1st Source (SRCE) Q4 2010 earnings summary

Executive summary

• Record 2010 net income was $41.24 million, up 61.8% YoY; diluted EPS rose to $1.21 from $0.79.

• Earnings recovery reflected higher net interest income and lower loan-loss provision, while credit quality, the economy, liquidity, and regulation remained key challenges.

Financial highlights

• Net interest income was $147.50 million in 2010 versus $128.21 million in 2009; provision for loan and lease losses fell to $19.21 million from $31.10 million.

• Total assets were $4.45 billion at year-end, down from $4.54 billion; loans and leases were $3.07 billion, down 0.73%, and deposits were $3.62 billion, down 0.81%.

• Q4 net income was $12.57 million versus $6.22 million YoY; diluted EPS was $0.25 versus $0.19.

• Noninterest income rose 1.36% to $86.69 million; noninterest expense increased 2.24% to $154.51 million.

Outlook and guidance

• Planning shifted to a three-year tactical cycle with five-year aspirational goals; priorities include growth, client service, simplifying processes, and addressing customer pain points.

• 2011 outlook remained cautious amid a weak economy, high unemployment, aircraft-market weakness, and potential construction-equipment losses; agriculture prospects were strong on crop prices and land values.

• Management anticipated no material long-term performance effect from ending wholesale mortgage lending, with continued consumer mortgage offerings through directly employed originators.