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Section 1: 8-K (8-K 3RD QTR 2019 EARNINGS RELEASE)

Wdesk | Document
false0000034782 0000034782 2019-10-17 2019-10-17




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 17, 2019
400429122_a1stsourcecorplogo2a15.jpg
1st Source Corporation
(Exact name of registrant as specified in its charter)

Indiana
0-6233
35-1068133
(State or other jurisdiction of incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)

100 North Michigan Street, South Bend, Indiana 46601
(Address of principal executive offices)     (Zip Code)

574-235-2000
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock - without par value
 
SRCE
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





ITEM 2.02    Results of Operations and Financial Condition.

On October 17, 2019, 1st Source Corporation issued a press release that announced its third quarter earnings for 2019. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

ITEM 9.01    Financial Statements and Exhibits.
 
Exhibit 99.1:    Press release dated October 17, 2019, with respect to 1st Source Corporation’s financial results for the third quarter ended September 30, 2019.

101        Pursuant to Rule 406 of Regulation S-T, the cover page is formatted in Inline XBRL (Inline eXtensible Business reporting Language).

104        Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
1st SOURCE CORPORATION
 
 
(Registrant)
 
 
 
 
 
 
Date: October 17, 2019
 
/s/ CHRISTOPHER J. MURPHY III
 
 
Christopher J. Murphy III
 
 
Chairman of the Board and CEO
 
 
 
 
 
 
Date: October 17, 2019
 
/s/ ANDREA G. SHORT
 
 
Andrea G. Short
 
 
Treasurer and Chief Financial Officer
 
 
Principal Accounting Officer



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Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Wdesk | Exhibit


Exhibit 99.1

For:
Immediate Release
Contact:
Andrea Short
 
October 17, 2019
 
574-235-2000

1st Source Corporation Reports Fourth Consecutive Quarter of Record Results,
Cash Dividend Increased
QUARTERLY HIGHLIGHTS
Net income was a record $24.44 million, up 22.88% over the third quarter of 2018. Diluted net income per common share was also a record of $0.95, up from the prior year’s third quarter of $0.76.
Cash dividend of $0.29 per common share approved, up 16% from the $0.25 per common share declared a year ago.
Return on average assets of 1.46% and return on average common shareholders’ equity of 11.98% compared to 1.27% and 10.50%, respectively in the third quarter of 2018.
Net recoveries of $0.31 million and nonperforming assets to loans and leases of 0.34% compared to net charge-offs of $10.86 million and 1.00%, respectively in the third quarter of 2018.
Average loans and leases grew $268.93 million, up 5.58% from the third quarter of 2018.
Average deposits grew $272.17 million, up 5.35% from the third quarter of 2018.
Net interest income increased $2.83 million, up 5.21% from the third quarter of 2018.
Noninterest income increased $1.71 million, up 7.09% from the third quarter of 2018 (increased 11.94% excluding leased equipment depreciation).
Noninterest expenses decreased $0.24 million, down 0.50% from the third quarter of 2018 (increased 0.36% excluding leased equipment depreciation).
South Bend, IN - 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $24.44 million for the third quarter of 2019, an improvement of 22.88% compared to $19.89 million reported in the third quarter a year ago. This brought the 2019 year-to-date net income to $70.02 million compared to $60.97 million in 2018, an increase of 14.85%. The year-to-date net income comparison was positively impacted by increased net interest income of $10.51 million primarily due to higher loan rates and higher average loan and lease balances. Non-recurring 2019 items included $1.41 million of negative valuation adjustments on repossessed assets, a$1.32 million gain on the sale of our former headquarters building, and a $0.43 million FDIC insurance premium credit.
Diluted net income per common share for the third quarter of 2019 was up 25.00% to a record high of $0.95, versus $0.76 in the third quarter of 2018. Diluted net income per common share for the first nine months of 2019 was $2.72 compared to $2.33 earned a year earlier, a 16.74% increase.
At its October 2019 meeting, the Board of Directors approved a cash dividend of $0.29 per common share, up 16% from the $0.25 per common share declared a year ago. The cash dividend is payable to shareholders of record on November 5, 2019 and will be paid on November 15, 2019.

- 1 -



Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to have achieved record earnings in the third quarter which marks four consecutive quarters of record net income for 1st Source Corporation! We have been able to accomplish this through steady, organic growth in average loans and leases and deposits and continued credit quality discipline which is validated by a 0.34% ratio of nonperforming assets to loans and leases. Our net interest margin while increasing early in the year is now challenged with Federal Reserve reductions in interest rates and continued competitive pressure for deposits.
“I am also very pleased to report we welcomed a new member to our Board of Directors for both the Bank and the Holding Company in early August. John Affleck-Graves, former Executive Vice President and Chief Financial Officer of the University of Notre Dame, was elected to a term ending April 2022 and will be subject to reelection at that time. John is a renowned finance Professor who has also managed people, processes and finances for a multi-market, multi-billion-dollar complex organization. He has also been a champion of regional economic development, having chaired the Regional Development Authority for northcentral Indiana. I have worked with John in community and regional development activities over many years and have often sought his economic and financial market advice when balancing the Bank’s assets and liabilities and managing our long-term pricing strategies. He has always been thoughtful, knowledgeable, insightful and often prescient. He will bring strong value to our Boards and to the future of 1st Source.
“The third quarter of the year also saw continued investment in our banking centers. In late July, we held an official groundbreaking event for a new standalone banking center in Middlebury, Ind. Our current banking center in this community is in a rented space and does not feature many of the amenities our clients have come to expect from us. This new building will offer drive-up teller service, a drive-up ATM and our signature side-by-side banking model. We also plan to enter the Auburn, Ind. market later this year, as we have signed a lease to occupy the first-floor space of a new building currently under construction in its downtown. Auburn is a thriving community in northeast Indiana, supported by a sizable auto industry presence. These projects are part of our overall initiative to continue our investment in the communities where we live, do business and raise families.
“As a Bank deeply rooted in our community, I’d be remiss to not mention the honorees of our twentieth Ernestine M. Raclin Community Leadership Award. This year, 11 individuals across the communities we serve were chosen for this award due to their commitment to volunteer leadership. These individuals, and the many other thousands of volunteers who serve good causes, are the backbone of our communities and weave a strong fabric that supports us all. It is important that we recognize and celebrate their contributions. Honorees were presented a globe of leadership award, a $1,000 personal cash award and a $1,000 award donated to the local charity of their choice.”

