Press Release

1st Source Corporation Reports Third Quarter Results, Cash Dividend Declared

Company Release - 10/18/2018 4:00 PM ET

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, Ind.--(BUSINESS WIRE)-- 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.

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.

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.

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.

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.

 
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.
 
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  
 
         
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
 
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

  Interest     Interest     Interest  
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
    Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   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.

 
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
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
    Balance   Expense   Rate   Balance   Expense   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.
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

The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)

Please contact us at shareholder@1stsource.com

1st Source Corporation
Andrea Short, 574-235-2000

Source: 1st Source Corporation

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