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Section 1: 8-K (8-K 3RD QTR 2018 EARNINGS RELEASE)

Wdesk | Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
 
 
 
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
Date of Report (Date of earliest event reported): October 18, 2018
 
 395398061_a1stsourcecorplogo2a07.jpg
 
1st Source Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Indiana
0-6233
35-1068133
(State or other jurisdiction of incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)
 
 
 
100 North Michigan Street, South Bend, Indiana 46601
(Address of principal executive offices)     (Zip Code)
 
 
 
574-235-2000
(Registrant's telephone number, including area code)
 
 
 
Not Applicable
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





ITEM 2.02    Results of Operations and Financial Condition.

On October 18, 2018, 1st Source Corporation issued a press release that announced its third quarter earnings for 2018. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

ITEM 9.01    Financial Statements and Exhibits.
 
Exhibit 99.1: Press release dated October 18, 2018, with respect to 1st Source Corporation’s financial results for the third quarter ended September 30, 2018.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
1st SOURCE CORPORATION
 
 
(Registrant)
 
 
 
 
 
 
Date: October 18, 2018
 
/s/ CHRISTOPHER J. MURPHY III
 
 
Christopher J. Murphy III
 
 
Chairman of the Board and CEO
 
 
 
 
 
 
Date: October 18, 2018
 
/s/ ANDREA G. SHORT
 
 
Andrea G. Short
 
 
Treasurer and Chief Financial Officer
 
 
Principal Accounting Officer



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Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Wdesk | Exhibit


Exhibit 99.1

For:
Immediate Release
Contact:
Andrea Short
 
October 18, 2018
 
574-235-2000

1st Source Corporation Reports Third Quarter Results,
Cash Dividend Declared
QUARTERLY HIGHLIGHTS
Net income improved to $19.89 million, up 15.75% over the third quarter of 2017. Diluted net income per common share improved to $0.76 from the prior year’s third quarter of $0.66.
Return on average assets increased to 1.27% and return on average common shareholders’ equity increased to 10.50% from 1.19% and 9.61%, respectively in the third quarter of 2017.
Net charge-offs of $10.86 million and nonperforming assets to loans and leases of 1.00% compared to $0.16 million and 0.64%, respectively in the third quarter of 2017.
Average loans and leases grew $434.68 million, up 9.91% from the third quarter of 2017.
Average deposits grew $562.95 million, up 12.43% from the third quarter of 2017.
Net interest income increased $7.13 million, up 15.10% from the third quarter of 2017.
Noninterest income decreased $1.53 million, or 5.99% from the third quarter of 2017 (decreased 8.13% excluding leased equipment depreciation).
Noninterest expenses increased $2.88 million or 6.48% from the third quarter of 2017 (increased 7.57% excluding leased equipment depreciation).
South Bend, IN - 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported third quarter net income of $19.89 million, an improvement of 15.75% compared to $17.18 million reported in the third quarter a year ago. This brought 2018 year-to-date net income to a record of $60.97 million compared to $50.06 million in 2017, an increase of 21.80%. Income before taxes was $24.92 million compared to $26.74 million in the third quarter of 2017 and $77.42 million for the first nine months of 2018 compared to $77.81 million for the same period in 2017. The year-to-date pretax income comparison was positively impacted by increased net interest income of $21.25 million primarily due to rising lending rates, higher average loan and lease balances, and recognition of a $0.62 million unaccreted purchase loan discount and $0.41 million prepayment penalty on two separate early loan payoffs. These positives were offset by a $9.40 million increase in the provision for loan and lease losses to support loan and lease growth along with higher charge-offs and a $12.09 million rise in noninterest expense which includes a $1.29 million increase in repossessed asset write downs. Non-recurring 2018 costs were approximately $3.65 million.
Diluted net income per common share for the third quarter of 2018 was $0.76, versus $0.66 in the third quarter of 2017. Diluted net income per common share for the first nine months of 2018 was $2.33 compared to $1.92 earned a year earlier.
At its October 2018 meeting, the Board of Directors approved a cash dividend of $0.25 per common share, up 25% from the $0.20 per common share declared a year ago. The cash dividend is payable to shareholders of record on November 5, 2018 and will be paid on November 15, 2018.

