Press Release

1st Source Corporation Reports Record Second Quarter Results, Cash Dividend Declared

Company Release - 7/18/2019 4:10 PM ET

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

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.

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.

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.

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

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.

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

 

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

 

 

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

 

 

 

 

 

 

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.

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

 

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