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Section 1: 8-K (8-K 2ND QTR 2019 EARNINGS RELEASE)

Wdesk | Document
false0000034782 0000034782 2019-07-18 2019-07-18




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): July 18, 2019
398795807_a1stsourcecorplogo2a09.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))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock - without par value
 
SRCE
 
The NASDAQ Stock Market LLC
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
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 July 18, 2019, 1st Source Corporation issued a press release that announced its second quarter earnings for 2019. 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 July 18, 2019, with respect to 1st Source Corporation’s financial results for the second quarter ended June 30, 2019.

101.INS:        XBRL Instance Document — The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH:        XBRL Taxonomy Extension Schema Document

101.CAL:        XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB:        XBRL Taxonomy Extension Labels Linkbase Document

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101.DEF:        XBRL Taxonomy Extension Definition Linkbase Document

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: July 18, 2019
 
/s/ CHRISTOPHER J. MURPHY III
 
 
Christopher J. Murphy III
 
 
Chairman of the Board and CEO
 
 
 
 
 
 
Date: July 18, 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
 
July 18, 2019
 
574-235-2000

1st Source Corporation Reports Record Second Quarter Results,
Cash Dividend Declared
QUARTERLY HIGHLIGHTS
Net income was a record $23.39 million, up 6.47% over the second quarter of 2018. Diluted net income per common share was also a record of $0.91, up from the prior year’s second quarter of $0.84.
Return on average assets of 1.45% and return on average common shareholders’ equity of 11.89% compared to 1.43% and 11.96%, respectively in the second quarter of 2018.
Net charge-offs of $1.19 million and nonperforming assets to loans and leases of 0.41% compared to $0.14 million and 0.89%, respectively in the second quarter of 2018.
Average loans and leases grew $231.03 million, up 4.84% from the second quarter of 2018.
Average deposits grew $303.44 million, up 6.12% from the second quarter of 2018.
Net interest income increased $3.26 million, up 6.13% from the second quarter of 2018.
Noninterest income increased $0.64 million, up 2.56% from the second quarter of 2018 (increased 5.04% excluding leased equipment depreciation).
Noninterest expenses increased $1.48 million, up 3.22% from the second quarter of 2018 (increased 4.49% 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 $23.39 million for the second quarter of 2019, an improvement of 6.47% compared to $21.96 million reported in the second quarter a year ago, bringing the 2019 year-to-date net income to $45.58 million compared to $41.08 million in 2018, an increase of 10.96%. The year-to-date net income comparison was positively impacted by increased net interest income of $7.67 million primarily due to higher loan rates and higher average loan and lease balances. It was negatively impacted by a $1.12 million rise in noninterest expense. Non-recurring 2019 items included a negative $1.10 million valuation adjustment on a repossessed asset and $1.32 million gain on the sale of our former headquarters building.
Diluted net income per common share for the second quarter of 2019 was up 8.3% to a record high of $0.91, versus $0.84 in the second quarter of 2018. Diluted net income per common share for the first half of 2019 was $1.76 compared to $1.57 earned a year earlier, a 12.1% increase.
At its July 2019 meeting, the Board of Directors approved a cash dividend of $0.27 per common share, up 8.0% from the $0.25 per common share declared a year ago. The cash dividend is payable to shareholders of record on August 5, 2019 and will be paid on August 15, 2019.

