June 30, 2021 and 2.73% at December 31, 2020. Net charge-offs of $0.04 million were recorded for the third quarter of 2021 compared with net charge-offs of $3.77 million in the same quarter a year ago and $0.16 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 continued to be impacted by the lingering effects of the pandemic on events and tourism through the first half of 2021.

The provision for credit losses was a recovery of $2.56 million for the third quarter of 2021, a decrease of $11.86 million compared with the same period in 2020 and an increase of $0.47 million from the previous quarter of 2021. The ratio of nonperforming assets to loans and leases was 0.84% as of September 30, 2021, compared to 1.06% on June 30, 2021 and 1.33% on September 30, 2020. Excluding PPP loans, the ratio of non-performing assets to loans and leases was 0.87% at September 30, 2021, 1.13% at June 30, 2021 and 1.48% at September 30, 2020.

Capital

As of September 30, 2021, the common equity-to-assets ratio was 11.44%, compared to 11.68% at June 30, 2021 and 12.04% a year ago. The tangible common equity-to-tangible assets ratio was 10.50% at September 30, 2021 compared to 10.70% at June 30, 2021 and 11.01% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.65% at September 30, 2021 compared to 13.62% at June 30, 2021 and 12.92% a year ago. During the third quarter of 2021, 210,130 shares were repurchased for treasury reducing common shareholders’ equity by $9.67 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,” “hope,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