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According to Christopher J. Murphy III, Chairman, “We are pleased with our increase in revenue in the third quarter as 1st Source Corporation experienced growth in average loans and leases and average deposits with some month end seasonal adjustments. Average loans and leases were up a solid 9.91% for the quarter, compared to the same period a year ago. Average deposits also increased with strong growth of 12.43% from this time last year. Net interest income has increased 15.10% from the third quarter 2017 while noninterest income decreased 5.99% and noninterest expense increased by 6.48% over the same quarter in 2017.”
“Our biggest credit challenge in the quarter was with larger charge-offs and write downs. We have written our assets down to what we believe are realizable values. The majority of the charge-offs is from one large syndicated aircraft account in which we are a small participant. This credit is unique in both size and complexity within our portfolio.”
“We were recently honored to be a part of the annual Jimmy and Rosalynn Carter Work Project with Habitat for Humanity. Mishawaka, Indiana was selected as the location for this week-long Carter Build event, and 1st Source Bank sponsored one of the homes. Members of our staff from across northern Indiana and southwestern Michigan volunteered their time and talents to help build this home for a deserving family. Community leadership is one of 1st Source’s values and this was just one more way we demonstrate it.”
THIRD QUARTER 2018 FINANCIAL RESULTS
Loans
Average loans and leases of $4.82 billion increased $434.68 million, up 9.91% in the third quarter of 2018 from the year ago quarter and have increased $52.07 million, up 1.09% from the second quarter. Year-to-date average loans and leases of $4.73 billion increased $432.89 million, up 10.08% from the first nine months of 2017.
Deposits
Average deposits of $5.09 billion grew $562.95 million, up 12.43% for the quarter ended September 30, 2018 from the year ago quarter and have increased $129.75 million, up 2.62% compared to the second quarter. Average deposits for the first nine months of 2018 were $4.92 billion, an increase of $493.54 million, up 11.15% from the same period a year ago.
Net Interest Income and Net Interest Margin
Third quarter 2018 net interest income of $54.36 million increased $7.13 million, up 15.10% from the third quarter a year ago and increased $1.19 million, up 2.24% from the second quarter. For the first nine months of 2018, tax-equivalent net interest income was $158.68 million, an increase of $20.50 million, up 14.83% compared to the same period a year ago.
Third quarter 2018 net interest margin was 3.69%, an improvement of 16 basis points from the 3.53% for the same period in 2017 and remained stable with the second quarter. Third quarter 2018 net interest margin on a fully tax-equivalent basis was 3.71%, an increase of 14 basis points from the 3.57% for the same period in 2017 and also remained stable with the second quarter.

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Net interest margin for the first nine months of 2018 was 3.69%, an increase of 17 basis points from the 3.52% for the same period in 2017. Net interest margin on a fully tax-equivalent basis for the first nine months of 2018 was 3.71%, an increase of 15 basis points from the 3.56% for the same period in 2017.
Noninterest Income
Third quarter 2018 noninterest income of $24.06 million decreased $1.53 million, or 5.99% from the third quarter a year ago and was lower by $0.96 million, or 3.85% from the second quarter. For the first nine months of 2018, noninterest income was relatively flat at $72.89 million compared to the same period a year ago.
Noninterest income during the three and nine months ended September 30, 2018 was lower compared to a year ago mainly due to reduced gains on the sale of available-for-sale equity securities. Other factors include decreased mortgage banking income, and lower customer swap fees offset by higher equipment rental income resulting from an increase in the average lease portfolio, improved debit card income due to growth in those transactions, improved insurance commissions due to new business, and increased trust and wealth advisory fees.
Noninterest Expense
Third quarter 2018 noninterest expense of $47.34 million increased $2.88 million or 6.48% from the third quarter a year ago and increased $1.47 million or 3.19% from the prior quarter. For the first nine months of 2018, noninterest expense was $138.78 million, an increase of $12.09 million, or 9.55% compared to the same period a year ago. Excluding depreciation on leased equipment, noninterest expenses were up 7.57% and 10.12% for the third quarter and first nine months of 2018, respectively.
The increase in noninterest expense from the same periods a year ago was primarily due to higher salaries as a result of normal merit increases and incentive compensation, increased group insurance costs, a rise in furniture, equipment, and technology costs due to increased software maintenance and computer processing charges, higher depreciation on leased equipment due to growth in the lease portfolio and higher loan and lease collection expenses. In addition, non-recurring 2018 costs were approximately $3.65 million due to consulting fees of $1.45 million for a customer relationship management project, a regulatory compliance project, and information technology projects, repossessed asset valuation adjustments of $1.90 million, and trust losses of $0.30 million.
Credit
The reserve for loan and lease losses as of September 30, 2018 was 2.04% of total loans and leases compared to 2.13% at June 30, 2018 and 2.10% at September 30, 2017. Net charge-offs of $10.86 million were recorded for the third quarter of 2018 compared with net charge-offs of $0.16 million in the same quarter a year ago and up from the $0.14 million of net charge-offs in the second quarter. The majority of the third quarter charge-offs was related to one relationship within the aircraft portfolio. Year-to-date net charge-offs of $11.34 million have been recorded in 2018, compared to net charge-offs of $0.53 million for the first nine months of 2017.

