1st Source Corporation Reports Record First Quarter Results
- Net income was a record $28.11 million for the quarter, up 71.24% from the first quarter of 2020. Diluted net income per common share was also a record at $1.10, up from the prior year’s first quarter of $0.64.
- Cash dividend of $0.30 per common share approved, up 7.14% from the $0.28 per common share declared a year ago.
- Return on average assets of 1.55% and return on average common shareholders’ equity of 12.74% compared to 1.00% and 7.81%, respectively in the first quarter of 2020.
- Average loans and leases were relatively flat from the previous quarter and up $400.61 million or 7.86% from the first quarter of 2020. Excluding the Paycheck Protection Program, average loans and leases increased slightly from the previous quarter and the decreased slightly from the first quarter of 2020.
- Average deposits were stable from the previous quarter and grew $708.10 million or 13.43% from the first quarter of 2020.
- Net charge-offs were $3.50 million and nonperforming assets to loans and leases were 1.12% compared to $1.81 million and 0.68%, respectively in the first quarter of 2020.
- Provision for credit losses of $2.40 million compared to $11.35 million in the first quarter of 2020.
- Net interest income increased $2.57 million, or 4.68% from the first quarter of 2020.
- Noninterest income increased $1.25 million, or 5.06% from the first quarter of 2020. Excluding leased equipment depreciation, noninterest income increased 15.11%.
- Noninterest expenses decreased $2.40 million, down 5.15% from the first quarter of 2020. Excluding leased equipment depreciation, noninterest expense decreased 1.80%.
1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported record quarterly net income of $28.11 million for the first quarter of 2021, up 71.24% from the $16.41 million reported in the first quarter a year ago. The net income comparison was positively impacted by a $8.96 million reduction in the provision for credit losses primarily due to stabilizing economic conditions compared to the start of the pandemic a year ago. Although loan growth occurred during the quarter, the majority of the growth was Paycheck Protection Program (PPP) loans which have minimal credit risk.
Diluted net income per common share for the first quarter of 2021 was up 71.88% to $1.10 versus $0.64 in the first quarter of 2020.
At its April 2021 meeting, the Board of Directors approved an increase in the cash dividend to $0.30 per common share, up 7.14% from the $0.28 per common share declared a year ago. The cash dividend is payable to shareholders of record on May 4, 2021 and will be paid on May 14, 2021.
Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “Throughout the first quarter, our team has been dedicated to serving the needs of our small business clients with their Paycheck Protection Program (PPP) needs. The PPP funds made available through the American Rescue Plan have been vital to the success of small businesses across the Nation, and our team has worked tirelessly to ensure our communities received those dollars and support while available. We made a specific effort to focus on serving minority- and women-owned businesses with this latest round of PPP support, as data shows such businesses were underserved nationally in the previous round of PPP funding. We’re proud to say we have been able to fulfill that objective, and we were able to secure loans for over 400 minority- and women-owned businesses, which represents approximately 15% of our overall efforts in this latest round of PPP funding.
“We were pleased to learn during the first quarter that Forbes had named 1st Source among ‘America’s Best Mid-size Employers,’ as we were one of only 10 Indiana-based companies to be included among the list of 500 companies with over 1,000 employees. This ranking was compiled via survey in partnership with Statista. Fifty thousand participants were asked to rate, on a scale of zero to 10, their willingness to recommend their own employers to friends and family, to nominate organizations other than their own, and to list companies they would not recommend. It’s long been our goal to provide a values-based workplace and culture among our colleagues of which they are all proud, and the achievement of being named among the top mid-size employers in the country lets us know our efforts are making a difference.
“Additionally, we were also honored to receive the ‘Gold Level Award’ in the Community Lender category for the eighth year in a row from the Indiana District of the U.S. Small Business Administration (SBA). The award honors 1st Source Bank for delivering the greatest number of SBA loans in the state of Indiana in 2020 among Community Banks with less than $10 billion in assets, excluding loans associated with PPP. As an organization, we have devoted over 156 years to serving small businesses and we maintain a dedicated SBA Department to ensure the highest level of service to our clients. We’re honored to receive this award for an eighth consecutive year, and we’re also honored that our clients have chosen us as their trusted financial partner. This award is welcome confirmation that we earned that trust through hard work and client support, and we’re committed to continuing that well into the future.
“Throughout the pandemic, our focus has remained on keeping our clients, our colleagues and families safe so we can deliver the highest level of service. As vaccines have rolled out in recent months, and as we closely monitor local infection rates and information from local health officials, we have made the strategic decision to quietly and measuredly relax our by-appointment-only model for visits to our banking center lobbies. Doors are unlocked, and clients are now able to visit with their bankers – masked and socially distanced of course – more spontaneously than has been the case in the last year. We’re confident we are doing our best to ensure the safety and well-being of all those we employ and interact with while also getting back to a sense of “business as usual” for our clients, who have expressed their eagerness to conduct their banking needs in person without making an appointment in advance. As always, we will continue to review and analyze data from local health departments to make the best decisions possible for the health and safety of our team members, clients and communities.
