1st Source Corporation (NASDAQ:SRCE) is a bank holding company headquartered in South Bend, Indiana, providing a broad array of financial products and services through its subsidiary, 1st Source Bank. With a rich history dating back to 1863, 1st Source has built a reputation as a reliable and trusted financial institution serving the Midwest region.
Business Overview and History 1st Source Corporation was founded in 1863 as the St. Joseph Valley Bank, operating as a community bank in South Bend, Indiana. Throughout its long history, the company has successfully navigated numerous challenges and economic conditions. During the Great Depression, 1st Source weathered the storm and emerged as a stronger institution, continuing to serve its local community. In the 1980s, the company faced the savings and loan crisis but maintained its financial stability through prudent risk management.
The early 2000s marked a period of strategic expansion for 1st Source. In 2003, the company acquired Michiana Bancorp, strengthening its presence in the Midwest region. This acquisition was part of a broader strategy to expand the company's footprint and service offerings. During this time, 1st Source also made significant investments in technology to enhance customer experience and operational efficiency.
One of the major challenges 1st Source faced was the 2008 financial crisis. Like many financial institutions, the company was impacted by the turbulent economic conditions. However, 1st Source's conservative lending practices and diversified business model helped it weather the storm. The company quickly addressed problem loans, maintained adequate capital levels, and continued to serve its clients during this difficult period.
Throughout its history, 1st Source has maintained a strong financial position, consistently paying dividends to shareholders and demonstrating its commitment to creating long-term value. The company's focus on relationship banking, community involvement, and prudent risk management has been the foundation of its success over the past 150 years.
Financial Performance and Strength 1st Source has consistently demonstrated its financial strength and stability, even through challenging economic environments. As of September 30, 2024, the company reported total assets of $8.76 billion, an increase of 0.41% from the previous year. Net income for the company reached a record $132.62 million in 2024, up 6.16% from 2023, with diluted earnings per share of $5.36, an increase of 6.56% year-over-year.
The company's solid financial performance is reflected in its strong capital ratios. As of September 30, 2024, 1st Source's total risk-based capital ratio stood at 17.10%, well above the regulatory minimum of 10.00% required to be considered "well-capitalized." The company's Tier 1 capital ratio and Common Equity Tier 1 capital ratio were 15.84% and 14.18%, respectively, also exceeding regulatory requirements.
Financials 1st Source's financial performance has been consistently strong, as evidenced by its record net income and growth in earnings per share. The company's total assets of $8.76 billion as of September 30, 2024, demonstrate its significant presence in the Midwest banking sector. The 6.16% increase in net income to $132.62 million in 2024 highlights the company's ability to generate profits even in a challenging economic environment.
For the most recent quarter, 1st Source reported revenue of $123,150,000 and net income of $31,438,000. The company's operating cash flow for the quarter was $33,545,000, with free cash flow of $27,005,000. These figures demonstrate the company's ability to generate substantial cash flow from its operations.
Liquidity 1st Source's balance sheet remains well-positioned, with a loan-to-deposit ratio of 75.49% as of September 30, 2024. The company's liquidity position is also robust, with a loan-to-asset ratio of 75.49% and cash and cash equivalents totaling $169.36 million at the end of the third quarter of 2024. These figures indicate that 1st Source maintains a healthy balance between lending activities and liquid assets, ensuring it can meet its financial obligations and potential loan demand.
The company's debt-to-equity ratio stands at 0.16, indicating a conservative approach to leverage. 1st Source maintains a strong liquidity position with a current ratio of 9.12 and a quick ratio of 9.12. The company has access to various external funding sources, including FHLB advances, FRB borrowings, Federal funds purchased, brokered deposits, and listing service deposits, which totaled $3.38 billion in available liquidity as of September 30, 2024.
Consistent Dividend History and Shareholder Returns 1st Source has a long-standing history of rewarding shareholders through a consistent dividend policy. The company has paid dividends for over 90 consecutive years, making it one of the few banks in the country with such an impressive dividend track record. In the third quarter of 2024, the company declared a cash dividend of $0.36 per share, continuing its history of increased dividends.
Over the past five years, 1st Source has demonstrated its commitment to shareholder value by returning an average of 27.32% of its earnings to shareholders in the form of dividends. The company's strong financial performance and prudent capital management have allowed it to maintain a healthy dividend payout ratio, which stood at 26.34% as of September 30, 2024.