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The provision for loan and lease losses was $6.16 million for the third quarter and $14.76 million for the first nine months of 2018, an increase of $4.54 million and $9.40 million, respectively, compared with the same periods in 2017. The ratio of nonperforming assets to loans and leases was 1.00% as of September 30, 2018, compared to 0.64% on September 30, 2017 and 0.89% on June 30, 2018.
Capital
As of September 30, 2018, the common equity-to-assets ratio was 11.92%, compared to 11.71% at June 30, 2018 and 12.24% a year ago. The tangible common equity-to-tangible assets ratio was 10.73% at September 30, 2018 and 10.52% at June 30, 2018 compared to 10.95% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.38% at September 30, 2018 compared to 12.15% at June 30, 2018 and 12.52% a year ago.
ABOUT 1ST SOURCE CORPORATION
1st Source common stock is traded on the NASDAQ Global Select Market under “SRCE” and appears in the National Market System tables in many daily newspapers under the code name “1st Src.” Since 1863, 1st Source has been committed to the success of its clients, individuals, businesses and the communities it serves. For more information, visit www.1stsource.com.
1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 80 banking centers, 22 1st Source Bank Specialty Finance Group locations nationwide, eight Wealth Advisory Services locations and ten 1st Source Insurance offices.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “contemplate,” “seek,” “plan,” “possible,” “assume,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

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1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which filings are available from the SEC. 1st Source undertakes no obligation to publicly update or revise any forward-looking statements.
NON-GAAP FINANCIAL MEASURES
The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently.
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses and lease depreciation), measures how much it costs to produce one dollar of revenue. Securities gains or losses and lease depreciation are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity-to-tangible assets ratio and tangible book value per common share as useful measurements of the Company’s equity.
See the table marked “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of certain non-GAAP financial measures used by the Company with their most closely related GAAP measures.
# # #
(charts attached)

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1st SOURCE CORPORATION
 
 
 
 
 
 
3rd QUARTER 2018 FINANCIAL HIGHLIGHTS
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share data)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
June 30,
September 30,
 
September 30,
September 30,
 
2018
2018
2017
 
2018
2017
AVERAGE BALANCES
 
 
 
 
 
 
Assets
$
6,224,187

$
6,167,017

$
5,706,072

 
$
6,111,302

$
5,577,489

Earning assets
5,839,588

5,776,822

5,300,838

 
5,724,114

5,194,745

Investments
964,281

948,335

858,572

 
943,372

844,994

Loans and leases
4,822,431

4,770,361

4,387,748

 
4,728,047

4,295,153

Deposits
5,091,221

4,961,473

4,528,267

 
4,921,780

4,428,242

Interest bearing liabilities
4,323,467

4,370,692

3,937,159

 
4,283,411

3,856,635

Common shareholders’ equity
751,248

736,310

709,276

 
738,025

696,812

 
 
 
 
 
 
 
INCOME STATEMENT DATA
 
 
 
 
 
 
Net interest income
$
54,362

$
53,169

$
47,229

 
$
158,063

$
136,817

Net interest income - FTE(1)
54,559

53,372

47,670

 
158,675

138,177

Provision for loan and lease losses
6,157

4,817

1,620

 
14,760

5,358

Noninterest income
24,060

25,023

25,592

 
72,890

73,035

Noninterest expense
47,342

45,877

44,460

 
138,776

126,684

Net income
19,888

21,964

17,182

 
60,968

50,057

 
 
 
 
 
 
 
PER SHARE DATA
 
 
 
 
 
 
Basic net income per common share
$
0.76

$
0.84

$
0.66

 
$
2.33

$
1.92

Diluted net income per common share
0.76

0.84

0.66

 
2.33

1.92

Common cash dividends declared
0.25

0.24

0.19

 
0.71

0.56

Book value per common share
28.90

28.51

27.39

 
28.90

27.39

Tangible book value per common share(1)
25.66

25.27

24.16

 
25.66

24.16

Market value - High
59.33

56.77

51.80

 
59.33

51.80

Market value - Low
50.34

49.58

44.59

 
48.26

42.15

Basic weighted average common shares outstanding
25,965,694

25,958,128

25,935,867

 
25,958,125

25,922,218

Diluted weighted average common shares outstanding
25,965,694

25,958,128

25,935,867

 
25,958,125

25,922,218

 
 