“Lastly, let me comment on our performance in the first quarter. While we are very pleased with our record earnings, a number of items coincided in the quarter which improved our results that may not occur in the future. We received $132.91 million in PPP forgiveness providing $3.98 million in accelerated fee income. Mortgage volumes remained strong and people in our markets received stimulus support from the government. As mentioned earlier, our credit risks reduced substantially due to improvements in the economy and the assistance of PPP to many of our clients. Whether those benefits are sustainable are dependent on the continuing vaccination of people in the communities and businesses we serve, the true opening up of the economy and manufacturing supply chains and housing availability improving,” Mr. Murphy concluded.
FIRST QUARTER 2021 FINANCIAL RESULTS
Loans
Average loans and leases of $5.50 billion increased $400.61 million, up 7.86% in the first quarter of 2021 from the year ago quarter and were relatively flat from the previous quarter. Loan growth is primarily from PPP originations when compared to the first quarter of 2020. During the first quarter 2021, PPP originations totaled $232.44 million which was offset by SBA forgiveness of $132.91 million.
Deposits
Average deposits of $5.98 billion grew $708.10 million for the quarter ended March 31, 2021, up 13.43% from the year ago quarter and were stable from the previous quarter. Deposit growth is primarily from PPP loan fundings and increased consumer deposit levels compared to 2020.
Net Interest Income and Net Interest Margin
First quarter 2021 tax-equivalent net interest income of $57.53 million increased $2.54 million, or 4.61% from the first quarter a year ago and decreased $4.70 million, or 7.55% from the fourth quarter of 2020.
First quarter 2021 net interest margin was 3.35%, a decrease of 22 basis points from the 3.57% for the same period in 2020 and decreased 19 basis points from the previous quarter. First quarter 2021 net interest margin on a fully tax-equivalent basis was 3.35%, a decrease of 23 basis points from the 3.58% for the same period in 2020 and was lower by 20 basis points compared to the previous quarter. The margin continues to experience pressure from the low interest rate environment. PPP loans had a positive impact on the net interest margin of a net 10 basis points for the quarter due to accelerated PPP loan origination fee amortization as a result of SBA forgiveness. We recognized $3.98 million in PPP loan fees during the first quarter of 2021. During the prior quarter, PPP loans had a positive impact on the net interest margin of a net 27 basis points and we recognized $7.84 million in PPP loan fees.
Noninterest Income
First quarter 2021 noninterest income of $25.87 million increased $1.25 million, or 5.06% from the first quarter a year ago and was relatively flat from the fourth quarter of 2020.
Noninterest income during the three months ended March 31, 2021 was higher compared to a year ago mainly from improved mortgage banking income driven by gains on a higher volume of loan sales, increased debit card income, and higher trust and wealth advisory fees as market values improved on assets under management offset by less equipment rental income as demand for leases declined and lower service charges on deposit accounts due to fewer overdraft and non-sufficient fund transactions.
Noninterest Expense
First quarter 2021 noninterest expense of $44.14 million decreased $2.40 million, or 5.15% from the first quarter a year ago and decreased $4.82 million, or 9.85% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were down 1.80% from the first quarter a year ago and down 8.31% from the prior quarter.
The decrease in noninterest expense during the first quarter compared to a year ago was mainly due to lower leased equipment depreciation as the average equipment rental portfolio continues to decline, a decreased valuation provision for interest rate swaps with customers, and reduced business development expenses as travel and entertainment continue to be curtailed due to the pandemic offset by higher salaries and wages due to incentive awards and normal merit increases, and increased FDIC insurance premiums due to FDIC assessment credits received in the first quarter of 2020 which was not present in 2021.
The decrease in noninterest expense from the prior quarter was primarily the result of lower salaries and wages was due to a one-time special award made to most employees at the end of 2020 and higher deferred salary expense on PPP loan originations during the quarter, lower leased equipment depreciation as the average equipment rental portfolio continues to decline, decreased group insurance costs on lower seasonal claims, and a lower valuation provision for interest rate swaps with customers.
Credit
The allowance for loan and lease losses as of March 31, 2021 was 2.53% of total loans and leases compared to 2.56% at December 31, 2020 and 2.35% at March 31, 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 2.74% at March 31, 2021 compared to 2.73% at December 31, 2020. Net charge-offs of $3.50 million were recorded for the first quarter of 2021 compared with net charge-offs of $1.81 million in the same quarter a year ago and $3.72 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 continues to be impacted by the pandemic shutdowns of events and tourism.
The provision for credit losses was $2.40 million for the first quarter of 2021, a decrease of $8.96 million compared with the same period in 2020 and a decrease of $2.57 million from the fourth quarter of 2020. The ratio of nonperforming assets to loans and leases was 1.12% as of March 31, 2021, compared to 1.16% on December 31, 2020 and 0.68% on March 31, 2020. Excluding PPP loans, the ratio of non-performing assets to loans and leases was 1.22% at March 31, 2021 and 1.24% at December 31, 2020.
Capital
As of March 31, 2021, the common equity-to-assets ratio was 11.87%, compared to 12.12% at December 31, 2020 and 12.63% a year ago. The tangible common equity-to-tangible assets ratio was 10.87% at March 31, 2021 compared to 11.10% at December 31, 2020 and 11.53% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.43% at March 31, 2021 compared to 13.06% at December 31, 2020 and 12.57% a year ago. During the first quarter of 2021, 155,457 shares were repurchased for treasury reducing common shareholders’ equity by $6.62 million.