1st Source Corporation · NASDAQ:SRCE
1st Source — Q4 2019 Earnings Presentation
38 slides from 1st Source's earnings presentation, Feb 13, 2020
Slide 1: Fourth Quarter 2019 Investor Presentation
FOURTH QUARTER 2019 INVESTOR PRESENTATION NASDAQ: SRCE www.1stsource.com
Slide 2: Disclosures
DISCLOSURES Forward-Looking Statements Except for historical information, the matters discussed may include “forward-looking statements.” Those statements are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which
Slide 3: Corporate Overview
CORPORATE OVERVIEW $6.6 billion Community Bank with International Reach headquartered in South Bend, Indiana Community Banking: ■ Locations throughout Northern Indiana and Southwestern Michigan ■ Business and personal banking, payment services, lending, mortgage, and leasing ■ Investment management,
Slide 4: Mission and Vision
MISSION AND VISION Mission To help our clients achieve security, build wealth and realize their dreams by offering straight talk, sound advice and keeping their best interests in mind for the long-term. Vision ■ Offer our clients the highest-quality service ■ Support a proud family of colleagues who
Slide 5: Market Area
MARKET AREA Specialty Finance Community Bank Loans and Leases Loans and Leases $2.48 billion $2.72 billion PAGE 5
Slide 6: Business Mix (Loans and Leases)
BUSINESS MIX (LOANS AND LEASES) Business Community Banking 75% 52% Personal Community Banking 25% Specialty Finance 48% PAGE 6
Slide 7: Community Banking
COMMUNITY BANKING ■ 81 Banking Centers ■ 101 Twenty-four hour ATMs ■ 10 1st Source Insurance offices ■ 8 Trust & Wealth Advisory locations with approximately $4.5 billion of assets under management In person Online Over the phone Mobile PAGE 7
Slide 8: Community Banking Market Area – County Market
COMMUNITY BANKING MARKET AREA 17 – County Market Market 804,633 Households Client Households 104,958 Penetration 13.0% Higher Education Steel Production Businesses (approx) 69,400 Business Clients 19,538 Penetration 28.2% As of December 31, 2018 Regional Medical Hub Medical Devices Agriculture Distr
Slide 9: Specialty Finance Group Services
SPECIALTY FINANCE GROUP SERVICES Aircraft Division — $784MM Aircraft division provides financing primarily for new and used general aviation aircraft (including helicopters) for private and corporate users, some for aircraft distributors and dealers, air charter operators, air cargo carriers, and ot
Slide 10: Experienced and Proven Team
EXPERIENCED AND PROVEN TEAM Executive Team ■ 5 executives with an average 38 years each of banking experience and 28 years with 1st Source Business Banking Officers ■ 42 business banking officers with an average 18 years each of lending experience and with 1st Source from 1 to 33 years Specialty Fin
Slide 11: Performance – Client
PERFORMANCE – CLIENT ■ #1 deposit share in our 15 ■ Forbes “Top-Rated Bank Headquartered in contiguous county market Indiana” based on 2018 “Best-In-State-Banks” Survey ■ #1 SBA Lender in our Indiana ■ #22 on Monitor Magazine’s 2019 Top 50 Bank footprint Finance/Leasing Companies in the U.S. ■ #37 o
Slide 12: Financial Review
FINANCIAL REVIEW iSource. _ Corporation
Slide 13: Growing Loan Portfolio
GROWING LOAN PORTFOLIO Total Average Loans & Leases ($MM) Loans & Leases Yield on Loans & Leases - FTE (%)* 5500 6.00% 5000 5000 4755 5.50% 4500 4333 5.16% 4114 4.93% 5.00% 4000 3837 4.50% 3500 4.39% 4.28% 4.50% 3000 4.00% 2500 2000 3.50% 2015 2016 2017 2018 2019 * See “Reconciliation of non-GAAP Fi