- 2 -



THIRD QUARTER 2019 FINANCIAL RESULTS
Loans
Average loans and leases of $5.09 billion increased $268.93 million, up 5.58% in the third quarter of 2019 from the year ago quarter and have increased $89.97 million, up 1.80% from the second quarter. Seasonal reductions in the auto and light truck portfolio were offset by growth in commercial real estate loans and solar loans near the end of the third quarter. Recently, we have also seen a slight decrease in the demand for loans and leases as clients have become more concerned about trade issues and the continued strength of a record long economic expansion. Year-to-date average loans and leases of $4.98 billion increased $256.45 million, up 5.42% from the first nine months of 2018.
Deposits
Average deposits of $5.36 billion grew $272.17 million for the quarter ended September 30, 2019, up 5.35% from the year ago quarter and have increased $98.48 million, up 1.87% compared to the second quarter. Average deposits for the first nine months of 2019 were $5.23 billion, an increase of $308.56 million, up 6.27% from the same period a year ago.
Net Interest Income and Net Interest Margin
Third quarter 2019 net interest income of $57.20 million increased $2.83 million, up 5.21% from the third quarter a year ago and increased $0.77 million, up 1.36% from the second quarter. For the first nine months of 2019, tax-equivalent net interest income was $169.10 million, an increase of $10.42 million, up 6.57% compared to the same period a year ago.
Third quarter 2019 net interest margin was 3.67%, a decrease of two basis points from the 3.69% for the same period in 2018 and decreased six basis points from the second quarter. Third quarter 2019 net interest margin on a fully tax-equivalent basis was 3.68%, a decrease of three basis points from the 3.71% for the same period in 2018 and was lower by six basis points compared to the previous quarter. The margin continued to see pressure from deposit competition and Federal Reserve interest rate decreases.
Net interest margin for the first nine months of 2019 was 3.72%, an increase of three basis points from the 3.69% for the same period in 2018. Net interest margin on a fully-taxable-equivalent basis for the first nine months of 2019 was 3.74%, an increase of three basis points from the 3.71% for the same period in 2018.
Noninterest Income
Third quarter 2019 noninterest income of $25.77 million increased $1.71 million, up 7.09% from the third quarter a year ago and increased $0.10 million, up 0.39% from the second quarter. For the first nine months of 2019, noninterest income was $75.55 million, an increase of $2.66 million, up 3.65% 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, improved mortgage banking income driven by gains on a higher volume of loan sales, 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 reduced trust and wealth advisory fees resulting from a lower value of assets under management due to stock market movements and lower equipment rental income due to a reduction in the size of the average equipment rental portfolio.

- 3 -



The increase in noninterest income from the second quarter of 2019 was primarily the result of higher mortgage banking income on improved loan production, increased claim proceeds on bank owned life insurance, and higher partnership investment gains. These positives were offset by lower equipment rental income due to a reduction in the size of the average equipment rental portfolio, reduced trust and wealth advisory fees as a result of seasonal tax fees in the second quarter, and decreased customer swap fees.
Noninterest Expense
Third quarter 2019 noninterest expense of $47.11 million decreased $0.24 million, down 0.50% from the third quarter a year ago and decreased $0.25 million, down 0.52% from the second quarter. Excluding depreciation on leased equipment, noninterest expenses were up 0.36% from the third quarter a year ago and down 0.11% from the second quarter. For the first nine months of 2019, noninterest expense was $139.66 million, an increase of $0.89 million, or 0.64% 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, fewer valuation adjustments on repossessed assets, reduced insurance expenses due to FDIC assessment credits, lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, decreased incentive compensation from fewer vestings of share-based compensation arrangements, lower business development costs, and reduced professional fees from consulting services.
The decrease in noninterest expense from the second quarter was primarily the result of a reduction in the provision for unfunded loan commitments, lower insurance costs due to FDIC assessment credits, decreased group insurance costs on lower claims, reduced leased equipment depreciation, lower furniture and equipment expense due to reduced computer processing charges and lower professional fees offset by higher salaries due to increased staffing levels related to a summer internship program, increased business development and marketing expenses due to marketing promotions, and higher repossessed asset valuation adjustments.
Credit
The reserve for loan and lease losses as of September 30, 2019 was 2.14% of total loans and leases compared to 2.05% at June 30, 2019 and 2.04% at September 30, 2018. Net recoveries of $0.31 million were recorded for the third quarter of 2019 compared with net charge-offs of $10.86 million in the same quarter a year ago and down from the $1.19 million of net charge-offs in the second quarter.
The provision for loan and lease losses was $3.72 million for the third quarter of 2019, a decrease of $2.44 million compared with the same period in 2018 and a decrease of $0.53 million from the second quarter. The ratio of nonperforming assets to loans and leases was an improved 0.34% as of September 30, 2019, compared to 0.41% on June 30, 2019 and 1.00% on September 30, 2018.

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Capital
As of September 30, 2019, the common equity-to-assets ratio was 12.15%, compared to 11.95% at June 30, 2019 and 11.92% a year ago. The tangible common equity-to-tangible assets ratio was 11.04% at September 30, 2019 compared to 10.82% at June 30, 2019 and 10.73% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.26% at September 30, 2019 compared to 11.83% at June 30, 2019 and 12.38% a year ago. During the first nine months of 2019, 325,787 shares were repurchased for treasury reducing common shareholders’ equity by $15.09 million.
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.