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Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased with our record net income in the second quarter as 1st Source Corporation continues to experience organic growth in loans and leases and deposits. Seasonal trends within our specialty finance group portfolios contributed to an increase in average loans and leases during the quarter of 4.84%. Credit quality was also a bright spot for the quarter – the ratio of nonperforming assets to loans and leases of 0.41% was the lowest it has been in over ten years.”
“Recently, 1st Source was recognized as one of the 18 banks in the nation to be included in the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll, with nearly 375 banking institutions having been screened in consideration for the list. Every year, the Bank Honor Roll consists of banking institutions that have had 10 consecutive years of increased earnings per share, and this year’s list in unique in that the banks included have done so since the 2009 financial crisis. To be considered for this recognition, banks must be publicly traded institutions with more than $500 million in total assets. For the last 156 years, 1st Source has been built upon strong, steady practices, and our mission has always included giving straight talk and sound advice while keeping our clients’ best interests in mind for the long-term. Being named among 18 institutions in our industry that have proven their strength since such a tumultuous time for our country is a welcome confirmation that we continue to be strong and steady and deliver on our mission.”
“The second quarter of the year also saw further investment in our banking centers - specifically our Niles and Erskine banking centers located inside the Martin’s Super Market stores in Niles, Michigan and South Bend, Indiana, respectively. The two locations underwent complete renovations and have been converted to our signature side-by-side banking model. Side-by-side banking invites the client behind the ‘teller line,’ allowing for the Bank’s clients and bankers to have a more transparent and inclusive experience. These renovations were part of an overall initiative to update our existing locations and continue our investment in the communities where we live, do business and raise families.”
SECOND QUARTER 2019 FINANCIAL RESULTS
Loans
Average loans and leases of $5.00 billion increased $231.03 million, up 4.84% in the second quarter of 2019 from the year ago quarter and have increased $143.21 million, up 2.95% from the first quarter. Year-to-date average loans and leases of $4.93 billion increased $250.11 million, up 5.34% from the first six months of 2018.
Deposits
Average deposits of $5.26 billion grew $303.44 million for the quarter ended June 30, 2019, up 6.12% from the year ago quarter and have increased $205.55 million, up 4.06% compared to the first quarter. Average deposits for the first six months of 2019 were $5.16 billion, an increase of $327.05 million, up 6.76% from the same period a year ago.
Net Interest Income and Net Interest Margin
Second quarter 2019 net interest income of $56.43 million increased $3.26 million, up 6.13% from the second quarter a year ago and increased $1.48 million, up 2.69% from the first quarter. For the first six months of 2019, tax-equivalent net interest income was $111.73 million, an increase of $7.62 million, up 7.32% compared to the same period a year ago.

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Second quarter 2019 net interest margin was 3.73%, an improvement of four basis points from the 3.69% for the same period in 2018 and decreased five basis point from the first quarter. Second quarter 2019 net interest margin on a fully tax-equivalent basis was 3.74%, an increase of three basis points from the 3.71% for the same period in 2018 and was lower by five basis points compared to the first quarter. The margin continued to see pressure from deposit competition and rate increases.
Net interest margin for the first six months of 2019 was 3.75%, an increase of six basis points from the 3.69% for the same period in 2018. Net interest margin on a fully-taxable-equivalent basis for the first half of 2019 was 3.77%, an increase of six basis points from the 3.71% for the first half of 2018.
Noninterest Income
Second quarter 2019 noninterest income of $25.66 million increased $0.64 million, up 2.56% from the second quarter a year ago and increased $1.54 million, up 6.38% from the first quarter. For the first six months of 2019, noninterest income was $49.79 million, an increase of $0.96 million, up 1.96% compared to the same period a year ago.
The growth in noninterest income during 2019 compared to a year ago was mainly due to higher debit card income from increased customer use, higher insurance commissions primarily from increased business and higher contingent commissions, reduced losses on the sale of available-for-sale securities, increased customer swap fees and higher claim proceeds on bank owned life insurance. These positives were offset by lower trust and wealth advisory fees resulting from a lower value of assets under management due to stock market movements and reduced net gains on partnership investments.
The increase in noninterest income from the first quarter of 2019 was primarily the result of seasonal trust and wealth advisory tax fees, increased debit card income, growth in deposit account fees, higher customer swap fees, and increased claim proceeds on bank owned life insurance. These positives were offset by reduced insurance commissions from seasonal contingent commissions.
Noninterest Expense
Second quarter 2019 noninterest expense of $47.35 million increased $1.48 million, up 3.22% from the second quarter a year ago and increased $2.15 million, up 4.75% from the first quarter. Excluding depreciation on leased equipment, noninterest expenses were up 4.49% from the second quarter a year ago and up 5.88% from the first quarter. For the first six months of 2019, noninterest expense was $92.56 million, an increase of $1.12 million, or 1.23% compared to the same period a year ago.
The increase in noninterest expense during 2019 compared to a year ago was mainly due to higher salaries as a result of normal merit increases, increased group insurance costs, a rise in furniture and equipment expense due to increased software maintenance costs and equipment depreciation, and growth in the provision for unfunded loan commitments. These increases were offset by higher gains on the sale of fixed assets, decreased incentive compensation from fewer vestings of share-based compensation arrangements, lower business development and marketing costs from fewer marketing promotions, and reduced professional fees from consulting services.