 
 
 
 
 
KEY RATIOS
 
 
 
 
 
 
Return on average assets
1.27
%
1.43
%
1.19
%
 
1.33
%
1.20
%
Return on average common shareholders’ equity
10.50

11.96

9.61

 
11.04

9.60

Average common shareholders’ equity to average assets
12.07

11.94

12.43

 
12.08

12.49

End of period tangible common equity to tangible assets(1)
10.73

10.52

10.95

 
10.73

10.95

Risk-based capital - Common Equity Tier 1(2)
12.38

12.15

12.52

 
12.38

12.52

Risk-based capital - Tier 1(2)
13.41

13.18

13.65

 
13.41

13.65

Risk-based capital - Total(2)
14.66

14.44

14.94

 
14.66

14.94

Net interest margin
3.69

3.69

3.53

 
3.69

3.52

Net interest margin - FTE(1)
3.71

3.71

3.57

 
3.71

3.56

Efficiency ratio: expense to revenue
60.37

58.67

61.05

 
60.09

60.37

Efficiency ratio: expense to revenue - adjusted(1)
56.71

54.71

57.98

 
56.28

56.81

Net charge offs to average loans and leases
0.89

0.01

0.01

 
0.32

0.02

Loan and lease loss reserve to loans and leases
2.04

2.13

2.10

 
2.04

2.10

Nonperforming assets to loans and leases
1.00

0.89

0.64

 
1.00

0.64

 
 
 
 
 
 
 
 
September 30,
June 30,
March 31,
 
December 31,
September 30,
 
2018
2018
2018
 
2017
2017
END OF PERIOD BALANCES
 
 
 
 
 
 
Assets
$
6,293,169

$
6,320,058

$
6,051,463

 
$
5,887,284

$
5,806,735

Loans and leases
4,825,553

4,839,823

4,691,097

 
4,527,678

4,436,718

Deposits
5,061,977

5,108,439

4,781,325

 
4,752,730

4,573,712

Reserve for loan and lease losses
98,300

103,007

98,331

 
94,883

93,372

Goodwill and intangible assets
84,097

84,104

84,124

 
83,742

83,795

Common shareholders’ equity
750,437

740,277

725,609

 
718,537

710,497

 
 
 
 
 
 
 
ASSET QUALITY
 
 
 
 
 
 
Loans and leases past due 90 days or more
$
125

$
263

$
123

 
$
459

$
208

Nonaccrual loans and leases
36,028

34,582

25,360

 
19,405

15,066

Other real estate
432

133

1,184

 
1,312

1,341

Repossessions
13,041

9,389

9,432

 
10,114

12,913

Equipment owned under operating leases
48


2

 
9

14

Total nonperforming assets
$
49,674

$
44,367

$
36,101

 
$
31,299

$
29,542

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
(2) Calculated under banking regulatory guidelines.

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1st SOURCE CORPORATION
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
September 30,
 
June 30,
 
December 31,
 
September 30,
 
2018
 
2018
 
2017
 
2017
ASSETS
 
 
 
 
 
 
 
Cash and due from banks
$
68,362

 
$
71,102

 
$
73,635

 
$
64,636

Federal funds sold and interest bearing deposits with other banks
45,514

 
73,358

 
4,398

 
34,788

Investment securities available-for-sale
972,172

 
968,349

 
904,033

 
893,973

Other investments
28,159

 
28,159

 
25,953

 
25,953

Mortgages held for sale
11,149

 
8,235

 
13,123

 
11,000

Loans and leases, net of unearned discount:
 
 
 
 
 
 
 
Commercial and agricultural
1,062,907

 
1,047,705

 
929,997

 
893,174

Auto and light truck
562,546

 
580,045

 
496,816

 
505,126

Medium and heavy duty truck
271,601

 
276,273

 
296,935

 
287,975

Aircraft
836,458

 
863,496

 
844,657

 
816,120

Construction equipment
654,605

 
642,634

 
563,437

 
541,838

Commercial real estate
781,093

 
769,659

 
741,568

 
740,345

Residential real estate and home equity
523,391

 
524,112

 
526,122

 
524,071

Consumer
132,952

 
135,899

 
128,146

 
128,069

Total loans and leases
4,825,553

 
4,839,823

 
4,527,678

 
4,436,718

Reserve for loan and lease losses
(98,300
)
 
