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Section 1: 8-K (8-K 4TH 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): January 24, 2019
 
 396475834_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 January 24, 2019, 1st Source Corporation issued a press release that announced its fourth 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 January 24, 2019, with respect to 1st Source Corporation’s financial results for the fourth quarter ended December 31, 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: January 24, 2019
 
/s/ CHRISTOPHER J. MURPHY III
 
 
Christopher J. Murphy III
 
 
Chairman of the Board and CEO
 
 
 
 
 
 
Date: January 24, 2019
 
/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
 
January 24, 2019
 
574-235-2000

1st Source Corporation Reports Record Earnings for the Full Year and Fourth Quarter 2018,
History of Increased Dividends Continues: up 23% from Fourth Quarter 2017
FULL YEAR AND QUARTERLY HIGHLIGHTS
Net income improved to $82.41 million for the year of 2018, up 21.11% from 2017 and improved to $21.45 million for the fourth quarter of 2018, up 19.18% over the fourth quarter of 2017.
Diluted net income per common share improved to $3.16 for the year of 2018, up 21.54% from 2017 and improved to $0.82 for the fourth quarter of 2018, up 18.84% from the prior year’s fourth quarter of $0.69.
Return on average assets increased to 1.34% and return on average common shareholders’ equity increased to 11.09% for the full year of 2018 from 1.21% and 9.69%, respectively in 2017. For the fourth quarter of 2018, return on average assets increased to 1.36% and return on average common shareholders’ equity increased to 11.22% from 1.23% and 9.93%, respectively in the fourth quarter of 2017.
Net charge-offs of $13.88 million for the full year of 2018 compared to $2.64 million in 2017 and $2.53 million in the fourth quarter of 2018 compared to $2.11 million in the fourth quarter of 2017. Nonperforming assets to loans and leases of 0.71% at December 31, 2018 compared to 0.67% at December 31, 2017.
Average loans and leases grew $421.88 million in the full year of 2018, up 9.74% from 2017 and for the quarter, grew $389.20 million, up 8.75% from the fourth quarter of 2017.
Average deposits grew $470.42 million in the full year of 2018, up 10.47% from 2017 and for the quarter, grew $401.80 million, up 8.57% from the fourth quarter of 2017.
Net interest income increased $28.28 million in the full year of 2018, up 15.23% from 2017 and for the quarter, increased $7.03 million, up 14.40% from the fourth quarter of 2017.
Noninterest income decreased $1.66 million in the full year of 2018, or 1.68% from 2017 and for the quarter, decreased $1.51 million, or 5.89% from the fourth quarter of 2017 (decreased 3.66% for the year and 7.33% for the quarter excluding leased equipment depreciation).
Noninterest expenses increased $12.47 million in the full year of 2018 or 7.17% from 2017 and for the quarter, increased $0.38 million or 0.80% from the fourth quarter of 2017 (increased 7.69% for the year and 1.22% for the quarter excluding leased equipment depreciation).
South Bend, IN — 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $82.41 million for the year of 2018, an improvement of 21.11% compared to $68.05 million earned in 2017. Fourth quarter net income was $21.45 million, an increase of 19.18% compared to $17.99 million earned in the fourth quarter of 2017. Income before taxes for the year of 2018 was $105.03 million, growing 3.62% compared to $101.36 million earned in 2017 and $27.61 million for the fourth quarter of 2018, an improvement of 17.24% compared to $23.55 million for the same period in 2017. The annual pretax income comparison was positively impacted by increased net interest income of $28.28 million primarily due to rising lending rates and higher average loan and lease balances. These positives were offset by a $10.48 million increase in the provision for loan and lease losses to support loan and lease growth along with higher charge-offs and a $12.47 million rise in noninterest expense. Non-recurring 2018 costs were approximately $3.68 million.

