1st Source Corporation · NASDAQ:SRCE
1st Source — Q4 2020 Earnings Presentation
42 slides from 1st Source's earnings presentation, Feb 10, 2021
Slide 1: Fourth Quarter 2020 Investor Presentation
FOURTH QUARTER 2020 INVESTOR PRESENTATION NASDAQ: SRCE www.1stsource.com
Slide 2: Disclosures
DISCLOSURES PAGE 2 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
Slide 3: Corporate Overview
CORPORATE OVERVIEW $7.3 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 Loans and Leases $2.53 billion Community Bank Loans and Leases $3.02 billion PAGE 5
Slide 6: Business Mix (Loans and Leases)
BUSINESS MIX (LOANS AND LEASES) Business Community Banking 79% Personal Community Banking 21% Specialty Finance 46% 54% PAGE 6
Slide 7: Community Banking
COMMUNITY BANKING ■ 79 Banking Centers ■ 100 Twenty-four hour ATMs ■ 8 Trust & Wealth Advisory locations with approximately $4.7 billion of assets under management ■ 10 1st Source Insurance offices In person Online Over the phone Mobile PAGE 7
Slide 8: Specialty Finance Group Services
SPECIALTY FINANCE GROUP SERVICES Aircraft Division — $861MM 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 9: Experienced and Proven Team
EXPERIENCED AND PROVEN TEAM Executive Team ■ 4 executives with an average 38 years each of banking experience and 26 years with 1st Source Business Banking Officers ■ 39 business banking officers with an average 18 years each of lending experience and with 1st Source from 1 to 31 years Specialty Fin
Slide 10: Performance – Client
PAGE ELEVEN PERFORMANCE – CLIENT ■ #1 deposit share in our 15 contiguous county market ■ #1 SBA Lender in our Indiana footprint ■ #1 SBA Lender Headquartered in State of Indiana ■ Indiana SBA Community Lender Award – 2013 – 2019 ■ Indiana SBA Rural Lender of the Year Award – 2019 ■ Honored for highe
Slide 11: Our Response to COVID-19
OUR RESPONSE TO COVID-19 Employees Clients Communities ▪ High-risk employees are working remotely ▪ Virtual meetings and conference calls have replaced in-person meetings ▪ Department teams are separated to ensure that infection can not spread across entire units ▪ Business travel is restricted ▪ Ad
Slide 12: Paycheck Protection Program Loans
PAYCHECK PROTECTION PROGRAM LOANS PAGE 12 • Over 55% of 2020 loans for less than $50,000 • Over 60% of the total PPP loan amounts funded during 2020 were submitted for forgiveness as of December 31, 2020 • The SBA has remitted payment for over $230 million of submissions as of December 31, 2020 Phas
Slide 13: COVID-19 Related Loan Deferrals
COVID-19 RELATED LOAN DEFERRALS PAGE 13 Modifications at December 31, 2020: • $40 million to bus clients or 56% of our total bus loan balances. Included in the Specialty vehicle category above. • $80 million to hotel industry clients or 51% of our total hotel loan balances. Included in the Commercia
Slide 14: COVID-19 Related Loan Deferrals
COVID-19 RELATED LOAN DEFERRALS PAGE 14 As of December 31, 2020 (Dollars in millions) Expired In Deferment Total Expired In Deferment (1) Total Expired In Deferment (1) Total Auto and light truck rental 273$ 1$ 274$ 78$ 4$ 82$ 20$ 1$ 21$ Specialty vehicle(2) 89 - 89 74 2 76 44 39 83 Medium and heavy
Slide 15: Financial Review
FINANCIAL REVIEW iSource. _ ena Corporation -«-— NE
Slide 16: Growing Loan Portfolio
GROWING LOAN PORTFOLIO 4114 4333 4755 5000 5463 4.28% 4.50% 4.93% 5.16% 4.44% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 1000 2000 3000 4000 5000 6000 2016 2017 2018 2019 2020 Loans & Leases Yield on Loans & Leases - FTE (%)* Total Average Loans & Leases ($MM) PAGE 16 * See “Reconciliation of non-GAAP Fina
Slide 17: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO 2020 Average Loans by Type PAGE 17 Commercial Real Estate 17% Residential Real Estate 10% Consumer 3% Medium and Heavy Duty Truck 5% Auto and Light Truck 10% Construction Equipment 13% Aircraft 14% Commercial and Agricultural 20% PPP Loans 8%
Slide 18: Pre-Tax, Pre-Provision Income
PRE-TAX, PRE-PROVISION INCOME PAGE 18 95.0 110.3 124.5 136.0 142.3 $0 $35 $70 $105 $140 $175 2016 2017 2018 2019 2020 ($MM) * See “Reconciliation of non-GAAP Financial Measures” in Appendix.