(103,007
)
 
(94,883
)
 
(93,372
)
Net loans and leases
4,727,253

 
4,736,816

 
4,432,795

 
4,343,346

Equipment owned under operating leases, net
137,492

 
143,024

 
139,581

 
145,975

Net premises and equipment
53,479

 
53,363

 
54,612

 
53,324

Goodwill and intangible assets
84,097

 
84,104

 
83,742

 
83,795

Accrued income and other assets
165,492

 
153,548

 
155,412

 
149,945

Total assets
$
6,293,169

 
$
6,320,058

 
$
5,887,284

 
$
5,806,735

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing demand
$
1,151,573

 
$
1,106,495

 
$
1,064,271

 
$
1,019,106

Interest-bearing deposits:
 
 
 
 
 
 
 
Interest-bearing demand
1,606,462

 
1,651,533

 
1,554,898

 
1,493,187

Savings
822,246

 
843,558

 
863,588

 
825,147

Time
1,481,696

 
1,506,853

 
1,269,973

 
1,236,272

Total interest-bearing deposits
3,910,404

 
4,001,944

 
3,688,459

 
3,554,606

Total deposits
5,061,977

 
5,108,439

 
4,752,730

 
4,573,712

Short-term borrowings:
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
124,630

 
106,861

 
205,834

 
148,001

Other short-term borrowings
166,077

 
170,233

 
8,761

 
168,764

Total short-term borrowings
290,707

 
277,094

 
214,595

 
316,765

Long-term debt and mandatorily redeemable securities
70,919

 
71,194

 
70,060

 
70,482

Subordinated notes
58,764

 
58,764

 
58,764

 
58,764

Accrued expenses and other liabilities
60,365

 
64,290

 
72,598

 
76,515

Total liabilities
5,542,732

 
5,579,781

 
5,168,747

 
5,096,238

 
 
 
 
 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock; no par value
Authorized 10,000,000 shares; none issued or outstanding

 

 

 

Common stock; no par value
Authorized 40,000,000 shares; issued 28,205,674 shares at September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, respectively
436,538

 
436,538

 
436,538

 
436,538

Retained earnings
383,943

 
370,521

 
339,959

 
327,149

Cost of common stock in treasury (2,239,928, 2,240,597, 2,268,910, and 2,269,544 shares at September 30, 2018, June 30, 2018, December 31, 2017, and September 30, 2017, respectively)
(54,369
)
 
(54,367
)
 
(54,628
)
 
(54,643
)
Accumulated other comprehensive (loss) income
(15,675
)
 
(12,415
)
 
(3,332
)
 
1,453

Total shareholders’ equity
750,437

 
740,277

 
718,537

 
710,497

Total liabilities and shareholders’ equity
$
6,293,169

 
$
6,320,058

 
$
5,887,284

 
$
5,806,735



- 7 -



1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
September 30,
 
September 30,
 
September 30,
 
2018
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
 
Loans and leases
$
59,961

 
$
58,520

 
$
50,429

 
$
172,172

 
$
143,345

Investment securities, taxable
4,873

 
4,428

 
3,048

 
13,869

 
9,932

Investment securities, tax-exempt
471

 
520

 
628

 
1,562

 
1,988

Other
391

 
397

 
325

 
1,196

 
935

Total interest income
65,696

 
63,865

 
54,430

 
188,799

 
156,200

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
9,405

 
8,319

 
5,186

 
24,286

 
13,431

Short-term borrowings
518

 
826

 
396

 
2,120

 
895

Subordinated notes
918

 
908

 
1,022

 
2,709

 
3,132

Long-term debt and mandatorily redeemable securities
493

 
643

 
597

 
1,621

 
1,925

Total interest expense
11,334

 
10,696

 
7,201

 
30,736

 
19,383

Net interest income
54,362

 
53,169

 
47,229

 
158,063

 
136,817

Provision for loan and lease losses
6,157

 
4,817

 
1,620

 
14,760

 
5,358

Net interest income after provision for loan and lease losses
48,205

 
48,352

 
45,609

 
143,303

 
131,459

Noninterest income:
 
 
 
 
 
 
 
 
 