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
3rd QUARTER 2021 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
		Three Months Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
		2021				2021				2020				2021				2020
AVERAGE BALANCES
Assets		$	7,796,763			$	7,657,276			$	7,281,542			$	7,603,119			$	7,026,956
Earning assets			7,404,252				7,264,886				6,841,720				7,211,523				6,584,451
Investments			1,482,016				1,339,551				1,057,780				1,351,768				1,044,625
Loans and leases			5,427,080				5,515,387				5,669,615				5,480,229				5,445,213
Deposits			6,401,844				6,278,654				5,889,434				6,221,866				5,658,309
Interest bearing liabilities			4,811,516				4,785,800				4,553,503				4,725,850				4,516,627
Common shareholders’ equity			915,552				898,388				876,992				902,907				861,366
Total equity			960,235				942,821				913,926				947,248				891,129
INCOME STATEMENT DATA
Net interest income		$	62,224			$	56,935			$	54,868			$	176,571			$	163,713
Net interest income - FTE(1)			62,335				57,053				54,996				176,921				164,129
(Recovery of) provision for credit losses			(2,559	)			(3,025	)			9,303				(3,186	)			31,031
Noninterest income			25,497				24,898				28,041				76,264				77,904
Noninterest expense			48,064				45,198				47,043				137,402				138,403
Net income			32,481				30,235				20,054				90,822				54,998
Net income available to common shareholders			32,483				30,223				20,058				90,811				54,973
PER SHARE DATA
Basic net income per common share		$	1.29			$	1.19			$	0.78			$	3.59			$	2.14
Diluted net income per common share			1.29				1.19				0.78				3.59				2.14
Common cash dividends declared			0.31				0.30				0.28				0.90				0.85
Book value per common share(2)			36.75				36.05				34.35				36.75				34.35
Tangible book value per common share(1)			33.37				32.69				31.06				33.37				31.06
Market value - High			48.63				51.02				38.26				51.02				52.16
Market value - Low			41.19				45.22				28.72				38.73				26.07
Basic weighted average common shares outstanding			24,919,956				25,143,712				25,552,374				25,126,703				25,538,910
Diluted weighted average common shares outstanding			24,919,956				25,143,712				25,552,374				25,126,703				25,538,910
KEY RATIOS
Return on average assets			1.65	%			1.58	%			1.10	%			1.60	%			1.05	%
Return on average common shareholders’ equity			14.08				13.49				9.10				13.45				8.52
Average common shareholders’ equity to average assets			11.74				11.73				12.04				11.88				12.26
End of period tangible common equity to tangible assets(1)			10.50				10.70				11.01				10.50				11.01
Risk-based capital - Common Equity Tier 1(3)			13.65				13.62				12.92				13.65				12.92
Risk-based capital - Tier 1(3)			15.33				15.32				14.48				15.33				14.48
Risk-based capital - Total(3)			16.59				16.58				15.74				16.59				15.74
Net interest margin			3.33				3.14				3.19				3.27				3.32
Net interest margin - FTE(1)			3.34				3.15				3.20				3.28				3.33
Efficiency ratio: expense to revenue			54.79				55.23				56.74				54.34				57.28
Efficiency ratio: expense to revenue - adjusted(1)			53.38				52.89				54.18				52.44				54.53
Net charge offs to average loans and leases			0.00				0.01				0.26				0.09				0.13
Loan and lease loss allowance to loans and leases			2.50				2.49				2.43				2.50				2.43
Nonperforming assets to loans and leases			0.84				1.06				1.33				0.84				1.33
		September 30,				June 30,				March 31,				December 31,				September 30,
		2021				2021				2021				2020				2020
END OF PERIOD BALANCES
Assets		$	7,964,092			$	7,718,694			$	7,511,931			$	7,316,411			$	7,290,949
Loans and leases			5,358,797				5,483,045				5,523,085				5,489,301				5,627,036
Deposits			6,522,505				6,345,410				6,131,341				5,946,028				5,896,855
Allowance for loan and lease losses			133,755				136,361				139,550				140,654				136,817
Goodwill and intangible assets			83,931				83,937				83,942				83,948				83,953
Common shareholders’ equity			911,333				901,226				891,295				886,845				877,754
Total equity			956,397				945,457				935,759				930,670				915,015
ASSET QUALITY
Loans and leases past due 90 days or more		$	96			$	44			$	66			$	115			$	81
Nonaccrual loans and leases			43,166				55,864				58,513				60,388				70,595
Other real estate			—				—				369				359				303
Repossessions			690				1,213				2,214				1,976				4,639
Equipment owned under operating leases			1,598				1,728				1,647				1,695				136
Total nonperforming assets		$	45,550			$	58,849			$	62,809			$	64,533			$	75,754
(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)
		September 30,				June 30,				December 31,				September 30,
		2021				2021				2020				2020
ASSETS
Cash and due from banks		$	77,740			$	69,101			$	74,186			$	62,575
Federal funds sold and interest bearing deposits with other banks			559,542				400,346				168,861				91,641
Investment securities available-for-sale			1,583,240				1,413,022				1,197,467				1,083,427
Other investments			27,189				27,429				27,429				27,674
Mortgages held for sale			34,594				6,453				12,885				20,990
Loans and leases, net of unearned discount:
Commercial and agricultural			1,005,849				1,125,965				1,186,118				1,418,047
Solar			303,995				305,250				292,604				263,472
Auto and light truck			605,258				595,326				542,369				527,582
Medium and heavy duty truck			248,604				256,169				279,172				271,248
Aircraft			900,077				883,559				861,460				806,162
Construction equipment			729,412				729,055				714,888				723,596
Commercial real estate			939,131				966,171				969,864				961,550
Residential real estate and home equity			492,893				492,552				511,379				519,881
Consumer			133,578				128,998				131,447				135,498
Total loans and leases			5,358,797				5,483,045				5,489,301				5,627,036
Allowance for loan and lease losses*			(133,755	)			(136,361	)			(140,654	)			(136,817	)
Net loans and leases			5,225,042				5,346,684				5,348,647				5,490,219
Equipment owned under operating leases, net			51,478				56,011				65,040				79,703
Net premises and equipment			46,748				47,617				49,373				49,933
Goodwill and intangible assets			83,931				83,937				83,948				83,953
Accrued income and other assets			274,588				268,094				288,575				300,834
Total assets		$	7,964,092			$	7,718,694			$	7,316,411			$	7,290,949
LIABILITIES
Deposits:
Noninterest-bearing demand		$	2,012,389			$	1,851,932			$	1,636,684			$	1,720,768
Interest-bearing deposits:
Interest-bearing demand			2,358,512				2,318,210				2,059,139				1,885,771
Savings			1,214,088				1,182,643				1,082,848				992,320
Time			937,516				992,625				1,167,357				1,297,996
Total interest-bearing deposits			4,510,116				4,493,478				4,309,344				4,176,087
Total deposits			6,522,505				6,345,410				5,946,028				5,896,855
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase			210,275				167,097				143,564				158,834
Other short-term borrowings			5,390				5,247				7,077				6,740
Total short-term borrowings			215,665				172,344				150,641				165,574
Long-term debt and mandatorily redeemable securities			81,301				81,330				81,864				81,659
Subordinated notes			58,764				58,764				58,764				58,764
Accrued expenses and other liabilities			129,460				115,389				148,444				173,082
Total liabilities			7,007,695				6,773,237				6,385,741				6,375,934
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 September 30, 2021, June 30, 2021, December 31, 2020, and September 30, 2020, respectively			436,538				436,538				436,538				436,538
Retained earnings			583,631				558,795				514,176				497,419
Cost of common stock in treasury (3,408,141, 3,204,947, 2,816,557, and 2,652,030 shares at September 30, 2021, June 30, 2021, December 31, 2020, and September 30, 2020, respectively)			(111,253	)			(101,711	)			(82,240	)			(75,861	)
Accumulated other comprehensive income			2,417				7,604				18,371				19,658
Total shareholders’ equity			911,333				901,226				886,845				877,754
Noncontrolling interests			45,064				44,231				43,825				37,261
Total equity			956,397				945,457				930,670				915,015
Total liabilities and equity		$	7,964,092			$	7,718,694			$	7,316,411			$	7,290,949
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore September 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											Nine Months Ended
		September 30,				June 30,				September 30,			September 30,				September 30,
		2021				2021				2020			2021				2020
Interest income:
Loans and leases		$	61,696			$	57,144			$	58,318		$	176,704			$	178,659
Investment securities, taxable			4,533				4,155				4,103			12,676				14,140
Investment securities, tax-exempt			140				154				207			468				703
Other			360				317				289			943				951
Total interest income			66,729				61,770				62,917			190,791				194,453
Interest expense:
Deposits			2,924				3,202				6,532			9,652				25,648
Short-term borrowings			25				29				83			90				427
Subordinated notes			816				814				824			2,448				2,543
Long-term debt and mandatorily redeemable securities			740				790				610			2,030				2,122
Total interest expense			4,505				4,835				8,049			14,220				30,740
Net interest income			62,224				56,935				54,868			176,571				163,713
(Recovery of) provision for credit losses*			(2,559	)			(3,025	)			9,303			(3,186	)			31,031
Net interest income after provision for credit losses			64,783				59,960				45,565			179,757				132,682
Noninterest income:
Trust and wealth advisory			5,886				6,466				5,153			17,833				15,590
Service charges on deposit accounts			2,767				2,508				2,336			7,722				6,851
Debit card			4,570				4,754				4,019			13,506				10,993
Mortgage banking			3,149				2,859				6,474			9,909				12,125
Insurance commissions			1,862				1,684				1,825			5,698				5,401
Equipment rental			3,946				4,255				5,593			12,830				18,213
(Losses) gains on investment securities available-for-sale			—				(680	)			—			(680	)			279
Other			3,317				3,052				2,641			9,446				8,452
Total noninterest income			25,497				24,898				28,041			76,264				77,904
Noninterest expense:
Salaries and employee benefits			26,974				25,510				25,609			77,680				74,009
Net occupancy			2,654				2,527				2,512			7,900				7,737
Furniture and equipment			6,444				6,337				6,247			19,239				18,912