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The growth in noninterest expense from the first quarter was primarily the result of fewer gains on the sale of fixed assets, increased business development and marketing expenses, growth in the provision for unfunded loan commitments, and higher group insurance costs, offset by lower repossessed asset valuation adjustments.
Credit
The reserve for loan and lease losses as of June 30, 2019 was 2.05% of total loans and leases compared to 2.07% at March 31, 2019 and 2.13% at June 30, 2018. Net charge-offs of $1.19 million were recorded for the second quarter of 2019 compared with net charge-offs of $0.14 million in the same quarter a year ago and down from the $3.54 million of net charge-offs in the first quarter. The majority of the second quarter charge-off was related to one relationship within the medium and heavy duty truck portfolio.
The provision for loan and lease losses was $4.25 million for the second quarter of 2019, a decrease of $0.57 million compared with the same period in 2018 and a decrease of $0.67 million from the first quarter. The ratio of nonperforming assets to loans and leases was an improved 0.41% as of June 30, 2019, compared to 0.49% on March 31, 2019 and 0.89% on June 30, 2018.
Capital
As of June 30, 2019, the common equity-to-assets ratio was 11.95%, compared to 12.20% at March 31, 2019 and 11.71% a year ago. The tangible common equity-to-tangible assets ratio was 10.82% at June 30, 2019 compared to 11.03% at March 31, 2019 and 10.52% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 11.83% at June 30, 2019 compared to 12.28% at March 31, 2019 and 12.15% a year ago. During the second quarter of 2019, 141,627 shares were repurchased for treasury reducing common shareholders’ equity by $6.42 million. During 2019, common shareholders’ equity declined by $13.68 million due to 295,787 shares acquired for treasury.
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, 18 1st Source Bank Specialty Finance Group locations nationwide, eight Wealth Advisory Services locations and ten 1st Source Insurance offices.

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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
 
 
 
 
 
 
2nd QUARTER 2019 FINANCIAL HIGHLIGHTS
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share data)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
March 31,
June 30,
 
June 30,
June 30,
 
2019
2019
2018
 
2019
2018
AVERAGE BALANCES
 
 
 
 
 
 
Assets
$
6,487,744

$
6,290,386

$
6,167,017

 
$
6,389,610

$
6,053,924

Earning assets
6,067,871

5,896,697

5,776,822

 
5,982,757

5,665,419

Investments
1,001,142

987,593

948,335

 
994,405

932,744

Loans and leases
5,001,392

4,858,183

4,770,361

 
4,930,183

4,680,073

Deposits
5,264,912

5,059,362

4,961,473

 
5,162,704

4,835,655

Interest bearing liabilities
4,468,591

4,315,545

4,370,692

 
4,392,491

4,263,051

Common shareholders’ equity
789,009

775,657

736,310

 
782,370

731,304

   Total equity
792,884

777,217

736,310

 
785,094

731,304

INCOME STATEMENT DATA
 
 
 
 
 
 
Net interest income
$
56,427

$
54,948

$
53,169

 
$
111,375

$
103,701

Net interest income - FTE(1)
56,604

55,130

53,372

 
111,734

104,116

Provision for loan and lease losses
4,247

4,918

4,817

 
9,165

8,603

Noninterest income
25,664

24,124

25,023

 
49,788

48,830

Noninterest expense
47,353

45,204

45,877

 
92,557

91,434

Net income
23,417

22,196

21,964

 
45,613

41,080

   Net income available to common shareholders
23,385

22,196

21,964

 
45,581

41,080

PER SHARE DATA
 
 
 
 
 
 
Basic net income per common share
$
0.91

$
0.86

$
0.84

 
$
1.76

$
1.57

Diluted net income per common share
0.91

0.86

0.84

 
1.76

1.57

Common cash dividends declared
0.27

0.27

0.24

 
0.54

0.46

Book value per common share(2)
31.12

30.33

28.51

 
31.12

28.51

Tangible book value per common share(1)
27.83

27.05

25.27

 
27.83

25.27

Market value - High
48.66

50.15

56.77

 
50.15

56.77

Market value - Low
43.34

39.11

49.58

 
39.11

48.26

Basic weighted average common shares outstanding
25,615,718

25,759,186

25,958,128

 
25,687,056

25,954,278

Diluted weighted average common shares outstanding
25,615,718

25,759,186

25,958,128

 
25,687,056

25,954,278

KEY RATIOS
 
 
 
 
 