Trust and wealth advisory
5,109

 
5,800

 
5,037

 
16,097

 
15,665

Service charges on deposit accounts
2,567

 
2,625

 
2,719

 
7,676

 
7,931

Debit card
3,377

 
3,427

 
2,983

 
9,907

 
8,719

Mortgage banking
925

 
1,073

 
1,486

 
2,882

 
3,737

Insurance commissions
1,580

 
1,487

 
1,429

 
5,025

 
4,506

Equipment rental
7,977

 
8,104

 
7,917

 
23,836

 
22,335

Gains (losses) on investment securities available-for-sale

 

 
1,007

 
(345
)
 
2,757

Other
2,525

 
2,507

 
3,014

 
7,812

 
7,385

Total noninterest income
24,060

 
25,023

 
25,592

 
72,890

 
73,035

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
23,164

 
23,696

 
22,016

 
69,391

 
64,073

Net occupancy
2,523

 
2,115

 
2,806

 
7,504

 
7,768

Furniture and equipment
5,769

 
5,718

 
5,363

 
16,942

 
15,264

Depreciation – leased equipment
6,580

 
6,684

 
6,565

 
19,692

 
18,541

Professional fees
1,883

 
1,728

 
1,765

 
5,628

 
4,514

Supplies and communication
1,635

 
1,499

 
1,316

 
4,687

 
3,911

FDIC and other insurance
855

 
714

 
693

 
2,267

 
1,889

Business development and marketing
1,663

 
1,725

 
1,199

 
4,921

 
4,352

Loan and lease collection and repossession
1,563

 
565

 
1,093

 
3,079

 
2,058

Other
1,707

 
1,433

 
1,644

 
4,665

 
4,314

Total noninterest expense
47,342

 
45,877

 
44,460

 
138,776

 
126,684

Income before income taxes
24,923

 
27,498

 
26,741

 
77,417

 
77,810

Income tax expense
5,035

 
5,534

 
9,559

 
16,449

 
27,753

Net income
$
19,888

 
$
21,964

 
$
17,182

 
$
60,968

 
$
50,057

Per common share:
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.76

 
$
0.84

 
$
0.66

 
$
2.33

 
$
1.92

Diluted net income per common share
$
0.76

 
$
0.84

 
$
0.66

 
$
2.33

 
$
1.92

Cash dividends
$
0.25

 
$
0.24

 
$
0.19

 
$
0.71

 
$
0.56

Basic weighted average common shares outstanding
25,965,694

 
25,958,128

 
25,935,867

 
25,958,125

 
25,922,218

Diluted weighted average common shares outstanding
25,965,694

 
25,958,128

 
25,935,867

 
25,958,125

 
25,922,218


- 8 -





1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
873,658

 
$
4,873

 
2.21
%
 
$
851,348

 
$
4,428

 
2.09
%
 
$
733,471

 
$
3,048

 
1.65
%
Tax exempt(1)
90,623

 
572

 
2.50
%
 
96,987

 
634

 
2.62
%
 
125,101

 
917

 
2.91
%
Mortgages held for sale
9,016

 
93

 
4.09
%
 
6,985

 
92

 
5.28
%
 
12,832

 
126

 
3.90
%
Loans and leases, net of unearned discount(1)
4,822,431

 
59,964

 
4.93
%
 
4,770,361

 
58,517

 
4.92
%
 
4,387,748

 
50,455

 
4.56
%
Other investments
43,860

 
391

 
3.54
%
 
51,141

 
397

 
3.11
%
 
41,686

 
325

 
3.09
%
Total earning assets(1)
5,839,588

 
65,893

 
4.48
%
 
5,776,822

 
64,068

 
4.45
%
 
5,300,838

 
54,871

 
4.11
%
Cash and due from banks
64,622

 
 
 
 
 
65,895

 
 
 
 

 
62,373

 
 

 
 

Reserve for loan and lease losses
(102,790
)
 
 
 
 
 
(99,277
)
 
 
 
 

 
(93,162
)
 
 

 
 

Other assets
422,767

 
 
 
 
 
423,577

 
 
 
 

 
436,023

 
 

 
 

Total assets
$
6,224,187

 
 
 
 
 
$
6,167,017

 
 
 
 