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Diluted net income per common share for the year was a record high at $3.16, up from the $2.60 earned a year earlier. Diluted net income per common share for the fourth quarter was $0.82, up from the $0.69 earned in the fourth quarter of the previous year.
At its January 2019 meeting, the Board of Directors approved a cash dividend of $0.27 per common share, up 22.73% from the $0.22 per common share declared a year ago. The cash dividend is payable to shareholders of record on February 4, 2019 and will be paid on February 14, 2019.
According to Christopher J. Murphy III, Chairman, “1st Source Corporation had back-to-back record years in 2018 and 2017! Also, 2018 was our 31st consecutive year of dividend growth. Reflecting the strong economy on both a national and local level, average loans and leases were up a solid 8.75% for the quarter compared to the same period a year ago. Average deposits had strong growth of 8.57% from this time last year. The net interest margin continued to improve with the rising interest rate environment.
Credit quality was moderate with net charge-offs of $2.53 million in the fourth quarter of 2018. The majority of the charge-offs occurred in the Auto and Light Truck and Aircraft portfolios and were somewhat offset by a recovery in the Aircraft portfolio.
“In the final quarter of 2018, 1st Source’s commitment to helping our clients achieve security, build wealth, and realize their dreams using straight talk and sound advice, along with our acclaimed personal service, convenient branches and highly rated on-line and mobile services, attracted many new clients who were frustrated by the disruption and lack of transparency in their previous banking situation. We welcomed our new clients to the Bank and appreciate the opportunity to prove to them that we are the bank on which they can rely.
“Additionally, we are pleased with the success of our sustainability efforts in the financing of solar installations across the country and in testing them at our own locations. We are also pleased to be able to help the many organizations across our region serving our clients and neighbors. We provide financial and volunteer support helping assure a strong social safety net, good health care, and promising education in the markets we serve.” Mr. Murphy concluded.

FULL YEAR AND FOURTH QUARTER 2018 FINANCIAL RESULTS
Loans
Annual average loans and leases of $4.76 billion increased $421.88 million, up 9.74% from the full year 2017. Quarterly average loans and leases of $4.84 billion increased $389.20 million, up 8.75% in the fourth quarter of 2018 from the year ago quarter and have increased $13.56 million from the third quarter.
Deposits
Annual average deposits for 2018 were $4.96 billion, an increase of $470.42 million, up 10.47% from 2017. Quarterly average deposits of $5.09 billion grew $401.80 million, up 8.57% for the quarter ended December 31, 2018 compared to the year ago quarter and have remained relatively flat compared to the third quarter.

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Net Interest Income and Net Interest Margin
For the twelve months of 2018, tax-equivalent net interest income was $214.71 million, an increase of $27.28 million, up 14.56% compared to the full year 2017. Fourth quarter 2018 tax-equivalent net interest income of $56.03 million increased $6.79 million, up 13.78% from the fourth quarter a year ago and increased $1.48 million, up 2.70% from the third quarter.
Net interest margin for the year ending December 31, 2018 was 3.71%, an increase of 17 basis points from the 3.54% for the year ending December 31, 2017. Net interest margin on a tax-equivalent basis for the year ending December 31, 2018 was 3.73%, an increase of 16 basis points from the 3.57% for the year ending December 31, 2017.
Fourth quarter 2018 net interest margin was 3.77%, an improvement of 20 basis points from the 3.57% for the same period in 2017 and an increase of 8 basis points from the third quarter. Fourth quarter 2018 net interest margin on a fully tax-equivalent basis was 3.78%, an increase of 17 basis points from the 3.61% for the same period in 2017 and an increase of 7 basis points from the 3.71% in the third quarter. The improved yield during the quarter was positively impacted by 2 basis points due to net interest recoveries of $0.31 million in the fourth quarter of 2018 vs. net interest recoveries of $0.09 million during the fourth quarter of 2017.
Noninterest Income
Noninterest income for the twelve months ended December 31, 2018 was $97.05 million, down $1.66 million or 1.68% compared to the twelve months ended December 31, 2017. Fourth quarter 2018 noninterest income of $24.16 million decreased $1.51 million, or 5.89% from the fourth quarter a year ago and was relatively flat from the third quarter.
Noninterest income during the three and twelve months ended December 31, 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, partnership gains, and improved insurance commissions due to new business.
Noninterest Expense
Noninterest expense for the twelve months ended December 31, 2018 was $186.47 million, an increase of $12.47 million, or 7.17% compared to the same period a year ago. Fourth quarter 2018 noninterest expense of $47.69 million was relatively flat from the fourth quarter a year ago and from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were up 1.22% and 7.69% for the fourth quarter and twelve months ended December 31, 2018, respectively.