 
Return on average assets
1.45
%
1.43
%
1.43
%
 
1.44
%
1.37
%
Return on average common shareholders’ equity
11.89

11.61

11.96

 
11.75

11.33

Average common shareholders’ equity to average assets
12.16

12.33

11.94

 
12.24

12.08

End of period tangible common equity to tangible assets(1)
10.82

11.03

10.52

 
10.82

10.52

Risk-based capital - Common Equity Tier 1(3)
11.83

12.28

12.15

 
11.83

12.15

Risk-based capital - Tier 1(3)
12.94

13.32

13.18

 
12.94

13.18

Risk-based capital - Total(3)
14.20

14.58

14.44

 
14.20

14.44

Net interest margin
3.73

3.78

3.69

 
3.75

3.69

Net interest margin - FTE(1)
3.74

3.79

3.71

 
3.77

3.71

Efficiency ratio: expense to revenue
57.68

57.17

58.67

 
57.43

59.94

Efficiency ratio: expense to revenue - adjusted(1)
54.07

53.20

54.71

 
53.64

56.05

Net charge offs to average loans and leases
0.10

0.30

0.01

 
0.19

0.02

Loan and lease loss reserve to loans and leases
2.05

2.07

2.13

 
2.05

2.13

Nonperforming assets to loans and leases
0.41

0.49

0.89

 
0.41

0.89

 
 
 
 
 
 
 
 
June 30,
March 31,
December 31,
 
September 30,
June 30,
 
2019
2019
2018
 
2018
2018
END OF PERIOD BALANCES
 
 
 
 
 
 
Assets
$
6,650,105

$
6,379,086

$
6,293,745

 
$
6,293,169

$
6,320,058

Loans and leases
5,109,337

4,926,187

4,835,464

 
4,825,553

4,839,823

Deposits
5,403,845

5,124,091

5,122,322

 
5,061,977

5,108,439

Reserve for loan and lease losses
104,911

101,852

100,469

 
98,300

103,007

Goodwill and intangible assets
83,985

83,992

83,998

 
84,097

84,104

Common shareholders’ equity
794,662

778,422

762,082

 
750,437

740,277

   Total equity
804,686

781,101

763,590

 
750,437

740,277

ASSET QUALITY
 
 
 
 
 
 
Loans and leases past due 90 days or more
$
156

$
178

$
366

 
$
125

$
263

Nonaccrual loans and leases
12,212

13,622

27,859

 
36,028

34,582

Other real estate
543

417

299

 
432

133

Repossessions
8,799

10,411

6,666

 
13,041

9,389

Equipment owned under operating leases

64

126

 
48


Total nonperforming assets
$
21,710

$
24,692

$
35,316

 
$
49,674

$
44,367

(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)
 
 
 
 
 
 
 
 
June 30,
 
March 31,
 
December 31,
 
June 30,
 
2019
 
2019
 
2018
 
2018
ASSETS
 
 
 
 
 
 
 
Cash and due from banks
$
71,910

 
$
64,619

 
$
94,907

 
$
71,102

Federal funds sold and interest bearing deposits with other banks
24,578

 
3,062

 
4,172

 
73,358

Investment securities available-for-sale
1,021,786

 
1,002,809

 
990,129

 
968,349

Other investments
28,404

 
28,404

 
28,404

 
28,159

Mortgages held for sale
19,178

 
9,210

 
11,290

 
8,235

Loans and leases, net of unearned discount:
 
 
 
 
 
 
 
Commercial and agricultural
1,173,000

 
1,146,031

 
1,073,205

 
1,047,705

Auto and light truck
635,100

 
554,078

 
559,987

 
580,045

Medium and heavy duty truck
300,042

 
285,631

 
283,544

 
276,273

Aircraft
811,163

 
830,437

 
803,111

 
863,496

Construction equipment
686,633

 
641,035

 
645,239

 
642,634

Commercial real estate
835,919

 
818,459

 
809,886

 
769,659

Residential real estate and home equity
529,749

 
514,719

 
523,855

 
524,112

Consumer
137,731

 
135,797

 
136,637

 
135,899

Total loans and leases
5,109,337

 
4,926,187

 
4,835,464

 
4,839,823

Reserve for loan and lease losses
(104,911
)
 
(101,852
)
 
(100,469
)
 
