Press Release

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

Company Release - 1/24/2019 4:00 PM ET

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

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.

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.

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.

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.

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)

           
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.
 
       
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  
 
         
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
 
                 
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
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 $ 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.
 
           
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
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
    Balance   Expense   Rate   Balance   Expense   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.
 
         
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) (A–E)   55,843     54,362     48,814       213,906     185,631  
(G)   Net interest income - FTE (D–E)   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+J–K–L)   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 (O–L–P) 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 (R–S)   $ 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 (U–S)   $ 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
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
Please contact us at shareholder@1stsource.com

Andrea Short
574-235-2000

Source: 1st Source Corporation

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