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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)

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1st SOURCE CORPORATION
 
 
 
 
 
 
3rd QUARTER 2019 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,
 
2019
2019
2018
 
2019
2018
AVERAGE BALANCES
 
 
 
 
 
 
Assets
$
6,620,880

$
6,487,744

$
6,224,187

 
$
6,467,547

$
6,111,302

Earning assets
6,190,264

6,067,871

5,839,588

 
6,052,686

5,724,114

Investments
1,024,250

1,001,142

964,281

 
1,004,463

943,372

Loans and leases
5,091,358

5,001,392

4,822,431

 
4,984,498

4,728,047

Deposits
5,363,391

5,264,912

5,091,221

 
5,230,335

4,921,780

Interest bearing liabilities
4,493,376

4,468,591

4,323,467

 
4,426,489

4,283,411

Common shareholders’ equity
809,279

789,009

751,248

 
791,438

738,025

   Total equity
819,734

792,884

751,248

 
796,767

738,025

INCOME STATEMENT DATA
 
 
 
 
 
 
Net interest income
$
57,195

$
56,427

$
54,362

 
$
168,570

$
158,063

Net interest income - FTE(1)
57,362

56,604

54,559

 
169,096

158,675

Provision for loan and lease losses
3,717

4,247

6,157

 
12,882

14,760

Noninterest income
25,765

25,664

24,060

 
75,553

72,890

Noninterest expense
47,106

47,353

47,342

 
139,663

138,776

Net income
24,448

23,417

19,888

 
70,061

60,968

   Net income available to common shareholders
24,438

23,385

19,888

 
70,019

60,968

PER SHARE DATA
 
 
 
 
 
 
Basic net income per common share
$
0.95

$
0.91

$
0.76

 
$
2.72

$
2.33

Diluted net income per common share
0.95

0.91

0.76

 
2.72

2.33

Common cash dividends declared
0.27

0.27

0.25

 
0.81

0.71

Book value per common share(2)
31.88

31.12

28.90

 
31.88

28.90

Tangible book value per common share(1)
28.59

27.83

25.66

 
28.59

25.66

Market value - High
48.31

48.66

59.33

 
50.15

59.33

Market value - Low
42.31

43.34

50.34

 
39.11

48.26

Basic weighted average common shares outstanding
25,520,035

25,615,718

25,965,694

 
25,630,771

25,958,125

Diluted weighted average common shares outstanding
25,520,035

25,615,718

25,965,694

 
25,630,771

25,958,125

KEY RATIOS
 
 
 
 
 
 
Return on average assets
1.46
 %
1.45
%
1.27
%
 
1.45
%
1.33
%
Return on average common shareholders’ equity
11.98

11.89

10.50

 
11.83

11.04

Average common shareholders’ equity to average assets
12.22

12.16

12.07

 
12.24

12.08

End of period tangible common equity to tangible assets(1)
11.04

10.82

10.73

 
11.04

10.73

Risk-based capital - Common Equity Tier 1(3)
12.26

11.83

12.38

 
12.26

12.38

Risk-based capital - Tier 1(3)
13.33

12.94

13.41

 
13.33

13.41

Risk-based capital - Total(3)
14.59

14.20

14.66

 
14.59

14.66

Net interest margin
3.67

3.73

3.69

 
3.72

3.69

Net interest margin - FTE(1)
3.68

3.74

3.71

 
3.74

3.71

Efficiency ratio: expense to revenue
56.78

57.68

60.37

 
57.21

60.09

Efficiency ratio: expense to revenue - adjusted(1)
53.44

54.07

56.71

 
53.57

56.28

Net (recoveries) charge offs to average loans and leases
(0.02
)
0.10

0.89

 
0.12

0.32

Loan and lease loss reserve to loans and leases
2.14

2.05

2.04

 
2.14

2.04

Nonperforming assets to loans and leases
0.34

0.41

1.00

 
0.34

1.00

 
 
 
 
 
 
 
 
September 30,
June 30,
March 31,
 
December 31,
September 30,
 
2019
2019
2019
 
2018
2018
END OF PERIOD BALANCES
 
 
 
 
 
 
Assets
$
6,691,070

$
6,650,105

$
6,379,086

 
$
6,293,745

$
6,293,169

Loans and leases
5,099,546

5,109,337

4,926,187

 
4,835,464

4,825,553

Deposits
5,391,679

5,403,845

5,124,091

 
5,122,322

5,061,977

Reserve for loan and lease losses
108,941

104,911

101,852

 
100,469

98,300

Goodwill and intangible assets
83,978

83,985

83,992

 
83,998

84,097

Common shareholders’ equity
813,167

794,662

778,422

 
762,082

750,437

   Total equity
833,042

804,686

781,101

 
763,590

750,437

ASSET QUALITY
 
 
 
 
 
 
Loans and leases past due 90 days or more
$
311

$
156

$
178

 
$
366

$
125

Nonaccrual loans and leases
10,188

12,212

13,622

 
27,859

36,028

Other real estate
629

543

417

 
299

432

Repossessions
6,610

8,799

10,411

 
6,666

13,041

Equipment owned under operating leases


64

Document Contents
 
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Section 1: 8-K (8-K 3RD QTR 2019 EARNINGS RELEASE)

Wdesk | Document
false0000034782 0000034782 2019-10-17 2019-10-17




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 17, 2019
400429122_a1stsourcecorplogo2a15.jpg
1st Source Corporation
(Exact name of registrant as specified in its charter)

Indiana
0-6233
35-1068133
(State or other jurisdiction of incorporation)
(Commission File No.)
(I.R.S. Employer Identification No.)