(103,007
)
Net loans and leases
5,004,426

 
4,824,335

 
4,734,995

 
4,736,816

Equipment owned under operating leases, net
126,502

 
131,594

 
134,440

 
143,024

Net premises and equipment
51,570

 
51,357

 
52,139

 
53,363

Goodwill and intangible assets
83,985

 
83,992

 
83,998

 
84,104

Accrued income and other assets
217,766

 
179,704

 
159,271

 
153,548

Total assets
$
6,650,105

 
$
6,379,086

 
$
6,293,745

 
$
6,320,058

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing demand
$
1,238,604

 
$
1,146,647

 
$
1,217,120

 
$
1,106,495

Interest-bearing deposits:
 
 
 
 
 
 
 
Interest-bearing demand
1,665,456

 
1,560,840

 
1,614,959

 
1,651,533

Savings
810,122

 
851,564

 
822,477

 
843,558

Time
1,689,663

 
1,565,040

 
1,467,766

 
1,506,853

Total interest-bearing deposits
4,165,241

 
3,977,444

 
3,905,202

 
4,001,944

Total deposits
5,403,845

 
5,124,091

 
5,122,322

 
5,108,439

Short-term borrowings:
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
119,781

 
149,172

 
113,627

 
106,861

Other short-term borrowings
66,228

 
106,216

 
85,717

 
170,233

Total short-term borrowings
186,009

 
255,388

 
199,344

 
277,094

Long-term debt and mandatorily redeemable securities
71,542

 
71,439

 
71,123

 
71,194

Subordinated notes
58,764

 
58,764

 
58,764

 
58,764

Accrued expenses and other liabilities
125,259

 
88,303

 
78,602

 
64,290

Total liabilities
5,845,419

 
5,597,985

 
5,530,155

 
5,579,781

 
 
 
 
 
 
 
 
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 June 30, 2019,
March 31, 2019, December 31, 2018, and June 30, 2018, respectively
436,538

 
436,538

 
436,538

 
436,538

Retained earnings
431,091

 
414,428

 
398,980

 
370,521

Cost of common stock in treasury (2,670,462, 2,537,741, 2,421,946, and 2,240,597 shares at June 30, 2019, March 31, 2019, December 31, 2018, and June 30, 2018, respectively)
(75,380
)
 
(69,136
)
 
(62,760
)
 
(54,367
)
Accumulated other comprehensive income (loss)
2,413

 
(3,408
)
 
(10,676
)
 
(12,415
)
Total shareholders’ equity
794,662

 
778,422

 
762,082

 
740,277

Noncontrolling interests
10,024

 
2,679

 
1,508

 

Total equity
804,686

 
781,101

 
763,590

 
740,277

Total liabilities and equity
$
6,650,105

 
$
6,379,086

 
$
6,293,745

 
$
6,320,058



- 8 -



1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
March 31,
 
June 30,
 
June 30,
 
June 30,
 
2019
 
2019
 
2018
 
2019
 
2018
Interest income:
 
 
 
 
 
 
 
 
 
Loans and leases
$
65,599

 
$
62,683

 
$
58,520

 
$
128,282

 
$
112,211

Investment securities, taxable
5,186

 
5,515

 
4,473

 
10,701

 
9,081

Investment securities, tax-exempt
353

 
385

 
475

 
738

 
1,006

Other
499

 
438

 
397

 
937

 
805

Total interest income
71,637

 
69,021

 
63,865

 
140,658

 
123,103

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
12,978

 
11,470

 
8,319

 
24,448

 
14,881

Short-term borrowings
540

 
931

 
826

 
1,471

 
1,602

Subordinated notes
928

 
928

 
908

 
1,856

 
1,791

Long-term debt and mandatorily redeemable securities
764

 
744

 
643

 
1,508

 
1,128

Total interest expense
15,210

 
14,073

 
10,696

 
29,283

 
19,402

Net interest income
56,427

 
54,948

 
53,169

 
111,375

 
103,701

Provision for loan and lease losses
4,247

 
4,918

 
4,817

 
9,165

 
8,603

Net interest income after provision for loan and lease losses
52,180

 
50,030

 
48,352

 
102,210

 
95,098

Noninterest income:
 
 
 
 
 
 
 
 
 
Trust and wealth advisory
5,583

 
4,858

 
5,800

 
10,441

 
10,988

Service charges on deposit accounts
2,785

 
2,498

 
2,625

 
5,283

 
5,109

Debit card
3,669

 
3,220

 
3,427

 
6,889

 
6,530

Mortgage banking
999

 
936

 
1,073

 
1,935

 
1,957

Insurance commissions
1,518

 
2,174

 
1,487

 
3,692

 
3,445

Equipment rental
7,809

 
7,982

 
8,104

 
15,791

 
15,859

Losses on investment securities available-for-sale

 