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The increase in noninterest expense for 2018 from 2017 was primarily due to higher salaries as a result of normal merit increases, higher incentive compensation, and a slight increase in full-time equivalent employees, 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 average lease portfolio and higher loan and lease collection expenses offset by lower charitable contributions. In addition, non-recurring 2018 costs were approximately $3.68 million due to consulting fees of $1.82 million for a customer relationship management project, a regulatory compliance project, and information technology projects, repossessed asset valuation adjustments of $1.56 million, and trust losses of $0.30 million.
Credit
The reserve for loan and lease losses as of December 31, 2018 was 2.08% of total loans and leases compared to 2.04% at September 30, 2018 and 2.10% at December 31, 2017. Net charge-offs that have been recorded for the full year of 2018 were $13.88 million compared to net charge-offs of $2.64 million in 2017. The majority of the 2018 charge-offs was related to one relationship within the aircraft portfolio. Overall, Aircraft accounted for 70% and Auto and Light Truck accounted for 23% of total net charge-offs for the year. Net charge-offs of $2.53 million were recorded for the fourth quarter of 2018 compared with net charge-offs of $2.11 million in the same quarter a year ago and down from the $10.86 million of net charge-offs in the third quarter. The Auto and Light Truck division recognized net charge-offs of $2.48 million in the fourth quarter with the majority from one relationship. Aircraft recorded charge-offs of $1.79 million offset by recoveries of $2.45 million.
The provision for loan and lease losses was $19.46 million for the twelve months ended December 31, 2018 and $4.70 million for the fourth quarter of 2018, an increase of $10.48 million and $1.08 million, respectively, compared with the same periods in 2017. The ratio of nonperforming assets to loans and leases was 0.71% as of December 31, 2018, compared to 1.00% on September 30, 2018 and 0.67% on December 31, 2017.
Capital
As of December 31, 2018, the common equity-to-assets ratio was 12.11%, compared to 11.92% at September 30, 2018 and 12.20% a year ago. The tangible common equity-to-tangible assets ratio was 10.92% at December 31, 2018 and 10.73% at September 30, 2018 compared to 10.94% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.38% at December 31, 2018 and September 30, 2018 compared to 12.35% 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.

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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, 20 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.
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.

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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
 
 
 
 
 
 
4th QUARTER 2018 FINANCIAL HIGHLIGHTS
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share data)
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
September 30,
December 31,
 
December 31,
December 31,
 
2018
2018
2017
 
2018
2017
AVERAGE BALANCES
 
 
 
 
 
 
Assets
$
6,270,544

$
6,224,187

$
5,818,837

 
$
6,151,439

$
5,638,322

Earning assets
5,873,476

5,839,588

5,418,305

 
5,761,761

5,251,094

Investments
976,856

964,281

884,209

 
951,812

854,879

Loans and leases
4,835,995

4,822,431

4,446,794

 
4,755,256

4,333,375

Deposits
5,087,948

5,091,221

4,686,145

 
4,963,663

4,493,247

Interest bearing liabilities
4,304,067

4,323,467

3,985,709

 
4,288,617

3,889,169

Common shareholders’ equity
758,450

751,248

719,058

 
743,173

702,419

Total equity
759,220

751,248

719,058

 
743,367

702,419

INCOME STATEMENT DATA
 
 
 
 
 
 
Net interest income
$
55,843

$
54,362

$
48,814

 
$
213,906

$
185,631

Net interest income - FTE(1)
56,034

54,559

49,249

 
214,709

187,426

Provision for loan and lease losses
4,702

6,157

3,622

 
19,462

8,980

Noninterest income
24,160

24,060

25,671

 
97,050

98,706

Noninterest expense
47,691

47,342

47,313

 
186,467

173,997

Net income
21,446

19,888

17,994

 
82,414

68,051

Net income available to common shareholders
21,446

19,888

17,994

 
82,414

68,051

PER SHARE DATA
 
 
 
 
 
 
Basic net income per common share
$
0.82

$
0.76

$
0.69

 
$
3.16

$
2.60

Diluted net income per common share
0.82

0.76

0.69

 
3.16

2.60

Common cash dividends declared
0.25

0.25

0.20

 
0.96

0.76

Book value per common share(2)
29.56

28.90

27.70

 
29.56

27.70

Tangible book value per common share(1)
26.30

25.66

24.47

 
26.30

24.47

Market value - High
54.30

59.33

53.29

 
59.33

53.29

Market value - Low
38.44

50.34

47.16

 
38.44

42.15

Basic weighted average common shares outstanding
25,876,687

25,965,694

25,936,508

 
25,937,599

25,925,820

Diluted weighted average common shares outstanding
25,876,687

25,965,694

25,936,508

 
25,937,599

25,925,820

KEY RATIOS
 
 
 
 
 