Slide 19: Strong Credit Quality
STRONG CREDIT QUALITY PAGE 19 2.11% 2.10% 2.08% 2.19% 2.56% 2016 2017 2018 2019 2020 % of Net Loans and Leases Loan & Lease Loss Reserve Nonperforming Assets Net Charge-Offs Solid Reserves 0.70% 0.67% 0.71% 0.37% 1.16% 2016 2017 2018 2019 2020 Low Nonperforming Assets 0.13% 0.06% 0.29% 0.10% 0.17% 2
Slide 20: Core Deposit Franchise
CORE DEPOSIT FRANCHISE Total Average Deposits ($MM) PAGE 20 3872 4049 4277 4502 5128 431 444 687 775 609 0.35% 0.43% 0.70% 0.96% 0.53% 0.00% 0.50% 1.00% 1.50% 2.00% 500 1500 2500 3500 4500 5500 6500 2016 2017 2018 2019 2020 Non-core Deposits Core Deposits Effective Rate on Deposits (%) * Non-core de
Slide 21: Attractive Core Deposit Franchise
ATTRACTIVE CORE DEPOSIT FRANCHISE 2020 Average Deposits By Type Noninterest Bearing Demand 27% CD and IRA 25% Savings and Interest Bearing Demand 48% PAGE 21
Slide 22: Deposit Market Share – County Contiguous Market
DEPOSIT MARKET SHARE – 15 COUNTY CONTIGUOUS MARKET* $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 June 14 June 15 June 16 June 17 June 18 June 19 June 20 1st Source Chase Lake City Bank Horizon Bank Fifth Third *Includes Allen, Elkhart, Fulton, Huntington, Kosciusko
Slide 23: Net Income & Earnings Per Share
57.5 57.8 68.1 82.4 92.0 81.4 2.17 2.22 2.60 3.16 3.57 3.17 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $0 $15 $30 $45 $60 $75 $90 $105 2015 2016 2017 2018 2019 2020 Net Income EPCS (Diluted) ($MM) NET INCOME & EARNINGS PER SHARE PAGE 23
Slide 24: Net Interest Margin (FTE)
NET INTEREST MARGIN (FTE)* PAGE 24 171.5 187.4 214.7 224.6 226.4 3.43% 3.57% 3.73% 3.68% 3.39% 3.20% 3.40% 3.60% 3.80% 4.00% $0 $50 $100 $150 $200 $250 2016 2017 2018 2019 2020 Net Interest Income ($MM) Net Interest Margin (%) ($MM) * See “Reconciliation of non-GAAP Financial Measures” in Appendix.
Slide 25: Diverse Sources of Noninterest Income
DIVERSE SOURCES OF NONINTEREST INCOME Noninterest Income Composition 2020 = $83.7MM* PAGE 25 * Note: Equipment rental income is shown net of leased equipment depreciation. See “Reconciliation of non-GAAP Financial Measures” in Appendix . Trust, Wealth Advisory, and Retirement Plan Services 25% Other
Slide 26: Operating Expenses
OPERATING EXPENSES PAGE 26 142.0 148.8 160.2 163.9 167.2 60.2% 57.7% 56.2% 54.7% 54.2% 45.0% 55.0% 65.0% 75.0% $0.0 $40.0 $80.0 $120.0 $160.0 $200.0 2016 2017 2018 2019 2020 Noninterest Expense ($MM)* Efficiency - Adjusted (%)* ($MM) * Note: Noninterest expense is shown net of leased equipment depre
Slide 27: Strong Capital Position
15.12% 14.70% 14.68% 14.90% 15.99% 2016 2017 2018 2019 2020 13.80% 13.44% 13.42% 13.64% 14.73% 2016 2017 2018 2019 2020 12.11% 12.17% 12.06% 12.19% 12.15% 2016 2017 2018 2019 2020 STRONG CAPITAL POSITION PAGE 27 Total Risk Based Capital Ratio Tier 1 Leverage Ratio Tier 1 Risk Based Ratio Tangible Co
Slide 28: Tangible Book Value per Common Share
$18.65 $20.16 $21.49 $22.75 $24.47 $26.30 $29.18 $31.62 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 2013 2014 2015 2016 2017 2018 2019 2020 TANGIBLE BOOK VALUE PER COMMON SHARE* Consistent Growth PAGE 28 * See “Reconciliation of non-GAAP Financial Measures” in Appendix.