100 North Michigan Street, South Bend, Indiana 46601
(Address of principal executive offices)     (Zip Code)

574-235-2000
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock - without par value
 
SRCE
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





ITEM 2.02    Results of Operations and Financial Condition.

On October 17, 2019, 1st Source Corporation issued a press release that announced its third quarter earnings for 2019. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

ITEM 9.01    Financial Statements and Exhibits.
 
Exhibit 99.1:    Press release dated October 17, 2019, with respect to 1st Source Corporation’s financial results for the third quarter ended September 30, 2019.

101        Pursuant to Rule 406 of Regulation S-T, the cover page is formatted in Inline XBRL (Inline eXtensible Business reporting Language).

104        Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
1st SOURCE CORPORATION
 
 
(Registrant)
 
 
 
 
 
 
Date: October 17, 2019
 
/s/ CHRISTOPHER J. MURPHY III
 
 
Christopher J. Murphy III
 
 
Chairman of the Board and CEO
 
 
 
 
 
 
Date: October 17, 2019
 
/s/ ANDREA G. SHORT
 
 
Andrea G. Short
 
 
Treasurer and Chief Financial Officer
 
 
Principal Accounting Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Wdesk | Exhibit


Exhibit 99.1

For:
Immediate Release
Contact:
Andrea Short
 
October 17, 2019
 
574-235-2000

1st Source Corporation Reports Fourth Consecutive Quarter of Record Results,
Cash Dividend Increased
QUARTERLY HIGHLIGHTS
Net income was a record $24.44 million, up 22.88% over the third quarter of 2018. Diluted net income per common share was also a record of $0.95, up from the prior year’s third quarter of $0.76.
Cash dividend of $0.29 per common share approved, up 16% from the $0.25 per common share declared a year ago.
Return on average assets of 1.46% and return on average common shareholders’ equity of 11.98% compared to 1.27% and 10.50%, respectively in the third quarter of 2018.
Net recoveries of $0.31 million and nonperforming assets to loans and leases of 0.34% compared to net charge-offs of $10.86 million and 1.00%, respectively in the third quarter of 2018.
Average loans and leases grew $268.93 million, up 5.58% from the third quarter of 2018.
Average deposits grew $272.17 million, up 5.35% from the third quarter of 2018.
Net interest income increased $2.83 million, up 5.21% from the third quarter of 2018.
Noninterest income increased $1.71 million, up 7.09% from the third quarter of 2018 (increased 11.94% excluding leased equipment depreciation).
Noninterest expenses decreased $0.24 million, down 0.50% from the third quarter of 2018 (increased 0.36% excluding leased equipment depreciation).
South Bend, IN - 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $24.44 million for the third quarter of 2019, an improvement of 22.88% compared to $19.89 million reported in the third quarter a year ago. This brought the 2019 year-to-date net income to $70.02 million compared to $60.97 million in 2018, an increase of 14.85%. The year-to-date net income comparison was positively impacted by increased net interest income of $10.51 million primarily due to higher loan rates and higher average loan and lease balances. Non-recurring 2019 items included $1.41 million of negative valuation adjustments on repossessed assets, a$1.32 million gain on the sale of our former headquarters building, and a $0.43 million FDIC insurance premium credit.
Diluted net income per common share for the third quarter of 2019 was up 25.00% to a record high of $0.95, versus $0.76 in the third quarter of 2018. Diluted net income per common share for the first nine months of 2019 was $2.72 compared to $2.33 earned a year earlier, a 16.74% increase.
At its October 2019 meeting, the Board of Directors approved a cash dividend of $0.29 per common share, up 16% from the $0.25 per common share declared a year ago. The cash dividend is payable to shareholders of record on November 5, 2019 and will be paid on November 15, 2019.

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Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to have achieved record earnings in the third quarter which marks four consecutive quarters of record net income for 1st Source Corporation! We have been able to accomplish this through steady, organic growth in average loans and leases and deposits and continued credit quality discipline which is validated by a 0.34% ratio of nonperforming assets to loans and leases. Our net interest margin while increasing early in the year is now challenged with Federal Reserve reductions in interest rates and continued competitive pressure for deposits.
“I am also very pleased to report we welcomed a new member to our Board of Directors for both the Bank and the Holding Company in early August. John Affleck-Graves, former Executive Vice President and Chief Financial Officer of the University of Notre Dame, was elected to a term ending April 2022 and will be subject to reelection at that time. John is a renowned finance Professor who has also managed people, processes and finances for a multi-market, multi-billion-dollar complex organization. He has also been a champion of regional economic development, having chaired the Regional Development Authority for northcentral Indiana. I have worked with John in community and regional development activities over many years and have often sought his economic and financial market advice when balancing the Bank’s assets and liabilities and managing our long-term pricing strategies. He has always been thoughtful, knowledgeable, insightful and often prescient. He will bring strong value to our Boards and to the future of 1st Source.
“The third quarter of the year also saw continued investment in our banking centers. In late July, we held an official groundbreaking event for a new standalone banking center in Middlebury, Ind. Our current banking center in this community is in a rented space and does not feature many of the amenities our clients have come to expect from us. This new building will offer drive-up teller service, a drive-up ATM and our signature side-by-side banking model. We also plan to enter the Auburn, Ind. market later this year, as we have signed a lease to occupy the first-floor space of a new building currently under construction in its downtown. Auburn is a thriving community in northeast Indiana, supported by a sizable auto industry presence. These projects are part of our overall initiative to continue our investment in the communities where we live, do business and raise families.
“As a Bank deeply rooted in our community, I’d be remiss to not mention the honorees of our twentieth Ernestine M. Raclin Community Leadership Award. This year, 11 individuals across the communities we serve were chosen for this award due to their commitment to volunteer leadership. These individuals, and the many other thousands of volunteers who serve good causes, are the backbone of our communities and weave a strong fabric that supports us all. It is important that we recognize and celebrate their contributions. Honorees were presented a globe of leadership award, a $1,000 personal cash award and a $1,000 award donated to the local charity of their choice.”