 
Return on average assets
1.36
%
1.27
%
1.23
%
 
1.34
%
1.21
%
Return on average common shareholders’ equity
11.22

10.50

9.93

 
11.09

9.69

Average common shareholders’ equity to average assets
12.10

12.07

12.36

 
12.08

12.46

End of period tangible common equity to tangible assets(1)
10.92

10.73

10.94

 
10.92

10.94

Risk-based capital - Common Equity Tier 1(3)
12.38

12.38

12.35

 
12.38

12.35

Risk-based capital - Tier 1(3)
13.42

13.41

13.44

 
13.42

13.44

Risk-based capital - Total(3)
14.68

14.66

14.70

 
14.68

14.70

Net interest margin
3.77

3.69

3.57

 
3.71

3.54

Net interest margin - FTE(1)
3.78

3.71

3.61

 
3.73

3.57

Efficiency ratio: expense to revenue
59.61

60.37

63.52

 
59.97

61.19

Efficiency ratio: expense to revenue - adjusted(1)
55.90

56.71

60.09

 
56.18

57.66

Net charge offs to average loans and leases
0.21

0.89

0.19

 
0.29

0.06

Loan and lease loss reserve to loans and leases
2.08

2.04

2.10

 
2.08

2.10

Nonperforming assets to loans and leases
0.71

1.00

0.67

 
0.71

0.67

 
 
 
 
 
 
 
 
December 31,
September 30,
June 30,
 
March 31,
December 31,
 
2018
2018
2018
 
2018
2017
END OF PERIOD BALANCES
 
 
 
 
 
 
Assets
$
6,293,745

$
6,293,169

$
6,320,058

 
$
6,051,463

$
5,887,284

Loans and leases
4,835,464

4,825,553

4,839,823

 
4,691,097

4,527,678

Deposits
5,122,322

5,061,977

5,108,439

 
4,781,325

4,752,730

Reserve for loan and lease losses
100,469

98,300

103,007

 
98,331

94,883

Goodwill and intangible assets
83,998

84,097

84,104

 
84,124

83,742

Common shareholders’ equity
762,082

750,437

740,277

 
725,609

718,537

Total equity
763,590

750,437

740,277

 
725,609

718,537

ASSET QUALITY
 
 
 
 
 
 
Loans and leases past due 90 days or more
$
366

$
125

$
263

 
$
123

$
459

Nonaccrual loans and leases
27,859

36,028

34,582

 
25,360

19,405

Other real estate
299

432

133

 
1,184

1,312

Repossessions
6,666

13,041

9,389

 
9,432

10,114

Equipment owned under operating leases
126

48


 
2

9

Total nonperforming assets
$
35,316

$
49,674

$
44,367

 
$
36,101

$
31,299

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.
(3) Calculated under banking regulatory guidelines.

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1st SOURCE CORPORATION
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
December 31,
 
September 30,
 
June 30,
 
December 31,
 
2018
 
2018
 
2018
 
2017
ASSETS
 
 
 
 
 
 
 
Cash and due from banks
$
94,907

 
$
68,362

 
$
71,102

 
$
73,635

Federal funds sold and interest bearing deposits with other banks
4,172

 
45,514

 
73,358

 
4,398

Investment securities available-for-sale
990,129

 
972,172

 
968,349

 
904,033

Other investments
28,404

 
28,159

 
28,159

 
25,953

Mortgages held for sale
11,290

 
11,149

 
8,235

 
13,123

Loans and leases, net of unearned discount:
 
 
 
 
 
 
 
Commercial and agricultural
1,073,205

 
1,062,907

 
1,047,705

 
929,997

Auto and light truck
559,987

 
562,546

 
580,045

 
496,816

Medium and heavy duty truck
283,544

 
271,601

 
276,273

 
296,935

Aircraft
803,111

 
836,458

 
863,496

 
844,657

Construction equipment
645,239

 
654,605

 
642,634

 
563,437

Commercial real estate
809,886

 
781,093

 
769,659

 
741,568

Residential real estate and home equity
523,855

 
523,391

 
524,112

 
526,122

Consumer
136,637

 
132,952

 
135,899

 
128,146

Total loans and leases
4,835,464

 
4,825,553

 
4,839,823

 
4,527,678

Reserve for loan and lease losses
(100,469
)
 
(98,300
)
 
(103,007
)
 