 

 

 
(345
)
Other
3,301

 
2,456

 
2,507

 
5,757

 
5,287

Total noninterest income
25,664

 
24,124

 
25,023

 
49,788

 
48,830

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
23,787

 
23,495

 
23,696

 
47,282

 
46,227

Net occupancy
2,481

 
2,772

 
2,115

 
5,253

 
4,981

Furniture and equipment
6,289

 
6,024

 
5,718

 
12,313

 
11,173

Depreciation – leased equipment
6,400

 
6,524

 
6,684

 
12,924

 
13,112

Professional fees
1,706

 
1,598

 
1,728

 
3,304

 
3,745

Supplies and communication
1,608

 
1,493

 
1,499

 
3,101

 
3,052

FDIC and other insurance
608

 
645

 
714

 
1,253

 
1,412

Business development and marketing
1,678

 
949

 
1,725

 
2,627

 
3,258

Loan and lease collection and repossession
230

 
1,361

 
565

 
1,591

 
1,516

Other
2,566

 
343

 
1,433

 
2,909

 
2,958

Total noninterest expense
47,353

 
45,204

 
45,877

 
92,557

 
91,434

Income before income taxes
30,491

 
28,950

 
27,498

 
59,441

 
52,494

Income tax expense
7,074

 
6,754

 
5,534

 
13,828

 
11,414

Net income
23,417

 
22,196

 
21,964

 
$
45,613

 
$
41,080

Net (income) loss attributable to noncontrolling interests
(32
)
 

 

 
(32
)
 

Net income available to common shareholders
$
23,385

 
$
22,196

 
$
21,964

 
45,581

 
41,080

Per common share:
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.91

 
$
0.86

 
$
0.84

 
$
1.76

 
$
1.57

Diluted net income per common share
$
0.91

 
$
0.86

 
$
0.84

 
$
1.76

 
$
1.57

Cash dividends
$
0.27

 
$
0.27

 
$
0.24

 
$
0.54

 
$
0.46

Basic weighted average common shares outstanding
25,615,718

 
25,759,186

 
25,958,128

 
25,687,056

 
25,954,278

Diluted weighted average common shares outstanding
25,615,718

 
25,759,186

 
25,958,128

 
25,687,056

 
25,954,278


- 9 -





1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
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
$
929,264

 
$
5,186

 
2.24
%
 
$
909,422

 
$
5,515

 
2.46
%
 
$
857,600

 
$
4,473

 
2.09
%
Tax exempt(1)
71,878

 
437

 
2.44
%
 
78,171

 
472

 
2.45
%
 
90,735

 
589

 
2.60
%
Mortgages held for sale
12,014

 
127

 
4.24
%
 
8,826

 
101

 
4.64
%
 
6,985

 
92

 
5.28
%
Loans and leases, net of unearned discount(1)
5,001,392

 
65,565

 
5.26
%
 
4,858,183

 
62,677

 
5.23
%
 
4,770,361

 
58,517

 
4.92
%
Other investments
53,323

 
499

 
3.75
%
 
42,095

 
438

 
4.22
%
 
51,141

 
397

 
3.11
%
Total earning assets(1)
6,067,871

 
71,814

 
4.75
%
 
5,896,697

 
69,203

 
4.76
%
 
5,776,822

 
64,068

 
4.45
%
Cash and due from banks
67,448

 
 
 
 
 
63,886

 
 
 
 

 
65,895

 
 

 
 

Reserve for loan and lease losses
(102,787
)
 
 
 
 
 
(101,697
)
 
 
 
 

 
(99,277
)
 
 

 
 

Other assets
455,212

 
 
 
 
 
431,500

 
 
 
 

 
423,577

 
 

 
 

Total assets
$
6,487,744

 
 
 
 
 
$
6,290,386

 
 
 
 

 
$
6,167,017

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

Interest-bearing deposits
$
4,137,118

 
$
12,978

 
1.26
%
 
$
3,934,921

 
$
11,470

 
1.18
%
 
$
3,950,546

 
$
8,319

 
0.84
%
Short-term borrowings
201,401

 
540

 
1.08
%
 
251,379

 
931

 
1.50
%
 
290,220

 
826

 
1.14
%
Subordinated notes
58,764

 
928

 
6.33
%
 
58,764

 
928

 
6.40
%
 
58,764

 
908

 
6.20
%
Long-term debt and mandatorily redeemable securities
71,308

 
764

 
4.30
%
 
70,481

 
744

 
4.28
%
 
71,162

 
643

 
3.62
%
Total interest-bearing liabilities
4,468,591

 
15,210

 
1.37
%
 
4,315,545

 
14,073

 
1.32
%
 
4,370,692

 
10,696

 
0.98
%
Noninterest-bearing deposits
1,127,794

 
 

