1st Source Corporation · NASDAQ:SRCE
1st Source — Q2 2018 Earnings Presentation
36 slides from 1st Source's earnings presentation, Aug 16, 2018
Slide 1: Second Quarter 2018 Investor Presentation
SECOND QUARTER 2018 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 $6.3 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 $2.49 billion $2.49 billion PAGE 5
Slide 6: Business Mix (Loans and Leases)
BUSINESS MIX (LOANS AND LEASES) Business Community Banking 74% 50% Personal Community Banking 26% Specialty Finance 50% PAGE 6
Slide 7: Community Banking
COMMUNITY BANKING ■ 80 Banking Centers ■ 101 Twenty-four hour ATMs ■ 10 1st Source Insurance offices ■ 8 Trust & Wealth Advisory locations with approximately $4.7 billion of assets under management In person Online Over the phone Mobile PAGE 7
Slide 8: Community Banking Market Area
COMMUNITY BANKING MARKET AREA 17 – County Market Market 797,863 Households Client Households 102,709 Penetration 12.9% Higher Education Steel Production Businesses (approx) 70,600 Business Clients 14,574 Penetration 20.6% As of December 31, 2017 Regional Medical Hub Medical Devices Agriculture Distr
Slide 9: Specialty Finance Group Services
SPECIALTY FINANCE GROUP SERVICES Aircraft Division — $863MM Aircraft division provides financing primarily for new and used general aviation aircraft (including helicopters) for private and corporate users, some for aircraft distributors and dealers, air charter operators, air cargo carriers, and ot
Slide 10: Experienced and Proven Team
EXPERIENCED AND PROVEN TEAM Executive Team ■ 5 executives with an average 36 years each of banking experience and 27 years with 1st Source Business Banking Officers ■ 37 business banking officers with an average 20 years each of lending experience and with 1st Source from 1 to 35 years Specialty Fin
Slide 11: Performance – Client
PERFORMANCE – CLIENT ■ #1 deposit share in our 15 ■ Forbes “Top-Rated Bank Headquartered in contiguous county market Indiana” based on 2018 “Best-In-State- Banks” Survey ■ #1 SBA Lender in our Indiana footprint ■ #23 on Monitor Magazine’s 2018 Top 50 U.S. Bank Finance/Leasing Companies ■ #2 SBA Lend
Slide 12: Financial Review
FINANCIAL REVIEW Source. __ iCorporation
Slide 13: Growing Loan Portfolio
GROWING LOAN PORTFOLIO Total Average Loans & Leases ($MM) Loans & Leases Yield on Loans & Leases - FTE (%)* 5500 10.00% 5000 4680 9.00% 4500 4333 4114 8.00% 4000 3837 3640 7.00% 3500 6.00% 3000 4.84% 4.42% 4.39% 4.28% 4.50% 5.00% 2500 4.00% 2000 1500 3.00% 1000 2.00% 500 1.00% 2014 2015 2016 2017 20
Slide 14: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO 2018 Average Loans by Type Commercial Commercial and Real Estate Agricultural 16% 22% Residential Real Estate 12% Consumer Aircraft 3% 17% Medium and Heavy Duty Truck 6% Construction Equipment Auto and Light Truck 13% 11% 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 2.31% 2.21% 2.11% 2.10% 2.13% 1.13% 0.89% 0.70% 0.67% 0.50% 0.13% 0.06% 0.06% 0.02% (0.02%) 2014 2015 2016 2017 2018 2
Slide 16: Core Deposit Franchise
CORE DEPOSIT FRANCHISE Total Average Deposits ($MM) Non-core Deposits Core Deposits Effective Rate on Deposits (%) 6000 1.20% 5000 4836 1.00% 4493 4303 652 3961 444 4000 3778 431 0.80% 329 4049 4184 270 3872 3508 3632 3000 0.60% 0.62% 2000 0.40% 0.43% 0.35% 1000 0.30% 0.29% 0.20% 0 0.00% 2014 2015 2
Slide 17: Attractive Core Deposit Franchise
ATTRACTIVE CORE DEPOSIT FRANCHISE 2018 Average Deposits By Type Noninterest Savings and Interest Bearing Demand Bearing Demand 21% 50% CD and IRA 29% 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) 2017 $5,000,000 1st Source 13.63% Chase 9.95% Lake City Bank 8.66% $4,000,000 Wells Fargo 7.51% Fifth Third 5.09% Horizon Bank 4.75% $3,000,000 Data as of June 2017 – FDIC (via SNL Financial)
Slide 19: Net Income & Earnings Per Share