(94,883
)
Net loans and leases
4,734,995

 
4,727,253

 
4,736,816

 
4,432,795

Equipment owned under operating leases, net
134,440

 
137,492

 
143,024

 
139,581

Net premises and equipment
52,139

 
53,479

 
53,363

 
54,612

Goodwill and intangible assets
83,998

 
84,097

 
84,104

 
83,742

Accrued income and other assets
159,271

 
165,492

 
153,548

 
155,412

Total assets
$
6,293,745

 
$
6,293,169

 
$
6,320,058

 
$
5,887,284

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest bearing demand
$
1,217,120

 
$
1,151,573

 
$
1,106,495

 
$
1,064,271

Interest-bearing deposits:
 
 
 
 
 
 
 
Interest-bearing demand
1,614,959

 
1,606,462

 
1,651,533

 
1,554,898

Savings
822,477

 
822,246

 
843,558

 
863,588

Time
1,467,766

 
1,481,696

 
1,506,853

 
1,269,973

Total interest-bearing deposits
3,905,202

 
3,910,404

 
4,001,944

 
3,688,459

Total deposits
5,122,322

 
5,061,977

 
5,108,439

 
4,752,730

Short-term borrowings:
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
113,627

 
124,630

 
106,861

 
205,834

Other short-term borrowings
85,717

 
166,077

 
170,233

 
8,761

Total short-term borrowings
199,344

 
290,707

 
277,094

 
214,595

Long-term debt and mandatorily redeemable securities
71,123

 
70,919

 
71,194

 
70,060

Subordinated notes
58,764

 
58,764

 
58,764

 
58,764

Accrued expenses and other liabilities
78,602

 
60,365

 
64,290

 
72,598

Total liabilities
5,530,155

 
5,542,732

 
5,579,781

 
5,168,747

 
 
 
 
 
 
 
 
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 December 31, 2018, September 30, 2018, June 30, 2018, and December 31, 2017, respectively
436,538

 
436,538

 
436,538

 
436,538

Retained earnings
398,980

 
383,943

 
370,521

 
339,959

Cost of common stock in treasury (2,421,946, 2,239,928, 2,240,597, and 2,268,910 shares at December 31, 2018, September 30, 2018, June 30, 2018, and December 31, 2017, respectively)
(62,760
)
 
(54,369
)
 
(54,367
)
 
(54,628
)
Accumulated other comprehensive loss
(10,676
)
 
(15,675
)
 
(12,415
)
 
(3,332
)
Total shareholders’ equity
762,082

 
750,437

 
740,277

 
718,537

Noncontrolling interests
1,508

 

 

 

Total equity
763,590

 
750,437

 
740,277

 
718,537

Total liabilities and equity
$
6,293,745

 
$
6,293,169

 
$
6,320,058

 
$
5,887,284



8



1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2018
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
 
Loans and leases
$
62,283

 
$
59,961

 
$
51,381

 
$
234,455

 
$
194,726

Investment securities, taxable
5,363

 
4,912

 
3,801

 
19,356

 
13,853

Investment securities, tax-exempt
419

 
432

 
545

 
1,857

 
2,413

Other
452

 
391

 
458

 
1,648

 
1,393

Total interest income
68,517

 
65,696

 
56,185

 
257,316

 
212,385

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
10,345

 
9,405

 
5,771

 
34,631

 
19,202

Short-term borrowings
718

 
518

 
220

 
2,838

 
1,115

Subordinated notes
916

 
918

 
870

 
3,625

 
4,002

Long-term debt and mandatorily redeemable securities
695

 
493

 
510

 
2,316

 
2,435

Total interest expense
12,674

 
11,334

 
7,371

 
43,410

 
26,754

Net interest income
55,843

 
54,362

 
48,814

 
213,906

 
185,631

Provision for loan and lease losses
4,702

 
6,157

 
3,622

 
19,462

 
8,980

Net interest income after provision for loan and lease losses
51,141

 
48,205

 
45,192

 
194,444

 
176,651

Noninterest income:
 
 
 
 
 
 
 
 
 
Trust and wealth advisory
4,974

 
5,109

 
5,315

 
21,071

 
20,980

Service charges on deposit accounts
2,778

 
2,567

 
2,658

 
10,454

 
10,589

Debit card
3,462

 
3,377

 
3,090

 
13,369

 
11,809

Mortgage banking
962

 
925

 
1,059

 
3,844

 
4,796

Insurance commissions
1,477

 
1,580

 
1,383

 
6,502

 
5,889

Equipment rental
7,957

 
7,977

 
8,046

 
31,793

 
30,381

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

 