 
 

 
1,124,441

 
 

 
 

 
1,010,927

 
 

 
 

Other liabilities
98,475

 
 

 
 

 
73,183

 
 

 
 

 
49,088

 
 

 
 

Shareholders’ equity
789,009

 
 

 
 

 
775,657

 
 

 
 

 
736,310

 
 

 
 

   Noncontrolling interests
3,875

 
 
 
 
 
1,560

 
 
 
 
 

 
 
 
 
Total liabilities and equity
$
6,487,744

 
 

 
 

 
$
6,290,386

 
 

 
 

 
$
6,167,017

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(177
)
 
 
 
 
 
(182
)
 
 
 
 
 
(203
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
56,427

 
3.73
%
 
 

 
$
54,948

 
3.78
%
 
 

 
$
53,169

 
3.69
%
Fully tax-equivalent adjustments
 
 
177

 
 
 
 
 
182

 
 
 
 
 
203

 
 
Net interest income/margin - FTE(1)
 

 
$
56,604

 
3.74
%
 
 

 
$
55,130

 
3.79
%
 
 

 
$
53,372

 
3.71
%
(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)
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
 
Average
Balance
 
Interest Income/Expense
 
Yield/
Rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
919,398

 
$
10,701

 
2.35
%
 
$
835,495

 
$
9,081

 
2.19
%
Tax exempt(1)
75,007

 
909

 
2.44
%
 
97,249

 
1,244

 
2.58
%
Mortgages held for sale
10,429

 
228

 
4.41
%
 
7,350

 
172

 
4.72
%
Loans and leases, net of unearned discount(1)
4,930,183

 
128,242

 
5.25
%
 
4,680,073

 
112,216

 
4.84
%
Other investments
47,740

 
937

 
3.96
%
 
45,252

 
805

 
3.59
%
Total earning assets(1)
5,982,757

 
141,017

 
4.75
%
 
5,665,419

 
123,518

 
4.40
%
Cash and due from banks
65,677

 
 
 
 
 
63,657

 
 

 
 

Reserve for loan and lease losses
(102,245
)
 
 
 
 
 
(97,502
)
 
 

 
 

Other assets
443,421

 
 
 
 
 
422,350

 
 

 
 

Total assets
$
6,389,610

 
 
 
 
 
$
6,053,924

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 

 
 

Interest-bearing deposits
4,036,578

 
24,448

 
1.22
%
 
3,827,398

 
14,881

 
0.78
%
Short-term borrowings
226,252

 
1,471

 
1.31
%
 
306,150

 
1,602

 
1.06
%
Subordinated notes
58,764

 
1,856

 
6.37
%
 
58,764

 
1,791

 
6.15
%
Long-term debt and mandatorily redeemable securities
70,897

 
1,508

 
4.29
%
 
70,739

 
1,128

 
3.22
%
Total interest-bearing liabilities
4,392,491

 
29,283

 
1.34
%
 
4,263,051

 
19,402

 
0.92
%
Noninterest-bearing deposits
1,126,126

 
 

 
 

 
1,008,257

 
 

 
 

Other liabilities
85,899

 
 

 
 

 
51,312

 
 

 
 

Shareholders’ equity
782,370

 
 

 
 

 
731,304

 
 

 
 

   Noncontrolling interests
2,724

 
 
 
 
 

 
 
 
 
Total liabilities and equity
$
6,389,610

 
 

 
 

 
$
6,053,924

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(359
)
 
 
 
 
 
(415
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
111,375

 
3.75
%
 
 

 
$
103,701

 
3.69
%
Fully tax-equivalent adjustments
 
 
359

 
 
 
 
 
415

 
 
Net interest income/margin - FTE(1)
 

 
$
111,734

 
3.77
%
 
 

 
$
104,116

 
3.71
%
(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
 
Six Months Ended
 
 
June 30,
March 31,
June 30,
 
June 30,
June 30,
 
 
2019
2019
2018
 
2019
2018
Calculation of Net Interest Margin
 
 
 