- 2 -



THIRD QUARTER 2019 FINANCIAL RESULTS
Loans
Average loans and leases of $5.09 billion increased $268.93 million, up 5.58% in the third quarter of 2019 from the year ago quarter and have increased $89.97 million, up 1.80% from the second quarter. Seasonal reductions in the auto and light truck portfolio were offset by growth in commercial real estate loans and solar loans near the end of the third quarter. Recently, we have also seen a slight decrease in the demand for loans and leases as clients have become more concerned about trade issues and the continued strength of a record long economic expansion. Year-to-date average loans and leases of $4.98 billion increased $256.45 million, up 5.42% from the first nine months of 2018.
Deposits
Average deposits of $5.36 billion grew $272.17 million for the quarter ended September 30, 2019, up 5.35% from the year ago quarter and have increased $98.48 million, up 1.87% compared to the second quarter. Average deposits for the first nine months of 2019 were $5.23 billion, an increase of $308.56 million, up 6.27% from the same period a year ago.
Net Interest Income and Net Interest Margin
Third quarter 2019 net interest income of $57.20 million increased $2.83 million, up 5.21% from the third quarter a year ago and increased $0.77 million, up 1.36% from the second quarter. For the first nine months of 2019, tax-equivalent net interest income was $169.10 million, an increase of $10.42 million, up 6.57% compared to the same period a year ago.
Third quarter 2019 net interest margin was 3.67%, a decrease of two basis points from the 3.69% for the same period in 2018 and decreased six basis points from the second quarter. Third quarter 2019 net interest margin on a fully tax-equivalent basis was 3.68%, a decrease of three basis points from the 3.71% for the same period in 2018 and was lower by six basis points compared to the previous quarter. The margin continued to see pressure from deposit competition and Federal Reserve interest rate decreases.
Net interest margin for the first nine months of 2019 was 3.72%, an increase of three basis points from the 3.69% for the same period in 2018. Net interest margin on a fully-taxable-equivalent basis for the first nine months of 2019 was 3.74%, an increase of three basis points from the 3.71% for the same period in 2018.
Noninterest Income
Third quarter 2019 noninterest income of $25.77 million increased $1.71 million, up 7.09% from the third quarter a year ago and increased $0.10 million, up 0.39% from the second quarter. For the first nine months of 2019, noninterest income was $75.55 million, an increase of $2.66 million, up 3.65% 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, improved mortgage banking income driven by gains on a higher volume of loan sales, 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 reduced trust and wealth advisory fees resulting from a lower value of assets under management due to stock market movements and lower equipment rental income due to a reduction in the size of the average equipment rental portfolio.

- 3 -



The increase in noninterest income from the second quarter of 2019 was primarily the result of higher mortgage banking income on improved loan production, increased claim proceeds on bank owned life insurance, and higher partnership investment gains. These positives were offset by lower equipment rental income due to a reduction in the size of the average equipment rental portfolio, reduced trust and wealth advisory fees as a result of seasonal tax fees in the second quarter, and decreased customer swap fees.
Noninterest Expense
Third quarter 2019 noninterest expense of $47.11 million decreased $0.24 million, down 0.50% from the third quarter a year ago and decreased $0.25 million, down 0.52% from the second quarter. Excluding depreciation on leased equipment, noninterest expenses were up 0.36% from the third quarter a year ago and down 0.11% from the second quarter. For the first nine months of 2019, noninterest expense was $139.66 million, an increase of $0.89 million, or 0.64% 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, fewer valuation adjustments on repossessed assets, reduced insurance expenses due to FDIC assessment credits, lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, decreased incentive compensation from fewer vestings of share-based compensation arrangements, lower business development costs, and reduced professional fees from consulting services.
The decrease in noninterest expense from the second quarter was primarily the result of a reduction in the provision for unfunded loan commitments, lower insurance costs due to FDIC assessment credits, decreased group insurance costs on lower claims, reduced leased equipment depreciation, lower furniture and equipment expense due to reduced computer processing charges and lower professional fees offset by higher salaries due to increased staffing levels related to a summer internship program, increased business development and marketing expenses due to marketing promotions, and higher repossessed asset valuation adjustments.
Credit
The reserve for loan and lease losses as of September 30, 2019 was 2.14% of total loans and leases compared to 2.05% at June 30, 2019 and 2.04% at September 30, 2018. Net recoveries of $0.31 million were recorded for the third quarter of 2019 compared with net charge-offs of $10.86 million in the same quarter a year ago and down from the $1.19 million of net charge-offs in the second quarter.
The provision for loan and lease losses was $3.72 million for the third quarter of 2019, a decrease of $2.44 million compared with the same period in 2018 and a decrease of $0.53 million from the second quarter. The ratio of nonperforming assets to loans and leases was an improved 0.34% as of September 30, 2019, compared to 0.41% on June 30, 2019 and 1.00% on September 30, 2018.

- 4 -



Capital
As of September 30, 2019, the common equity-to-assets ratio was 12.15%, compared to 11.95% at June 30, 2019 and 11.92% a year ago. The tangible common equity-to-tangible assets ratio was 11.04% at September 30, 2019 compared to 10.82% at June 30, 2019 and 10.73% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.26% at September 30, 2019 compared to 11.83% at June 30, 2019 and 12.38% a year ago. During the first nine months of 2019, 325,787 shares were repurchased for treasury reducing common shareholders’ equity by $15.09 million.
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.