Depreciation – leased equipment			3,239				3,550				4,694			10,562				15,263
Professional fees			1,815				2,146				2,041			5,574				4,741
Supplies and communication			1,427				1,430				1,305			4,332				4,329
FDIC and other insurance			396				772				868			1,833				1,755
Business development and marketing			4,465				1,351				923			6,813				3,403
Loan and lease collection and repossession			(585	)			486				1,054			30				2,655
Other			1,235				1,089				1,790			3,439				5,599
Total noninterest expense			48,064				45,198				47,043			137,402				138,403
Income before income taxes			42,216				39,660				26,563			118,619				72,183
Income tax expense			9,735				9,425				6,509			27,797				17,185
Net income			32,481				30,235				20,054			90,822				54,998
Net loss (income) attributable to noncontrolling interests			2				(12	)			4			(11	)			(25	)
Net income available to common shareholders		$	32,483			$	30,223			$	20,058		$	90,811			$	54,973
Per common share:
Basic net income per common share		$	1.29			$	1.19			$	0.78		$	3.59			$	2.14
Diluted net income per common share		$	1.29			$	1.19			$	0.78		$	3.59			$	2.14
Cash dividends		$	0.31			$	0.30			$	0.28		$	0.90			$	0.85
Basic weighted average common shares outstanding			24,919,956				25,143,712				25,552,374			25,126,703				25,538,910
Diluted weighted average common shares outstanding			24,919,956				25,143,712				25,552,374			25,126,703				25,538,910
*ASU 2016-13 adopted during the fourth quarter of 2020 therefore September 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
		September 30, 2021											June 30, 2021											September 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		$	1,451,523			$	4,533			1.24	%		$	1,305,988			$	4,156			1.28	%		$	1,012,703			$	4,103			1.61	%
Tax exempt(1)			30,493				172			2.24	%			33,563				192			2.29	%			45,077				257			2.26	%
Mortgages held for sale			17,750				120			2.68	%			7,208				54			3.00	%			26,327				186			2.81	%
Loans and leases, net of unearned discount(1)			5,427,080				61,655			4.51	%			5,515,387				57,169			4.16	%			5,669,615				58,210			4.08	%
Other investments			477,406				360			0.30	%			402,740				317			0.32	%			87,998				289			1.31	%
Total earning assets(1)			7,404,252				66,840			3.58	%			7,264,886				61,888			3.42	%			6,841,720				63,045			3.67	%
Cash and due from banks			76,915											76,198											72,474
Allowance for loan and lease losses			(137,206	)										(142,056	)										(134,824	)
Other assets			452,802											458,248											502,172
Total assets		$	7,796,763										$	7,657,276										$	7,281,542
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits		$	4,488,169			$	2,924			0.26	%		$	4,458,915			$	3,202			0.29	%		$	4,225,299			$	6,532			0.62	%
Short-term borrowings			183,212				25			0.05	%			186,605				29			0.06	%			187,912				83			0.18	%
Subordinated notes			58,764				816			5.51	%			58,764				814			5.56	%			58,764				824			5.58	%
Long-term debt and mandatorily redeemable securities			81,371				740			3.61	%			81,516				790			3.89	%			81,528				610			2.98	%
Total interest-bearing liabilities			4,811,516				4,505			0.37	%			4,785,800				4,835			0.41	%			4,553,503				8,049			0.70	%
Noninterest-bearing deposits			1,913,675											1,819,739											1,664,135
Other liabilities			111,337											108,916											149,978
Shareholders’ equity			915,552											898,388											876,992
Noncontrolling interests			44,683											44,433											36,934
Total liabilities and equity		$	7,796,763										$	7,657,276										$	7,281,542
Less: Fully tax-equivalent adjustments							(111	)										(118	)										(128	)
Net interest income/margin (GAAP-derived)(1)						$	62,224			3.33	%						$	56,935			3.14	%						$	54,868			3.19	%
Fully tax-equivalent adjustments							111											118											128
Net interest income/margin - FTE(1)						$	62,335			3.34	%						$	57,053			3.15	%						$	54,996			3.20	%
(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)
		Nine Months Ended
		September 30, 2021											September 30, 2020
		Average Balance				Interest Income/Expense				Yield/ Rate			Average Balance				Interest Income/Expense				Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable		$	1,317,976			$	12,676			1.29	%		$	994,035			$	14,140			1.90	%
Tax exempt(1)			33,792				578			2.29	%			50,590				868			2.29	%
Mortgages held for sale			13,094				260			2.65	%			21,563				480			2.97	%
Loans and leases, net of unearned discount(1)			5,480,229				176,684			4.31	%			5,445,213				178,430			4.38	%
Other investments			366,432				943			0.34	%			73,050				951			1.74	%
Total earning assets(1)			7,211,523				191,141			3.54	%			6,584,451				194,869			3.95	%
Cash and due from banks			76,103											70,475
Allowance for loan and lease losses			(140,800	)										(123,790	)
Other assets			456,293											495,820
Total assets		$	7,603,119										$	7,026,956
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits			4,403,595				9,652			0.29	%			4,183,502				25,648			0.82	%
Short-term borrowings			182,205				90			0.07	%			193,934				427			0.29	%