 
 
 
(A)
Interest income (GAAP)
$
71,637

$
69,021

$
63,865

 
$
140,658

$
123,103

 
Fully tax-equivalent adjustments:
 
 
 
 
 
 
(B)
 – Loans and leases
93

95

89

 
188

177

(C)
 – Tax exempt investment securities
84

87

114

 
171

238

(D)
Interest income – FTE (A+B+C)
71,814

69,203

64,068

 
141,017

123,518

(E)
Interest expense (GAAP)
15,210

14,073

10,696

 
29,283

19,402

(F)
Net interest income (GAAP) (A-E)
56,427

54,948

53,169

 
111,375

103,701

(G)
Net interest income - FTE (D-E)
56,604

55,130

53,372

 
111,734

104,116

(H)
Annualization factor
4.011

4.056

4.011

 
2.017

2.017

(I)
Total earning assets
$
6,067,871

$
5,896,697

$
5,776,822

 
$
5,982,757

$
5,665,419

 
Net interest margin (GAAP-derived) (F*H)/I
3.73
%
3.78
%
3.69
%
 
3.75
%
3.69
%
 
Net interest margin – FTE (G*H)/I
3.74
%
3.79
%
3.71
%
 
3.77
%
3.71
%
 
 
 
 
 
 
 
 
Calculation of Efficiency Ratio
 
 
 
 
 
 
(F)
Net interest income (GAAP)
$
56,427

$
54,948

$
53,169

 
$
111,375

$
103,701

(G)
Net interest income – FTE
56,604

55,130

53,372

 
111,734

104,116

(J)
Plus: noninterest income (GAAP)
25,664

24,124

25,023

 
49,788

48,830

(K)
Less: gains/losses on investment securities and partnership investments
(131
)
(17
)
(76
)
 
(148
)
(108
)
(L)
Less: depreciation – leased equipment
(6,400
)
(6,524
)
(6,684
)
 
(12,924
)
(13,112
)
(M)
Total net revenue (GAAP) (F+J)
82,091

79,072

78,192

 
161,163

152,531

(N)
Total net revenue – adjusted (G+J–K–L)
75,737

72,713

71,635

 
148,450

139,726

(O)
Noninterest expense (GAAP)
47,353

45,204

45,877

 
92,557

91,434

(L)
Less:depreciation – leased equipment
(6,400
)
(6,524
)
(6,684
)
 
(12,924
)
(13,112
)
(Q)
Noninterest expense – adjusted (O–L)
40,953

38,680

39,193

 
79,633

78,322

 
Efficiency ratio (GAAP-derived) (O/M)
57.68
%
57.17
%
58.67
%
 
57.43
%
59.94
%
 
Efficiency ratio – adjusted (Q/N)
54.07
%
53.20
%
54.71
%
 
53.64
%
56.05
%
 
 
 
 
 
 
 
 
 
 
End of Period
 
 
 
 
 
June 30,
March 31,
June 30,
 
 
 
 
 
2019
2019
2018
 
 
 
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
794,662

$
778,422

$
740,277

 
 
 
(S)
Less: goodwill and intangible assets
(83,985
)
(83,992
)
(84,104
)
 
 
 
(T)
Total tangible common shareholders’ equity (R–S)
$
710,677

$
694,430

$
656,173

 
 
 
(U)
Total assets (GAAP)
6,650,105

6,379,086

6,320,058

 
 
 
(S)
Less: goodwill and intangible assets
(83,985
)
(83,992
)
(84,104
)
 
 
 
(V)
Total tangible assets (U–S)
$
6,566,120

$
6,295,094

$
6,235,954

 
 
 
 
Common equity-to-assets ratio (GAAP-derived) (R/U)
11.95
%
12.20
%
11.71
%
 
 
 
 
Tangible common equity-to-tangible assets ratio (T/V)
10.82
%
11.03
%
10.52
%
 
 
 
 
 
 
 
 
 
 
 
Calculation of Tangible Book Value per Common Share
 
 
 
 
 
 
(R)
Total common shareholders’ equity (GAAP)
$
794,662

$
778,422

$
740,277

 
 
 
(W)
Actual common shares outstanding
25,535,212

25,667,933

25,965,077

 
 
 
 
Book value per common share (GAAP-derived) (R/W)*1000
$
31.12

$
30.33

$
28.51

 
 
 
 
Tangible common book value per share (T/W)*1000
$
27.83

$
27.05

$
25.27