 
1,583

 
(345
)
 
4,340

Other
2,550

 
2,525

 
2,537

 
10,362

 
9,922

Total noninterest income
24,160

 
24,060

 
25,671

 
97,050

 
98,706

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
24,466

 
23,164

 
22,839

 
93,857

 
86,912

Net occupancy
2,537

 
2,523

 
2,856

 
10,041

 
10,624

Furniture and equipment
6,491

 
5,769

 
5,505

 
23,433

 
20,769

Depreciation — leased equipment
6,556

 
6,580

 
6,674

 
26,248

 
25,215

Professional fees
2,052

 
1,883

 
2,296

 
7,680

 
6,810

Supplies and communication
1,633

 
1,635

 
1,444

 
6,320

 
5,355

FDIC and other insurance
656

 
855

 
648

 
2,923

 
2,537

Business development and marketing
1,191

 
1,663

 
3,125

 
6,112

 
7,477

Loan and lease collection and repossession
296

 
1,563

 
666

 
3,375

 
2,724

Other
1,813

 
1,707

 
1,260

 
6,478

 
5,574

Total noninterest expense
47,691

 
47,342

 
47,313

 
186,467

 
173,997

Income before income taxes
27,610

 
24,923

 
23,550

 
105,027

 
101,360

Income tax expense
6,164

 
5,035

 
5,556

 
22,613

 
33,309

Net income
21,446

 
19,888

 
17,994

 
82,414

 
68,051

Net (income) loss attributable to noncontrolling interests

 

 

 

 

Net income available to common shareholders
$
21,446

 
$
19,888

 
$
17,994

 
$
82,414

 
$
68,051

Per common share:
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.82

 
$
0.76

 
$
0.69

 
$
3.16

 
$
2.60

Diluted net income per common share
$
0.82

 
$
0.76

 
$
0.69

 
$
3.16

 
$
2.60

Cash dividends
$
0.25

 
$
0.25

 
$
0.20

 
$
0.96

 
$
0.76

Basic weighted average common shares outstanding
25,876,687

 
25,965,694

 
25,936,508

 
25,937,599

 
25,925,820

Diluted weighted average common shares outstanding
25,876,687

 
25,965,694

 
25,936,508

 
25,937,599

 
25,925,820


9




1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
December 31, 2018
 
September 30, 2018
 
December 31, 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
$
895,204

 
$
5,363

 
2.38
%
 
$
879,882

 
$
4,912

 
2.21
%
 
$
770,010

 
$
3,801

 
1.96
%
Tax-exempt(1)
81,652

 
516

 
2.51
%
 
84,399

 
533

 
2.51
%
 
114,199

 
813

 
2.82
%
Mortgages held for sale
9,018

 
107

 
4.71
%
 
9,016

 
93

 
4.09
%
 
10,654

 
107

 
3.98
%
Loans and leases, net of unearned discount(1)
4,835,995

 
62,270

 
5.11
%
 
4,822,431

 
59,964

 
4.93
%
 
4,446,794

 
51,441

 
4.59
%
Other investments
51,607

 
452

 
3.47
%
 
43,860

 
391

 
3.54
%
 
76,648

 
458

 
2.37
%
Total earning assets(1)
5,873,476

 
68,708

 
4.64
%
 
5,839,588

 
65,893

 
4.48
%
 
5,418,305

 
56,620

 
4.15
%
Cash and due from banks
67,437

 
 
 
 
 
64,622

 
 
 
 

 
64,356

 
 

 
 

Reserve for loan and lease losses
(99,182
)
 
 
 
 
 
(102,790
)
 
 
 
 

 
(94,265
)
 
 

 
 

Other assets
428,813

 
 
 
 
 
422,767

 
 
 
 

 
430,441

 
 

 
 

Total assets
$
6,270,544

 
 
 
 
 
$
6,224,187

 
 
 
 

 
$
5,818,837

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

Interest-bearing deposits
$
3,932,453

 
$
10,345

 
1.04
%
 
$
3,986,576

 
$
9,405

 
0.94
%
 
$
3,644,989

 
$
5,771

 
0.63
%
Short-term borrowings
241,979

 
718

 
1.18
%
 
207,225

 
518

 
0.99
%
 
211,786

 
220

 
0.41
%
Subordinated notes
58,764

 
916

 
6.18
%
 
58,764

 
918

 
6.20
%
 
58,764

 
870

 
5.87
%
Long-term debt and mandatorily redeemable securities
70,871

 
695

 
3.89
%
 
70,902

 
493

 
2.76
%
 
70,170

 
510

 
2.88
%
Total interest-bearing liabilities
4,304,067

 
12,674

 
1.17
%
 
4,323,467

 
11,334

 
1.04
%
 
3,985,709

 
7,371

 
0.73
%
Noninterest-bearing deposits
1,155,495

 
 

