1st Source Corporation (SRCE)

1st Source Corporation: A Comprehensive Overview

Company Profile

History and Background

1st Source Corporation (NASDAQ: SRCE) is a financial holding company headquartered in South Bend, Indiana. Founded in 1863 as the First National Bank of South Bend, the company has grown through acquisitions and organic expansion to become a leading regional financial institution with over $9 billion in assets. 1st Source operates 84 banking centers in Indiana and Michigan, offering a comprehensive range of financial products and services for individuals, businesses, and municipalities.

Core Business Areas

1st Source's core business areas are:

• Commercial Banking: Providing lending, deposit, and treasury management services to businesses of all sizes.
• Retail Banking: Offering deposit accounts, loans, mortgages, and wealth management services to individuals.
• Wealth Management: Providing investment management, trust, and estate planning services to individuals and families.
• Insurance: Offering property and casualty insurance products through its subsidiary, 1st Source Insurance Agency.

Leadership Team and Corporate Structure

1st Source is led by a team of experienced executives, including:

• Chris Diggs: President and CEO
• Scott Bowman: Chief Financial Officer
• Mark Kopec: Chief Operating Officer
• Kimberley VanGelder: Chief Human Resources Officer

The company operates under a decentralized structure, with five regional presidents overseeing operations in different geographic areas.

Top Products and Market Share

Products and Offerings

1st Source's top products and offerings include:

• Commercial Loans: Term loans, lines of credit, equipment financing, and commercial real estate loans.
• Retail Deposits: Checking and savings accounts, money market accounts, and certificates of deposit.
• Mortgages: Fixed-rate and adjustable-rate mortgages, home equity loans, and lines of credit.
• Wealth Management: Investment management, retirement planning, estate planning, and trust services.

Market Share

1st Source holds a leading market share in its core markets of Indiana and Michigan. As of December 31, 2022, the company held:

• 10.6% market share of all deposits in the South Bend-Mishawaka MSA.
• 7.4% market share of all deposits in the Elkhart-Goshen MSA.
• 5.3% market share of all deposits in the Kalamazoo-Portage MSA.

1st Source competes with other regional banks, national banks, and credit unions in its markets.

Total Addressable Market

The total addressable market for 1st Source is the combined market size of the banking, wealth management, and insurance industries in the United States. This market is estimated to be worth over $2 trillion.

Financial Performance

Recent Financial Performance

1st Source reported strong financial performance in 2022, with net income of $149.9 million, an increase of 14.2% from 2021. The company's revenue grew by 10.1% to $477.6 million, driven by strong loan growth and higher interest rates. Earnings per share (EPS) were $3.72, an increase of 13.8% from 2021.

Year-over-Year Comparisons

1st Source's financial performance has been consistently strong over the past five years. The company's revenue has grown at a compound annual growth rate (CAGR) of 8.5%, while its net income has grown at a CAGR of 11.3%. EPS has grown at a CAGR of 10.7%.

Cash Flow and Balance Sheet Health

1st Source has a strong cash flow position and a healthy balance sheet. The company generated $184.4 million in operating cash flow in 2022 and has a capital adequacy ratio of 12.3%.

Dividends and Shareholder Returns

Dividend History

1st Source has a long history of paying dividends to shareholders. The company has increased its dividend payout for 11 consecutive years. The current annual dividend is $1.40 per share, which yields 3.1% based on the current stock price.

Shareholder Returns

1st Source has generated strong shareholder returns over the past five years. The company's stock price has appreciated by 67.5%, while total shareholder return, including dividends, has been 75.8%.

Growth Trajectory

Historical Growth

1st Source has a history of steady growth. The company's revenue has grown at a CAGR of 7.5% over the past five years, and its earnings per share (EPS) have grown at a CAGR of 8.2%.

Future Growth Projections

Analysts expect 1st Source to continue to grow in the future. The company is projected to grow its revenue at a CAGR of 6.5% over the next five years, and its EPS is projected to grow at a CAGR of 7.0%.

Recent Product Launches and Strategic Initiatives

1st Source has launched several new products and services in recent years, including digital banking tools, mobile banking apps, and online wealth management platforms. The company is also investing in its branch network and expanding its footprint into new markets.

Market Dynamics

Industry Overview

The banking industry is undergoing significant changes, driven by technological advancements, regulatory changes, and changing consumer preferences. Banks are increasingly adopting digital technologies to improve efficiency and provide better customer experiences. They are also facing competition from non-bank financial technology companies (fintechs).

1st Source's Positioning

1st Source is well-positioned to compete in the changing banking landscape. The company has a strong digital presence, a commitment to innovation, and a loyal customer base. 1st Source is also benefiting from rising interest rates, which are boosting its net interest margin.

Competitors

Key Competitors

1st Source's key competitors include:

• Centier Bank (CTRN)
• First Merchants Corporation (FRME)
• Independent Bank Corporation (INDB)
• Old National Bancorp (ONB)
• United Community Financial Corporation (UCFC)

Market Share Comparisons

1st Source has a smaller market share than some of its larger competitors, but it has a leading market share in its core markets of Indiana and Michigan.

Competitive Advantages and Disadvantages

1st Source's competitive advantages include its strong brand recognition, its loyal customer base, and its commitment to innovation. The company's disadvantages include its smaller size and its limited geographic reach.

Potential Challenges and Opportunities

Key Challenges

1st Source faces several key challenges, including:

• Competition from larger banks and fintechs.
• Rising interest rates, which could slow loan growth.
• Regulatory changes.

Potential Opportunities

1st Source has several potential opportunities, including:

• Expanding its digital banking offerings.
• Growing its wealth management business.
• Entering new markets.

Recent Acquisitions

Acquisitions in the Last 3 Years

1st Source has made two acquisitions in the last three years:

• 2022: Acquired Citizens State Bank of Michigan for $124 million. This acquisition expanded 1st Source's footprint into the Kalamazoo-Portage market.