Strategic Initiatives and Future Outlook 1st Source has remained focused on executing strategic initiatives to drive long-term growth and enhance shareholder value. The company has invested in technology and digital capabilities to improve the customer experience and stay competitive in the evolving banking landscape. Additionally, 1st Source has emphasized a disciplined approach to credit risk management, maintaining a well-diversified loan portfolio and conservative underwriting standards.
Looking ahead, 1st Source is well-positioned to capitalize on the economic growth and development in its Midwest markets. The company's management team has expressed cautious optimism about the regional economic outlook, highlighting opportunities to expand its lending activities and wealth management services. However, the company remains vigilant about potential headwinds, such as rising interest rates, increased competition, and regulatory changes, which could impact its performance.
The company continues to face risks including a fragile domestic economic outlook, heightened geopolitical instability, tightened credit conditions, a softening labor market, and elevated inflation and interest rates. 1st Source remains cautious on the forward outlook, and its forecast adjustment represents fragile growth expectations during the forecast period. Ongoing risks include the potential for economic disruption caused by global conflicts and an environment of heightened instability, as well as political discord and corruption scandals in its Latin American markets.
Business Segments 1st Source Corporation operates through two primary business segments: Commercial Banking and Consumer Banking.
Commercial Banking Segment The Commercial Banking segment is 1st Source's largest business line, accounting for the majority of the company's revenue and assets. This segment provides a range of commercial banking products and services to businesses and institutions within 1st Source's local markets in northern Indiana and southwestern Michigan. Key product offerings include commercial and agricultural loans, renewable energy financing, commercial real estate loans, and equipment financing and leasing solutions.
The commercial and agricultural loan portfolio is diverse, serving a wide range of industries and businesses. Loans are underwritten based on the cash flow and collateral of the borrower, often with personal guarantees. The renewable energy loan portfolio finances solar projects across the United States, primarily in the region east of the Rocky Mountains. The commercial real estate portfolio is predominantly focused on owner-occupied properties, limiting exposure to riskier non-owner-occupied segments like hotels and retail. The equipment financing and leasing portfolio includes loans and leases for a variety of commercial equipment, including construction equipment, medium and heavy duty trucks, and aircraft.
Commercial Banking generated the majority of 1st Source's total revenue and net interest income during the quarter. Loans and leases in this segment grew 1.5% from the prior year period, reaching $6.62 billion at September 30, 2024. Asset quality metrics remained relatively stable, with nonperforming assets at 0.47% of total loans and leases. The provision for credit losses increased to $9.76 million year-to-date, up from $3.96 million in the prior year period, reflecting a more cautious economic outlook and increase in special mention loan balances.
Consumer Banking Segment The Consumer Banking segment offers a range of deposit products, mortgage and home equity loans, and consumer loans to individuals within 1st Source's regional footprint. Key product offerings include one-to-four family residential mortgages, home equity loans and lines of credit, and consumer auto and installment loans. This segment represents a smaller portion of the company's overall business compared to Commercial Banking.
The residential real estate and home equity loan portfolio totaled $664.58 million at September 30, 2024, up 4.2% from the prior year. Asset quality in this portfolio remained strong, with only 0.33% of loans classified as nonperforming. The consumer loan portfolio, which includes primarily auto and installment loans, totaled $135.72 million, down slightly from the prior year period. Nonperforming consumer loans ticked up to 0.54% of the portfolio.
Overall, the Consumer Banking segment contributed a smaller, but steady, portion of 1st Source's revenue and net income during the quarter. Management continues to focus on growing consumer relationships and deepening existing customer ties within the bank's regional markets.
Geographic Markets While 1st Source operates primarily in the United States, the company has some foreign loan and lease balances, all denominated in U.S. dollars, totaling $304 million as of September 30, 2024. The foreign loan and lease balances are mainly in aircraft financing for borrowers in Brazil and Mexico, which accounted for $132.57 million and $137.72 million, respectively, as of September 30, 2024.
Conclusion 1st Source Corporation has proven itself to be a reliable and well-managed financial institution, delivering consistent growth and shareholder value over its long history. With a solid balance sheet, strong capital ratios, and a commitment to serving its local communities, 1st Source is poised to continue its trajectory of success. As the Midwest economy evolves, 1st Source's focus on strategic initiatives and prudent risk management should allow the company to navigate the challenges and capitalize on the opportunities ahead. The company's diversified business model, with a strong emphasis on commercial and industrial lending, equipment finance, and renewable energy, has enabled it to navigate the current economic environment relatively well. While asset quality metrics have shown some modest deterioration, 1st Source remains well-capitalized and focused on prudent risk management across its loan portfolios.