 
$
5,706,072

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

Interest-bearing deposits
3,986,576

 
9,405

 
0.94
%
 
3,950,546

 
8,319

 
0.84
%
 
3,543,037

 
5,186

 
0.58
%
Short-term borrowings
207,225

 
518

 
0.99
%
 
290,220

 
826

 
1.14
%
 
265,014

 
396

 
0.59
%
Subordinated notes
58,764

 
918

 
6.20
%
 
58,764

 
908

 
6.20
%
 
58,764

 
1,022

 
6.90
%
Long-term debt and mandatorily redeemable securities
70,902

 
493

 
2.76
%
 
71,162

 
643

 
3.62
%
 
70,344

 
597

 
3.37
%
Total interest-bearing liabilities
4,323,467

 
11,334

 
1.04
%
 
4,370,692

 
10,696

 
0.98
%
 
3,937,159

 
7,201

 
0.73
%
Noninterest-bearing deposits
1,104,645

 
 

 
 

 
1,010,927

 
 

 
 

 
985,230

 
 

 
 

Other liabilities
44,827

 
 

 
 

 
49,088

 
 

 
 

 
74,407

 
 

 
 

Shareholders’ equity
751,248

 
 

 
 

 
736,310

 
 

 
 

 
709,276

 
 

 
 

Total liabilities and shareholders’ equity
$
6,224,187

 
 

 
 

 
$
6,167,017

 
 

 
 

 
$
5,706,072

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(197
)
 
 
 
 
 
(203
)
 
 
 
 
 
(441
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
54,362

 
3.69
%
 
 

 
$
53,169

 
3.69
%
 
 

 
$
47,229

 
3.53
%
Fully tax-equivalent adjustments
 
 
197

 
 
 
 
 
203

 
 
 
 
 
441

 
 
Net interest income/margin - FTE(1)
 

 
$
54,559

 
3.71
%
 
 

 
$
53,372

 
3.71
%
 
 

 
$
47,670

 
3.57
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.


- 9 -



 
 
 
 
 
 
 
 
 
 
 
 
1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
844,394

 
$
13,869

 
2.20
%
 
$
716,457

 
$
9,932

 
1.85
%
Tax exempt(1)
98,978

 
1,901

 
2.57
%
 
128,537

 
2,894

 
3.01
%
Mortgages held for sale
7,911

 
265

 
4.48
%
 
10,788

 
322

 
3.99
%
Loans and leases, net of unearned discount(1)
4,728,047

 
172,180

 
4.87
%
 
4,295,153

 
143,477

 
4.47
%
Other investments
44,784

 
1,196

 
3.57
%
 
43,810

 
935

 
2.85
%
Total earning assets(1)
5,724,114

 
189,411

 
4.42
%
 
5,194,745

 
157,560

 
4.06
%
Cash and due from banks
63,983

 
 
 
 
 
61,389

 
 

 
 

Reserve for loan and lease losses
(99,284
)
 
 
 
 
 
(91,487
)
 
 

 
 

Other assets
422,489

 
 
 
 
 
412,842

 
 

 
 

Total assets
$
6,111,302

 
 
 
 
 
$
5,577,489

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 

 
 

Interest-bearing deposits
3,881,040

 
24,286

 
0.84
%
 
3,464,773

 
13,431

 
0.52
%
Short-term borrowings
272,813

 
2,120

 
1.04
%
 
256,507

 
895

 
0.47
%
Subordinated notes
58,764

 
2,709

 
6.16
%
 
58,764

 
3,132

 
7.13
%
Long-term debt and mandatorily redeemable securities
70,794

 
1,621

 
3.06
%
 
76,591

 
1,925

 
3.36
%
Total interest-bearing liabilities
4,283,411

 
30,736

 
0.96
%
 
3,856,635

 
19,383

 
0.67
%
Noninterest-bearing deposits
1,040,740

 
 

 
 

 
963,469

 
 

 
 

Other liabilities
49,126

 
 

 
 

 
60,573

 
 

 
 

Shareholders’ equity
738,025

 
 

 
 

 
696,812

 
 

 
 

Total liabilities and shareholders’ equity
$
6,111,302

 
 

 
 

 
$
5,577,489

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(612
)
 
 
 
 
 
(1,360
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
158,063

 
3.69
%
 
 

 
$
136,817

 
3.52
%
Fully tax-equivalent adjustments
 
 
612

 
 
 
 
 
1,360

 
 
Net interest income/margin - FTE(1)
 

 
$
158,675

 
3.71
%
 
 

 
$
138,177

 
3.56
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.