 
 

 
1,104,645

 
 

 
 

 
1,041,156

 
 

 
 

Other liabilities
51,762

 
 

 
 

 
44,827

 
 

 
 

 
72,914

 
 

 
 

Shareholders’ equity
758,450

 
 

 
 

 
751,248

 
 

 
 

 
719,058

 
 

 
 

Noncontrolling interests
770

 
 
 
 
 

 
 
 
 
 

 
 
 
 
Total liabilities and equity
$
6,270,544

 
 

 
 

 
$
6,224,187

 
 

 
 

 
$
5,818,837

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(191
)
 
 
 
 
 
(197
)
 
 
 
 
 
(435
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
55,843

 
3.77
%
 
 

 
$
54,362

 
3.69
%
 
 

 
$
48,814

 
3.57
%
Fully tax-equivalent adjustments
 
 
191

 
 
 
 
 
197

 
 
 
 
 
435

 
 
Net interest income/margin - FTE(1)
 

 
$
56,034

 
3.78
%
 
 

 
$
54,559

 
3.71
%
 
 

 
$
49,249

 
3.61
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

10



1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended
 
December 31, 2018
 
December 31, 2017
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
861,733

 
$
19,356

 
2.25
%
 
$
734,291

 
$
13,853

 
1.89
%
Tax-exempt(1)
90,079

 
2,293

 
2.55
%
 
120,588

 
3,587

 
2.97
%
Mortgages held for sale
8,190

 
372

 
4.54
%
 
10,754

 
429

 
3.99
%
Loans and leases, net of unearned discount(1)
4,755,256

 
234,450

 
4.93
%
 
4,333,375

 
194,918

 
4.50
%
Other investments
46,503

 
1,648

 
3.54
%
 
52,086

 
1,393

 
2.67
%
Total earning assets(1)
5,761,761

 
258,119

 
4.48
%
 
5,251,094

 
214,180

 
4.08
%
Cash and due from banks
64,853

 
 
 
 
 
62,137

 
 

 
 

Reserve for loan and lease losses
(99,258
)
 
 
 
 
 
(92,187
)
 
 

 
 

Other assets
424,083

 
 
 
 
 
417,278

 
 

 
 

Total assets
$
6,151,439

 
 
 
 
 
$
5,638,322

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 

 
 

Interest-bearing deposits
$
3,893,999

 
$
34,631

 
0.89
%
 
$
3,510,197

 
$
19,202

 
0.55
%
Short-term borrowings
265,041

 
2,838

 
1.07
%
 
245,235

 
1,115

 
0.45
%
Subordinated notes
58,764

 
3,625

 
6.17
%
 
58,764

 
4,002

 
6.81
%
Long-term debt and mandatorily redeemable securities
70,813

 
2,316

 
3.27
%
 
74,973

 
2,435

 
3.25
%
Total interest-bearing liabilities
4,288,617

 
43,410

 
1.01
%
 
3,889,169

 
26,754

 
0.69
%
Noninterest-bearing deposits
1,069,664

 
 

 
 

 
983,050

 
 

 
 

Other liabilities
49,791

 
 

 
 

 
63,684

 
 

 
 

Shareholders’ equity
743,173

 
 

 
 

 
702,419

 
 

 
 

Noncontrolling interests
194

 
 
 
 
 

 
 
 
 
Total liabilities and equity
$
6,151,439

 
 

 
 

 
$
5,638,322

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(803
)
 
 
 
 
 
(1,795
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
213,906

 
3.71
%
 
 

 
$
185,631

 
3.54
%
Fully tax-equivalent adjustments
 
 
803

 
 
 
 
 
1,795

 
 
Net interest income/margin - FTE(1)
 

 
$
214,709

 
3.73
%
 
 

 
$
187,426

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

11



1st SOURCE CORPORATION
 
 
 
 
 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
 
 
 
(Unaudited - Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
September 30,
December 31,
 
December 31,
December 31,
 
 
2018
2018
2017
 
2018
2017
Calculation of Net Interest Margin
 
 
 
 
 