NET INCOME & EARNINGS PER SHARE ($MM) $80 $4.00 $70 68.1 $3.50 $60 58.1 57.5 57.8 $3.00 $50 $2.50 2.60 41.1 $40 $2.00 2.17 2.17 2.22 32.9 $30 $1.50 1.57 $20 1.26 $1.00 $10 $0.50 $0 $0.00 2014 2015 2016 2017 2017 2018 YTD YTD Net Income EPCS (Diluted) PAGE 19
Slide 20: Net Interest Margin (FTE)
NET INTEREST MARGIN (FTE)* ($MM) $250 6.50% $200 187.4 171.5 5.50% 162.2 168.2 $150 4.50% 104.1 $100 90.5 3.71% 3.50% $50 3.59% 3.60% 3.57% 3.55% 3.43% $0 2.50% 2014 2015 2016 2017 2017 2018 YTD YTD Net Interest Income ($MM) Net Interest Margin (%) * See “Reconciliation of non-GAAP Financial Measure
Slide 21: Diverse Sources of Noninterest Income
DIVERSE SOURCES OF NONINTEREST INCOME Noninterest Income Composition 2018 YTD = $35.7MM* Equipment Rental Mortgage 8% Banking 5% Trust and Wealth Advisory 31% Insurance Commissions Fair Value of 10% Assets Under Management of $4.7B Service Charges on Deposit Accounts 13% Other 15% Debit Card 18% 26%
Slide 22: Operating Expenses
OPERATING EXPENSES ($MM) $180.0 70.0% 148.8 142.0 $150.0 136.1 140.8 65.0% $120.0 $90.0 60.0% 60.9% 78.3 60.6% 60.2% 70.2 $60.0 57.7% 56.2% 56.1% 55.0% $30.0 $0.0 50.0% 2014 2015 2016 2017 2017 2018 YTD YTD Noninterest Expense ($MM)* Efficiency - Adjusted (%)* * Note: Noninterest expense is shown ne
Slide 23: Strong Capital Position
STRONG CAPITAL POSITION Tier 1 Leverage Ratio Tier 1 Risk Based Ratio 14.57% 13.65% 13.80% 13.44% 13.18% 12.16% 12.21% 12.11% 12.17% 11.93% 8% Well Capitalized 5% Well Capitalized 2014 2015 2016 2017 2018 YTD 2014 2015 2016 2017 2018 YTD Total Risk Based Capital Ratio Tangible Common Equity / Tangib
Slide 24: Tangible Book Value per Common Share
TANGIBLE BOOK VALUE PER COMMON SHARE* Consistent Growth $30.00 $26.00 $25.27 $24.47 $22.75 $22.00 $21.49 $20.16 $18.65 $18.00 $17.67 $16.38 $14.00 $10.00 2011 2012 2013 2014 2015 2016 2017 2018 YTD * See “Reconciliation of non-GAAP Financial Measures” in Appendix. PAGE 24
Slide 25: Common Dividends Per Share
COMMON DIVIDENDS PER SHARE 30 YEARS OF CONSECUTIVE DIVIDEND GROWTH $1.000 $0.900 $0.800 0.760 0.720 0.710 0.671 $0.700 0.645 0.618 0.582 0.600 $0.600 0.555 0.527 0.536 $0.500 $0.400 $0.300 $0.200 $0.100 $0.000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 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 ■ #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 ■ 30 years of consecutive dividend growth PAGE 28
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 PAGE 31
Slide 32: Aircraft Portfolio – Industries by NAICS
Aircraft Portfolio – Industries by NAICS Construction Retail Trade 9% 15% Manufacturing 8% Ag, Forestry, Fishing & Hunting Services 6% 15% Wholesale Trade 5% Other* 5% Finance & Insurance and Real Estate 15% Transportation & Warehousing 22% *Other includes: Mining & Utilities, Information, & Public
Slide 33: Ownership Summary
Ownership Summary Shareholder Type Shares % of Total 1st Source ESOP Retail/Other 4.0% Institutional 11,932,752 46.0% 14.8% Institutional Insiders 9,127,117 35.2% 46.0% Retail/Other 3,853,910 14.8% 1st Source ESOP 1,051,298 4.0% Total Shares Outstanding(1) 25,965,077 100.0% Rank Institution (Top 10
Slide 34: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Calculation of Yield on Loans and Leases (Dollars in thousands) 2014 2015 2016 2017 2018 YTD (A) Loans and leases interest income (GAAP) $ 160,753 $ 168,327 $ 175,532 $ 194,297 $ 112,039 (B) Plus: loans and leases fully tax-equivalent adjustments 274 284
Slide 35: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Noninterest Expense (Dollars in thousands) 2014 2015 2016 2017 2017 YTD 2018 YTD (A) Noninterest expense (GAAP) $ 150,040 $ 159,114 $ 163,645 $ 173,997 $ 82,224 $ 91,434 (B) Less: depreciation - leased equipment (13,893) (18,280) (21,678) (25,215) (11,97
Slide 36: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Calculation of Tangible Common Equity-to-Tangible Assets Ratio (Dollars in thousands) 2014 2015 2016 2017 2018 YTD (A) Total common shareholders' equity (GAAP) $ 614,473 $ 644,053 $ 672,650 $ 718,537 $ 740,277 (B) Less: goodwill and intangible assets (85