- 5 -



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)

- 6 -



1st SOURCE CORPORATION
 
 
 
 
 
 
3rd QUARTER 2019 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,
 
2019
2019
2018
 
2019
2018
AVERAGE BALANCES
 
 
 
 
 
 
Assets
$
6,620,880

$
6,487,744

$
6,224,187

 
$
6,467,547

$
6,111,302

Earning assets
6,190,264

6,067,871

5,839,588

 
6,052,686

5,724,114

Investments
1,024,250

1,001,142

964,281

 
1,004,463

943,372

Loans and leases
5,091,358

5,001,392

4,822,431

 
4,984,498

4,728,047

Deposits
5,363,391

5,264,912

5,091,221

 
5,230,335

4,921,780

Interest bearing liabilities
4,493,376

4,468,591

4,323,467

 
4,426,489

4,283,411

Common shareholders’ equity
809,279

789,009

751,248

 
791,438

738,025

   Total equity
819,734

792,884

751,248

 
796,767

738,025

INCOME STATEMENT DATA
 
 
 
 
 
 
Net interest income
$
57,195

$
56,427

$
54,362

 
$
168,570

$
158,063

Net interest income - FTE(1)
57,362

56,604

54,559

 
169,096

158,675

Provision for loan and lease losses
3,717

4,247

6,157

 
12,882

14,760

Noninterest income
25,765

25,664

24,060

 
75,553

72,890

Noninterest expense
47,106

47,353

47,342

 
139,663

138,776

Net income
24,448

23,417

19,888

 
70,061

60,968

   Net income available to common shareholders
24,438

23,385

19,888

 
70,019

60,968

PER SHARE DATA
 
 
 
 
 
 
Basic net income per common share
$
0.95

$
0.91

$
0.76

 
$
2.72

$
2.33

Diluted net income per common share
0.95

0.91

0.76

 
2.72

2.33

Common cash dividends declared
0.27

0.27

0.25

 
0.81

0.71

Book value per common share(2)
31.88

31.12

28.90

 
31.88

28.90

Tangible book value per common share(1)
28.59

27.83

25.66

 
28.59

25.66

Market value - High
48.31

48.66

59.33

 
50.15

59.33

Market value - Low
42.31

43.34

50.34

 
39.11

48.26

Basic weighted average common shares outstanding
25,520,035

25,615,718

25,965,694

 
25,630,771

25,958,125

Diluted weighted average common shares outstanding
25,520,035

25,615,718

25,965,694

 
25,630,771

25,958,125

KEY RATIOS
 
 
 
 
 
 
Return on average assets
1.46
 %
1.45
%
1.27
%
 
1.45
%
1.33
%
Return on average common shareholders’ equity
11.98

11.89

10.50

 
11.83

11.04

Average common shareholders’ equity to average assets
12.22

12.16

12.07

 
12.24

12.08

End of period tangible common equity to tangible assets(1)
11.04

10.82

10.73

 
11.04

10.73

Risk-based capital - Common Equity Tier 1(3)
12.26

11.83

12.38

 
12.26

12.38

Risk-based capital - Tier 1(3)
13.33

12.94

13.41

 
13.33

13.41

Risk-based capital - Total(3)
14.59

14.20

14.66

 
14.59

14.66

Net interest margin
3.67

3.73

3.69

 
3.72

3.69

Net interest margin - FTE(1)
3.68

3.74

3.71

 
3.74

3.71

Efficiency ratio: expense to revenue
56.78

57.68

60.37

 
57.21

60.09

Efficiency ratio: expense to revenue - adjusted(1)
53.44

54.07

56.71

 
53.57

56.28

Net (recoveries) charge offs to average loans and leases
(0.02
)
0.10

0.89

 
0.12

0.32

Loan and lease loss reserve to loans and leases
2.14

2.05

2.04

 
2.14

2.04

Nonperforming assets to loans and leases
0.34

0.41

1.00

 
0.34

1.00

 
 
 
 
 
 
 
 
September 30,
June 30,
March 31,
 
December 31,
September 30,
 
2019
2019
2019
 
2018
2018
END OF PERIOD BALANCES
 
 
 
 
 
 
Assets
$
6,691,070

$
6,650,105

$
6,379,086

 
$
6,293,745

$
6,293,169

Loans and leases
5,099,546

5,109,337

4,926,187

 
4,835,464

4,825,553

Deposits
5,391,679

5,403,845

5,124,091

 
5,122,322

5,061,977

Reserve for loan and lease losses
108,941

104,911

101,852

 
100,469

98,300

Goodwill and intangible assets
83,978

83,985

83,992

 
83,998

84,097

Common shareholders’ equity
813,167

794,662

778,422

 
762,082

750,437

   Total equity
833,042

804,686

781,101

 
763,590

750,437

ASSET QUALITY
 
 
 
 
 
 
Loans and leases past due 90 days or more
$
311

$
156

$
178

 
$
366

$
125

Nonaccrual loans and leases
10,188

12,212

13,622

 
27,859

36,028

Other real estate
629

543

417

 
299

432

Repossessions
6,610

8,799

10,411

 
6,666

13,041

Equipment owned under operating leases


64

 
126

48

Total nonperforming assets
$
17,738

$
21,710

$
24,692

 
$
35,316

$
49,674

(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.