 
(A)
Interest income (GAAP)
$
68,517

$
65,696

$
56,185

 
$
257,316

$
212,385

 
Fully tax-equivalent adjustments:
 
 
 
 
 
 
(B)
- Loans and leases
94

96

167

 
367

621

(C)
- Tax-exempt investment securities
97

101

268

 
436

1,174

(D)
Interest income - FTE (A+B+C)
68,708

65,893

56,620

 
258,119

214,180

(E)
Interest expense (GAAP)
12,674

11,334

7,371

 
43,410

26,754

(F)
Net interest income (GAAP) (AE)
55,843

54,362

48,814

 
213,906

185,631

(G)
Net interest income - FTE (DE)
56,034

54,559

49,249

 
214,709

187,426

(H)
Annualization factor
3.967

3.967

3.967

 
1.000

1.000

(I)
Total earning assets
$
5,873,476

$
5,839,588

$
5,418,305

 
$
5,761,761

$
5,251,094

 
Net interest margin (GAAP-derived) (F*H)/I
3.77
%
3.69
%
3.57
%
 
3.71
%
3.54
%
 
Net interest margin - FTE (G*H)/I
3.78
%
3.71
%
3.61
%
 
3.73
%
3.57
%
 
 
 
 
 
 
 
 
Calculation of Efficiency Ratio
 
 
 
 
 
 
(F)
Net interest income (GAAP)
$
55,843

$
54,362

$
48,814

 
$
213,906

$
185,631

(G)
Net interest income - FTE
56,034

54,559

49,249

 
214,709

187,426

(J)
Plus: noninterest income (GAAP)
24,160

24,060

25,671

 
97,050

98,706

(K)
Less: gains/losses on investment securities and partnership investments
(57
)
(155
)
(1,441
)
 
(320
)
(4,569
)
(L)
Less: depreciation - leased equipment
(6,556
)
(6,580
)
(6,674
)
 
(26,248
)
(25,215
)
(M)
Total net revenue (GAAP) (F+J)
80,003

78,422

74,485

 
310,956

284,337

(N)
Total net revenue - adjusted (G+JKL)
73,581

71,884

66,805

 
285,191

256,348

(O)
Noninterest expense (GAAP)
47,691

47,342

47,313

 
186,467

173,997

(L)
Less: depreciation - leased equipment
(6,556
)
(6,580
)
(6,674
)
 
(26,248
)
(25,215
)
(P)
Less: contribution expense limited to gains on investment securities in (K)


(498
)
 

(959
)
(Q)
Noninterest expense - adjusted (OLP)
41,135

40,762

40,141

 
160,219

147,823

 
Efficiency ratio (GAAP-derived) (O/M)
59.61
%
60.37
%
63.52
%
 
59.97
%
61.19
%
 
Efficiency ratio - adjusted (Q/N)
55.90
%
56.71
%
60.09
%
 
56.18
%
57.66
%
 
 
 
 
 
 
 
 
 
 
End of Period
 
 
 
 
 
December 31,
September 30,
December 31,
 
 
 
 
 
2018
2018
2017
 
 
 
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
762,082

$
750,437

$
718,537

 
 
 
(S)
Less: goodwill and intangible assets
(83,998
)
(84,097
)
(83,742
)
 
 
 
(T)
Total tangible common shareholders’ equity (RS)
$
678,084

$
666,340

$
634,795

 
 
 
(U)
Total assets (GAAP)
6,293,745

6,293,169

5,887,284

 
 
 
(S)
Less: goodwill and intangible assets
(83,998
)
(84,097
)
(83,742
)
 
 
 
(V)
Total tangible assets (US)
$
6,209,747

$
6,209,072

$
5,803,542

 
 
 
 
Common equity-to-assets ratio (GAAP-derived) (R/U)
12.11
%
11.92
%
12.20
%
 
 
 
 
Tangible common equity-to-tangible assets ratio (T/V)
10.92
%
10.73
%
10.94
%
 
 
 
 
 
 
 
 
 
 
 
Calculation of Tangible Book Value per Common Share
 
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
762,082

$
750,437

$
718,537

 
 
 
(W)
Actual common shares outstanding
25,783,728

25,965,746

25,936,764

 
 
 
 
Book value per common share (GAAP-derived) (R/W)*1000
$
29.56

$
28.90

$
27.70

 
 
 
 
Tangible common book value per share (T/W)*1000
$
26.30

$
25.66

$
24.47

 
 
 
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