Slide 14: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO 2019 Average Loans by Type Commercial Commercial and Real Estate Agricultural 16% 23% Residential Real Estate 11% Consumer 3% Aircraft 16% Medium and Heavy Duty Truck 6% Construction Auto and Light Truck Equipment 12% 13% PAGE 14
Slide 15: Strong Credit Quality
STRONG CREDIT QUALITY % of Net Loans and Leases Loan & Lease Loss Reserve Nonperforming Assets Net Charge-Offs / (Recoveries) Stable Reserves Low Nonperforming Assets Limited Losses 2.21% 2.19% 2.11% 2.10% 2.08% 0.70% 0.67% 0.71% 0.50% 0.37% 0.29% 0.13% 0.06% 0.10% (0.02%) 2015 2016 2017 2018 2019 2
Slide 16: Core Deposit Franchise
CORE DEPOSIT FRANCHISE Total Average Deposits ($MM) Non-core Deposits Core Deposits Effective Rate on Deposits (%) 6500 2.00% 5500 5277 4964 775 1.50% 4493 4500 4303 687 444 4502 3961 431 4277 329 4049 3500 3872 1.00% 3632 0.96% 2500 0.70% 0.50% 1500 0.43% 0.35% 0.29% 500 0.00% 2015 2016 2017 2018 2
Slide 17: Attractive Core Deposit Franchise
ATTRACTIVE CORE DEPOSIT FRANCHISE 2019 Average Deposits By Type Savings and Interest Bearing Demand Noninterest 47% Bearing Demand 22% CD and IRA 31% PAGE 17
Slide 18: Deposit Market Share – County Contiguous Market
DEPOSIT MARKET SHARE – 15 COUNTY CONTIGUOUS MARKET* Leading Market Share in Community Banking Markets ($000) 2019 $6,000,000 1st Source 14.52% $5,000,000 Chase 9.97% Lake City Bank 9.23% $4,000,000 Horizon Bank 4.88% Fifth Third 4.70% $3,000,000 Data as of June 2019 – FDIC (via S&P Global Market Int
Slide 19: Net Income & Earnings per Share
NET INCOME & EARNINGS PER SHARE ($MM) $105 $5.00 92.0 $90 82.4 $4.00 $75 68.1 57.5 57.8 3.57 $3.00 $60 3.16 $45 2.60 $2.00 2.17 2.22 $30 $1.00 $15 $0 $0.00 2015 2016 2017 2018 2019 Net Income EPCS (Diluted) * Available to Common Shareholders PAGE 19
Slide 20: Net Interest Margin (FTE)
NET INTEREST MARGIN (FTE)* ($MM) $250 4.00% 224.6 214.7 $200 187.4 3.85% 168.2 171.5 $150 3.70% 3.73% 3.68% $100 3.60% 3.55% 3.57% $50 3.40% 3.43% $0 3.25% 2015 2016 2017 2018 2019 Net Interest Income ($MM) Net Interest Margin (%) * See “Reconciliation of non-GAAP Financial Measures” in Appendix. PA
Slide 21: Diverse Sources of Noninterest Income
DIVERSE SOURCES OF NONINTEREST INCOME Noninterest Income Composition 2019 YTD = $76.0MM* Equipment Rental Mortgage 7% Banking Trust and Wealth 6% Advisory 27% Insurance Commissions Fair Value of 9% Assets Under Management of $4.5B Service Charges on Deposit Accounts 15% Other 17% Debit Card 19% 25%
Slide 22: Operating Expenses
OPERATING EXPENSES ($MM) $180.0 70.0% 160.2 163.9 148.8 $150.0 140.8 142.0 65.0% $120.0 $90.0 60.0% 60.9% 60.2% $60.0 57.7% 56.2% 55.0% $30.0 54.7% $0.0 50.0% 2015 2016 2017 2018 2019 Noninterest Expense ($MM)* Efficiency - Adjusted (%)* * Note: Noninterest expense is shown net of leased equipment d
Slide 23: Strong Capital Position
STRONG CAPITAL POSITION Tier 1 Leverage Ratio Tier 1 Risk Based Ratio 13.65% 13.80% 13.44% 13.42% 13.64% 12.21% 12.11% 12.17% 12.06% 12.19% 8% Well Capitalized 5% Well Capitalized 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Total Risk Based Capital Ratio Tangible Common Equity / Tangible Asset
Slide 24: Tangible Book Value per Common Share
TANGIBLE BOOK VALUE PER COMMON SHARE* Consistent Growth $35.00 $30.00 $29.18 $26.30 $25.00 $24.47 $22.75 $21.49 $20.16 $20.00 $18.65 $17.67 $15.00 $10.00 2012 2013 2014 2015 2016 2017 2018 2019 * See “Reconciliation of non-GAAP Financial Measures” in Appendix. PAGE 24
Slide 25: Common Dividends per Share