- 7 -



1st SOURCE CORPORATION
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
September 30,
 
June 30,
 
December 31,
 
September 30,
 
2019
 
2019
 
2018
 
2018
ASSETS
 
 
 
 
 
 
 
Cash and due from banks
$
94,160

 
$
71,910

 
$
94,907

 
$
68,362

Federal funds sold and interest bearing deposits with other banks
33,325

 
24,578

 
4,172

 
45,514

Investment securities available-for-sale
1,032,185

 
1,021,786

 
990,129

 
972,172

Other investments
28,404

 
28,404

 
28,404

 
28,159

Mortgages held for sale
28,654

 
19,178

 
11,290

 
11,149

Loans and leases, net of unearned discount:
 
 
 
 
 
 
 
Commercial and agricultural
1,175,936

 
1,173,000

 
1,073,205

 
1,062,907

Auto and light truck
612,921

 
635,100

 
559,987

 
562,546

Medium and heavy duty truck
289,925

 
300,042

 
283,544

 
271,601

Aircraft
805,568

 
811,163

 
803,111

 
836,458

Construction equipment
685,696

 
686,633

 
645,239

 
654,605

Commercial real estate
858,402

 
835,919

 
809,886

 
781,093

Residential real estate and home equity
531,630

 
529,749

 
523,855

 
523,391

Consumer
139,468

 
137,731

 
136,637

 
132,952

Total loans and leases
5,099,546

 
5,109,337

 
4,835,464

 
4,825,553

Reserve for loan and lease losses
(108,941
)
 
(104,911
)
 
(100,469
)
 
(98,300
)
Net loans and leases
4,990,605

 
5,004,426

 
4,734,995

 
4,727,253

Equipment owned under operating leases, net
119,171

 
126,502

 
134,440

 
137,492

Net premises and equipment
51,680

 
51,570

 
52,139

 
53,479

Goodwill and intangible assets
83,978

 
83,985

 
83,998

 
84,097

Accrued income and other assets
228,908

 
217,766

 
159,271

 
165,492

Total assets
$
6,691,070

 
$
6,650,105

 
$
6,293,745

 
$
6,293,169

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing demand
$
1,246,063

 
$
1,238,604

 
$
1,217,120

 
$
1,151,573

Interest-bearing deposits:
 
 
 
 
 
 
 
Interest-bearing demand
1,605,602

 
1,665,456

 
1,614,959

 
1,606,462

Savings
820,409

 
810,122

 
822,477

 
822,246

Time
1,719,605

 
1,689,663

 
1,467,766

 
1,481,696

Total interest-bearing deposits
4,145,616

 
4,165,241

 
3,905,202

 
3,910,404

Total deposits
5,391,679

 
5,403,845

 
5,122,322

 
5,061,977

Short-term borrowings:
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
139,417

 
119,781

 
113,627

 
124,630

Other short-term borrowings
57,734

 
66,228

 
85,717

 
166,077

Total short-term borrowings
197,151

 
186,009

 
199,344

 
290,707

Long-term debt and mandatorily redeemable securities
71,520

 
71,542

 
71,123

 
70,919

Subordinated notes
58,764

 
58,764

 
58,764

 
58,764

Accrued expenses and other liabilities
138,914

 
125,259

 
78,602

 
60,365

Total liabilities
5,858,028

 
5,845,419

 
5,530,155

 
5,542,732

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

 
436,538

 
436,538

 
436,538

Retained earnings
448,715

 
431,091

 
398,980

 
383,943

Cost of common stock in treasury (2,696,918, 2,670,462, 2,421,946, and 2,239,928 shares at September 30, 2019, June 30, 2019, December 31, 2018, and
  September 30, 2018, respectively)
(76,716
)
 
(75,380
)
 
(62,760
)
 
(54,369
)
Accumulated other comprehensive income (loss)
4,630

 
2,413

 
(10,676
)
 
(15,675
)
Total shareholders’ equity
813,167

 
794,662

 
762,082

 
750,437

Noncontrolling interests
19,875

 
10,024

 
1,508

 

Total equity
833,042

 
804,686

 
763,590

 
750,437

Total liabilities and equity
$
6,691,070

 
$
6,650,105

 
$
6,293,745

 
$
6,293,169



- 8 -



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,
 
2019
 
2019
 
2018
 
2019
 
2018
Interest income:
 
 
 
 
 
 
 
 
 
Loans and leases
$
66,807

 
$
65,599

 
$
59,961

 
$
195,089

 
$
172,172

Investment securities, taxable
5,056

 
5,186

 
4,912

 
15,757

 
13,993

Investment securities, tax-exempt
316

 
353

 
432

 
1,054

 
1,438

Other
497

 
499

 
391

 
1,434

 
1,196

Total interest income
72,676

 
71,637

 
65,696

 
213,334

 
188,799

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
13,524

 
12,978

 
9,405

 
37,972

 
24,286

Short-term borrowings
293

 
540

 
518

 
1,764

 
2,120

Subordinated notes
914

 
928

 
918

 
2,770

 
2,709

Long-term debt and mandatorily redeemable securities
750

 
764

 
493

 
2,258

 
1,621

Total interest expense
15,481

 
15,210

 
11,334

 
44,764

 
30,736

Net interest income
57,195

 
56,427

 
54,362

 
168,570

 
158,063

Provision for loan and lease losses
3,717

 
4,247

 
6,157

 
12,882

 
14,760

Net interest income after provision for loan and lease losses
53,478

 
52,180

 
48,205

 
155,688

 
143,303

Noninterest income:
 
 
 
 
 
 
 
 
 
Trust and wealth advisory
4,982

 
5,583

 
5,109

 
15,423

 
16,097

Service charges on deposit accounts
2,892

 
2,785

 
2,567

 
8,175

 
7,676

Debit card
3,727

 
3,669

 
3,377

 
10,616

 
9,907

Mortgage banking
1,362

 
999

 
925

 
3,297

 
2,882

Insurance commissions
1,603

 
1,518

 
1,580

 
5,295

 
5,025

Equipment rental
7,578

 
7,809

 
7,977

 
23,369

 
23,836

Losses on investment securities available-for-sale

 

 

 