- 10 -



1st SOURCE CORPORATION
 
 
 
 
 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
 
 
 
(Unaudited - Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
June 30,
September 30,
 
September 30,
September 30,
 
 
2018
2018
2017
 
2018
2017
Calculation of Net Interest Margin
 
 
 
 
 
 
(A)
Interest income (GAAP)
$
65,696

$
63,865

$
54,430

 
$
188,799

$
156,200

 
Fully tax-equivalent adjustments:
 
 
 
 
 
 
(B)
 – Loans and leases
96

89

152

 
273

454

(C)
 – Tax exempt investment securities
101

114

289

 
339

906

(D)
Interest income – FTE (A+B+C)
65,893

64,068

54,871

 
189,411

157,560

(E)
Interest expense (GAAP)
11,334

10,696

7,201

 
30,736

19,383

(F)
Net interest income (GAAP) (A-E)
54,362

53,169

47,229

 
158,063

136,817

(G)
Net interest income - FTE (D-E)
54,559

53,372

47,670

 
158,675

138,177

(H)
Annualization factor
3.967

4.011

3.967

 
1.337

1.337

(I)
Total earning assets
$
5,839,588

$
5,776,822

$
5,300,838

 
$
5,724,114

$
5,194,745

 
Net interest margin (GAAP-derived) (F*H)/I
3.69
%
3.69
%
3.53
%
 
3.69
%
3.52
%
 
Net interest margin – FTE (G*H)/I
3.71
%
3.71
%
3.57
%
 
3.71
%
3.56
%
 
 
 
 
 
 
 
 
Calculation of Efficiency Ratio
 
 
 
 
 
 
(F)
Net interest income (GAAP)
$
54,362

$
53,169

$
47,229

 
$
158,063

$
136,817

(G)
Net interest income – FTE
54,559

53,372

47,670

 
158,675

138,177

(J)
Plus: noninterest income (GAAP)
24,060

25,023

25,592

 
72,890

73,035

(K)
Less: gains/losses on investment securities and partnership investments
(155
)
(76
)
(1,336
)
 
(263
)
(3,128
)
(L)
Less: depreciation – leased equipment
(6,580
)
(6,684
)
(6,565
)
 
(19,692
)
(18,541
)
(M)
Total net revenue (GAAP) (F+J)
78,422

78,192

72,821

 
230,953

209,852

(N)
Total net revenue – adjusted (G+J–K–L)
71,884

71,635

65,361

 
211,610

189,543

(O)
Noninterest expense (GAAP)
47,342

45,877

44,460

 
138,776

126,684

(L)
Less:depreciation – leased equipment
(6,580
)
(6,684
)
(6,565
)
 
(19,692
)
(18,541
)
(P)
Less: contribution expense limited to gains on investment securities in (K)



 

(462
)
(Q)
Noninterest expense – adjusted (O–L–P)
40,762

39,193

37,895

 
119,084

107,681

 
Efficiency ratio (GAAP-derived) (O/M)
60.37
%
58.67
%
61.05
%
 
60.09
%
60.37
%
 
Efficiency ratio – adjusted (Q/N)
56.71
%
54.71
%
57.98
%
 
56.28
%
56.81
%
 
 
 
 
 
 
 
 
 
 
End of Period
 
 
 
 
 
September 30,
June 30,
September 30,
 
 
 
 
 
2018
2018
2017
 
 
 
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
750,437

$
740,277

$
710,497

 
 
 
(S)
Less: goodwill and intangible assets
(84,097
)
(84,104
)
(83,795
)
 
 
 
(T)
Total tangible common shareholders’ equity (R–S)
$
666,340

$
656,173

$
626,702

 
 
 
(U)
Total assets (GAAP)
6,293,169

6,320,058

5,806,735

 
 
 
(S)
Less: goodwill and intangible assets
(84,097
)
(84,104
)
(83,795
)
 
 
 
(V)
Total tangible assets (U–S)
$
6,209,072

$
6,235,954

$
5,722,940

 
 
 
 
Common equity-to-assets ratio (GAAP-derived) (R/U)
11.92
%
11.71
%
12.24
%
 
 
 
 
Tangible common equity-to-tangible assets ratio (T/V)
10.73
%
10.52
%
10.95
%
 
 
 
 
 
 
 
 
 
 
 
Calculation of Tangible Book Value per Common Share
 
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
750,437

$
740,277

$
710,497

 
 
 
(W)
Actual common shares outstanding
25,965,746

25,965,077

25,936,130

 
 
 
 
Book value per common share (GAAP-derived) (R/W)*1000
$
28.90

$
28.51

$
27.39

 
 
 
 
Tangible common book value per share (T/W)*1000
$
25.66

$
25.27

$
24.16

 
 
 

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