Subordinated notes			58,764				2,448			5.57	%			58,764				2,543			5.78	%
Long-term debt and mandatorily redeemable securities			81,286				2,030			3.34	%			80,427				2,122			3.52	%
Total interest-bearing liabilities			4,725,850				14,220			0.40	%			4,516,627				30,740			0.91	%
Noninterest-bearing deposits			1,818,271											1,474,807
Other liabilities			111,750											144,393
Shareholders’ equity			902,907											861,366
Noncontrolling interests			44,341											29,763
Total liabilities and equity		$	7,603,119										$	7,026,956
Less: Fully tax-equivalent adjustments							(350	)										(416	)
Net interest income/margin (GAAP-derived)(1)						$	176,571			3.27	%						$	163,713			3.32	%
Fully tax-equivalent adjustments							350											416
Net interest income/margin - FTE(1)						$	176,921			3.28	%						$	164,129			3.33	%
(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												Nine Months Ended
			September 30,				June 30,				September 30,				September 30,				September 30,
			2021				2021				2020				2021				2020
Calculation of Net Interest Margin
(A)	Interest income (GAAP)		$	66,729			$	61,770			$	62,917			$	190,791			$	194,453
	Fully tax-equivalent adjustments:
(B)	– Loans and leases			79				80				78				240				251
(C)	– Tax exempt investment securities			32				38				50				110				165
(D)	Interest income – FTE (A+B+C)			66,840				61,888				63,045				191,141				194,869
(E)	Interest expense (GAAP)			4,505				4,835				8,049				14,220				30,740
(F)	Net interest income (GAAP) (A-E)			62,224				56,935				54,868				176,571				163,713
(G)	Net interest income - FTE (D-E)			62,335				57,053				54,996				176,921				164,129
(H)	Annualization factor			3.967				4.011				3.978				1.337				1.336
(I)	Total earning assets		$	7,404,252			$	7,264,886			$	6,841,720			$	7,211,523			$	6,584,451
	Net interest margin (GAAP-derived) (F*H)/I			3.33	%			3.14	%			3.19	%			3.27	%			3.32	%
	Net interest margin – FTE (G*H)/I			3.34	%			3.15	%			3.20	%			3.28	%			3.33	%
Calculation of Efficiency Ratio
(F)	Net interest income (GAAP)		$	62,224			$	56,935			$	54,868			$	176,571			$	163,713
(G)	Net interest income – FTE			62,335				57,053				54,996				176,921				164,129
(J)	Plus: noninterest income (GAAP)			25,497				24,898				28,041				76,264				77,904
(K)	Less: gains/losses on investment securities and partnership investments			(623	)			348				(177	)			(735	)			(938	)
(L)	Less: depreciation – leased equipment			(3,239	)			(3,550	)			(4,694	)			(10,562	)			(15,263	)
(M)	Total net revenue (GAAP) (F+J)			87,721				81,833				82,909				252,835				241,617
(N)	Total net revenue – adjusted (G+J–K–L)			83,970				78,749				78,166				241,888				225,832
(O)	Noninterest expense (GAAP)			48,064				45,198				47,043				137,402				138,403
(L)	Less:depreciation – leased equipment			(3,239	)			(3,550	)			(4,694	)			(10,562	)			(15,263	)
(P)	Noninterest expense – adjusted (O–L)			44,825				41,648				42,349				126,840				123,140
	Efficiency ratio (GAAP-derived) (O/M)			54.79	%			55.23	%			56.74	%			54.34	%			57.28	%
	Efficiency ratio – adjusted (P/N)			53.38	%			52.89	%			54.18	%			52.44	%			54.53	%
			End of Period
			September 30,				June 30,				September 30,
			2021				2021				2020
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)	Total common shareholders’ equity (GAAP)		$	911,333			$	901,226			$	877,754
(R)	Less: goodwill and intangible assets			(83,931	)			(83,937	)			(83,953	)
(S)	Total tangible common shareholders’ equity (Q–R)		$	827,402			$	817,289			$	793,801
(T)	Total assets (GAAP)			7,964,092				7,718,694				7,290,949
(R)	Less: goodwill and intangible assets			(83,931	)			(83,937	)			(83,953	)
(U)	Total tangible assets (T–R)		$	7,880,161			$	7,634,757			$	7,206,996
	Common equity-to-assets ratio (GAAP-derived) (Q/T)			11.44	%			11.68	%			12.04	%
	Tangible common equity-to-tangible assets ratio (S/U)			10.50	%			10.70	%			11.01	%
Calculation of Tangible Book Value per Common Share
(Q)	Total common shareholders’ equity (GAAP)		$	911,333			$	901,226			$	877,754
(V)	Actual common shares outstanding			24,797,533				25,000,727				25,553,644
	Book value per common share (GAAP-derived) (Q/V)*1000		$	36.75			$	36.05			$	34.35
	Tangible common book value per share (S/V)*1000		$	33.37			$	32.69			$	31.06

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/20211021006029/en/

Brett Bauer

574-235-2000

Source: 1st Source Corporation

FAQ

What is the net income reported by 1st Source Corporation for Q3 2021?

1st Source Corporation reported a net income of $32.48 million for Q3 2021.

What is the cash dividend amount declared by 1st Source Corporation?

The declared cash dividend is $0.31 per common share.

When will the cash dividend be paid to shareholders?

The cash dividend will be paid on November 12, 2021, to shareholders of record on November 2, 2021.

How much did 1st Source Corporation recognize in PPP loan fees for Q3 2021?

The company recognized $6.69 million in PPP-related loan fees during Q3 2021.

What was the provision for credit losses for Q3 2021?

The provision for credit losses showed a recovery of $2.56 million for Q3 2021.