 
(345
)
Other
3,621

 
3,301

 
2,525

 
9,378

 
7,812

Total noninterest income
25,765

 
25,664

 
24,060

 
75,553

 
72,890

Noninterest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
24,434

 
23,787

 
23,164

 
71,716

 
69,391

Net occupancy
2,635

 
2,481

 
2,523

 
7,888

 
7,504

Furniture and equipment
6,027

 
6,289

 
5,769

 
18,340

 
16,942

Depreciation – leased equipment
6,198

 
6,400

 
6,580

 
19,122

 
19,692

Professional fees
1,603

 
1,706

 
1,883

 
4,907

 
5,628

Supplies and communication
1,643

 
1,608

 
1,635

 
4,744

 
4,687

FDIC and other insurance
260

 
608

 
855

 
1,513

 
2,267

Business development and marketing
1,844

 
1,678

 
1,663

 
4,471

 
4,921

Loan and lease collection and repossession
697

 
230

 
1,563

 
2,288

 
3,079

Other
1,765

 
2,566

 
1,707

 
4,674

 
4,665

Total noninterest expense
47,106

 
47,353

 
47,342

 
139,663

 
138,776

Income before income taxes
32,137

 
30,491

 
24,923

 
91,578

 
77,417

Income tax expense
7,689

 
7,074

 
5,035

 
21,517

 
16,449

Net income
24,448

 
23,417

 
19,888

 
70,061

 
60,968

Net (income) loss attributable to noncontrolling interests
(10
)
 
(32
)
 

 
(42
)
 

Net income available to common shareholders
$
24,438

 
$
23,385

 
$
19,888

 
$
70,019

 
$
60,968

Per common share:
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.95

 
$
0.91

 
$
0.76

 
$
2.72

 
$
2.33

Diluted net income per common share
$
0.95

 
$
0.91

 
$
0.76

 
$
2.72

 
$
2.33

Cash dividends
$
0.27

 
$
0.27

 
$
0.25

 
$
0.81

 
$
0.71

Basic weighted average common shares outstanding
25,520,035

 
25,615,718

 
25,965,694

 
25,630,771

 
25,958,125

Diluted weighted average common shares outstanding
25,520,035

 
25,615,718

 
25,965,694

 
25,630,771

 
25,958,125


- 9 -





1st SOURCE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
INTEREST RATES AND INTEREST DIFFERENTIAL
 
 
 
 
 
 
 
 
 
 
(Unaudited - Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
September 30, 2019
 
June 30, 2019
 
September 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
$
959,104

 
$
5,056

 
2.09
%
 
$
929,264

 
$
5,186

 
2.24
%
 
$
879,882

 
$
4,912

 
2.21
%
Tax exempt(1)
65,146

 
388

 
2.36
%
 
71,878

 
437

 
2.44
%
 
84,399

 
533

 
2.51
%
Mortgages held for sale
19,888

 
190

 
3.79
%
 
12,014

 
127

 
4.24
%
 
9,016

 
93

 
4.09
%
Loans and leases, net of unearned discount(1)
5,091,358

 
66,712

 
5.20
%
 
5,001,392

 
65,565

 
5.26
%
 
4,822,431

 
59,964

 
4.93
%
Other investments
54,768

 
497

 
3.60
%
 
53,323

 
499

 
3.75
%
 
43,860

 
391

 
3.54
%
Total earning assets(1)
6,190,264

 
72,843

 
4.67
%
 
6,067,871

 
71,814

 
4.75
%
 
5,839,588

 
65,893

 
4.48
%
Cash and due from banks
66,046

 
 
 
 
 
67,448

 
 
 
 

 
64,622

 
 

 
 

Reserve for loan and lease losses
(106,559
)
 
 
 
 
 
(102,787
)
 
 
 
 

 
(102,790
)
 
 

 
 

Other assets
471,129

 
 
 
 
 
455,212

 
 
 
 

 
422,767

 
 

 
 

Total assets
$
6,620,880

 
 
 
 
 
$
6,487,744

 
 
 
 

 
$
6,224,187

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

Interest-bearing deposits
$
4,174,746

 
$
13,524

 
1.29
%
 
$
4,137,118

 
$
12,978

 
1.26
%
 
$
3,986,576

 
$
9,405

 
0.94
%
Short-term borrowings
188,562

 
293

 
0.62
%
 
201,401

 
540

 
1.08
%
 
207,225

 
518

 
0.99
%
Subordinated notes
58,764

 
914

 
6.17
%
 
58,764

 
928

 
6.33
%
 
58,764

 
918

 
6.20
%
Long-term debt and mandatorily redeemable securities
71,304

 
750

 
4.17
%
 
71,308

 
764

 
4.30
%
 
70,902

 
493

 
2.76
%
Total interest-bearing liabilities
4,493,376

 
15,481

 
1.37
%
 
4,468,591

 
15,210

 
1.37
%
 
4,323,467

 
11,334

 
1.04
%
Noninterest-bearing deposits
1,188,645

 
 

 
 

 
1,127,794

 
 

 
 

 
1,104,645

 
 

 
 

Other liabilities
119,125

 
 

 
 

 
98,475

 
 

 
 

 
44,827

 
 

 
 

Shareholders’ equity
809,279

 
 

 
 

 
789,009

 
 

 
 

 
751,248

 
 

 
 

   Noncontrolling interests
10,455

 
 
 
 
 
3,875

 
 
 
 
 

 
 
 
 
Total liabilities and equity
$
6,620,880

 
 

 
 

 
$
6,487,744

 
 

 
 

 
$
6,224,187

 
 

 
 

Less: Fully tax-equivalent adjustments
 
 
(167
)
 
 
 
 
 
(177
)
 
 
 
 
 
(197
)
 
 
Net interest income/margin (GAAP-derived)(1)
 

 
$
57,195

 
3.67
%
 
 

 
$
56,427

 
3.73
%
 
 

 
$
54,362

 
3.69
%
Fully tax-equivalent adjustments
 
 
167

 
 
 
 
 
177

 
 
 
 
 
197

 
 
Net interest income/margin - FTE(1)
 

 
$
57,362

 
3.68
%
 
 

 
$
56,604

 
3.74
%
 
 

 
$
54,559

 
3.71
%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.


- 10 -