COMMON DIVIDENDS PER SHARE 32 YEARS OF CONSECUTIVE DIVIDEND GROWTH $1.400 $1.200 1.100 $1.000 0.960 0.760 $0.800 0.720 0.671 0.618 0.645 0.582 0.600 $0.600 0.536 0.555 $0.400 $0.200 $0.000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PAGE 25
Slide 26: Delivering Returns to Shareholders
DELIVERING RETURNS TO SHAREHOLDERS PAGE 26
Slide 27: Delivering Returns to Shareholders
DELIVERING RETURNS TO SHAREHOLDERS PAGE 27
Slide 28: Performance – Financial
PERFORMANCE – FINANCIAL ■ 2019 KBW Bank Honor Roll – eighteen banking institutions with more than $500 million in total assets selected ■ #26 of 123 banks between $5 billion and $50 billion in assets – Bank Performance Scorecard by Bank Director Magazine ■ 5 Star “Superior” Rating – Bauer Financial
Slide 29: Investment Considerations
INVESTMENT CONSIDERATIONS ■ Consistent and superior financial performance with a focus on long-term earnings per share and tangible book value growth ■ Experienced and proven team with significant investment in bank ■ Diversification of product mix and geography with asset generation capability ■ Le
Slide 30: Contact Information
CONTACT INFORMATION Christopher J. Murphy III Chairman of the Board and CEO (574) 235-2711 murphy-c@1stsource.com Andrea G. Short CFO and Treasurer (574) 235-2348 shorta@1stsource.com PAGE 30
Slide 31: Appendix
APPENDIX iSource. _ Corporation
Slide 32: Consolidated Balance Sheet
Consolidated Balance Sheet (Dollars in millions) 2015 2016 2017 2018 2019 Cash and cash equivalents$ 80 $ 108 $ 78 $ 99 $ 83 Investment securities and other investments 814 873 930 1,019 1,069 Loans and leases, net of unearned discount 4,005 4,204 4,541 4,847 5,106 Reserve for loan and lease losses
Slide 33: Consolidated Income Statement
Consolidated Income Statement (Dollars in millions) 2015 2016 2017 2018 2019 Net interest income$ 167 $ 170 $ 186 $ 214 $ 224 Provision for loan and leases losses 2 6 9 19 16 Noninterest income* 65 67 73 70 76 Noninterest expense* 141 142 149 160 164 Income before income taxes 89 89 101 105 120 Inco
Slide 34: Aircraft Portfolio – Industries by NAICS
Aircraft Portfolio – Industries by NAICS Construction Retail Trade 10% 14% Manufacturing 8% Ag, Forestry, Fishing & Hunting 5% Services Wholesale 19% Trade 5% Other* 6% Finance & Insurance and Real Estate Transportation & 13% Warehousing 20% *Other includes: Mining & Utilities and Information PAGE 3
Slide 35: Ownership Summary
Ownership Summary Shareholder Type Shares % of Total 1st Source ESOP 3.3% Institutional 11,216,432 44.0% Retail/Other Institutional 20.2% Insiders 8,276,643 32.5% 44.0% Retail/Other 5,164,271 20.2% 1st Source ESOP 852,128 3.3% Total Shares Outstanding(1) 25,509,474 100.0% Rank Institution (Top 10 In
Slide 36: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Calculation of Yield on Loans and Leases (Dollars in thousands) 2015 2016 2017 2018 2019 (A) Loans and leases interest income (GAAP) $ 168,327 $ 175,532 $ 194,297 $ 234,083 $ 257,738 (B) Plus: loans and leases fully tax-equivalent adjustments 284 584 621
Slide 37: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Noninterest Expense (Dollars in thousands) 2015 2016 2017 2018 2019 (A) Noninterest expense (GAAP) $ 159,114 $ 163,645 $ 173,997 $ 186,467 $ 189,009 (B) Less: depreciation - leased equipment (18,280) (21,678) (25,215) (26,248) (25,128) Noninterest expens
Slide 38: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Calculation of Tangible Common Equity-to-Tangible Assets Ratio (Dollars in thousands) 2015 2016 2017 2018 2019 (A) Total common shareholders' equity (GAAP) $ 644,053 $ 672,650 $ 718,537 $ 762,082 $ 828,277 (B) Less: goodwill and intangible assets (84,676