Slide 29: Common Dividends Per Share
0.555 0.582 0.600 0.618 0.645 0.671 0.720 0.760 0.960 1.100 1.130 $0.000 $0.200 $0.400 $0.600 $0.800 $1.000 $1.200 $1.400 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 COMMON DIVIDENDS PER SHARE 33 YEARS OF CONSECUTIVE DIVIDEND GROWTH PAGE 29
Slide 30: Delivering Returns to Shareholders
DELIVERING RETURNS TO SHAREHOLDERS PAGE 30
Slide 31: Delivering Returns to Shareholders
DELIVERING RETURNS TO SHAREHOLDERS PAGE 31
Slide 32: Performance – Financial
PERFORMANCE – FINANCIAL ■ 2020 KBW Bank Honor Roll – fifteen banking institutions with more than $500 million in total assets selected ■ #26 of 123 banks between $5 billion and $50 billion in assets – Bank Performance Scorecard by Bank Director Magazine ■ 5 Star “Superior” Rating – Bauer Financial ■
Slide 33: Investment Considerations
INVESTMENT CONSIDERATIONS ■ Consistent and superior financial performance with a focus on long-term earnings per share and tangible book value growth ■ Experienced and proven team with significant investment in bank ■ Diversification of product mix and geography with asset generation capability ■ Le
Slide 34: Contact Information
CONTACT INFORMATION Christopher J. Murphy III Chairman of the Board, CEO and President (574) 235-2711 murphy-c@1stsource.com Andrea G. Short CFO and Treasurer (574) 235-2348 shorta@1stsource.com PAGE 34
Slide 35: Appendix
APPENDIX PAGE 35
Slide 36: Consolidated Balance Sheet
Consolidated Balance Sheet PAGE 36 (Dollars in millions) 2016 2017 2018 2019 2020 Cash and cash equivalents 108$ 78$ 99$ 83$ 243$ Investment securit ies and other investments 873 930 1,019 1,069 1,225 Loans and leases, net of unearned discount 4,204 4,541 4,847 5,106 5,502 Allowance for loan and lea
Slide 37: Consolidated Income Statement
Consolidated Income Statement PAGE 37 (Dollars in millions) 2016 2017 2018 2019 2020 Net interest income 170$ 186$ 214$ 224$ 226$ Provision for credit losses 6 9 19 16 36 Noninterest income* 67 73 70 76 83 Noninterest expense* 142 149 160 164 167 Income before income taxes 89 101 105 120 106 Income
Slide 38: Aircraft Portfolio – Industries by NAICS
Aircraft Portfolio – Industries by NAICS Transportation & Warehousing 17% Finance & Insurance and Real Estate 13% Services 19% Retail Trade 16% Construction 8% Manufacturing 10% Ag, Forestry, Fishing & Hunting 7% Wholesale Trade 5% Other* 5% PAGE 38 *Other includes: Mining & Utilities and Informatio
Slide 39: Ownership Summary
Ownership Summary Institutional 44.5% Insiders 32.7% Retail/Other 19.6% 1st Source ESOP 3.2% (1) As of December 31, 2020 (2) As of September 30, 2020 or most recently reported data Source: S&P Global Market Intelligence and Company filings PAGE 39 Shareholder Type Shares % of Total Institutional 11,
Slide 40: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures PAGE 40 Calculation of Yield on Loans and Leases (Dollars in thousands) 2016 2017 2018 2019 2020 (A) Loans and leases interest income (GAAP) $ 175,532 $ 194,297 $ 234,083 $ 257,738 $ 242,172 (B) Plus: loans and leases fully tax-equivalent adjustments 584
Slide 41: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures PAGE 41 Noninterest Expense (Dollars in thousands) 2016 2017 2018 2019 2020 (A) Noninterest expense (GAAP) $ 163,645 $ 173,997 $ 186,467 $ 189,009 $ 187,367 (B) Less: depreciation - leased equipment (21,678) (25,215) (26,248) (25,128) (20,203) Noninteres
Slide 42: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures PAGE 42 Calculation of Tangible Common Equity-to-Tangible Assets Ratio (Dollars in thousands) 2016 2017 2018 2019 2020 (A) Total common shareholders' equity (GAAP) $ 672,650 $ 718,537 $ 762,082 $ 828,277 $ 886,845 (B) Less: goodwill and intangible assets