1st Source Corporation Reports First Quarter Results
- Net income was $16.41 million, down 26.05% from the first quarter of 2019. Diluted net income per common share was $0.64, down from the prior year’s first quarter of $0.86.
- Cash dividend of $0.28 per common share approved, up 3.70% from the $0.27 per common share declared a year ago.
- Return on average assets of 1.00% and return on average common shareholders’ equity of 7.81% compared to 1.43% and 11.61%, respectively in the first quarter of 2019.
- Average loans and leases grew $51.76 million, up 1.03% from the previous quarter and $240.21 million, up 4.94% from the first quarter of 2019.
- Average deposits decreased $142.05 million, or 2.62% from the previous quarter and grew $213.01 million, up 4.21% from the first quarter of 2019.
- Net charge-offs were $1.81 million and nonperforming assets to loans and leases were 0.68% compared to net charge-offs of $3.54 million and 0.49%, respectively in the first quarter of 2019.
- Provision was made to the loan and lease losses reserve of $11.35 million compared to $4.92 million in the first quarter of 2019.
- Net interest income decreased $0.10 million, or 0.19% from the first quarter of 2019.
- Noninterest income increased $0.50 million, up 2.06% from the first quarter of 2019 (increased 9.06% excluding leased equipment depreciation).
- Noninterest expenses increased $1.33 million, up 2.94% from the first quarter of 2019 (increased 6.28% excluding leased equipment depreciation).
1st Source Corporation (NASDAQ:
SRCE), parent company of 1st Source Bank, today reported net income of $16.41
million for the first quarter of 2020, a decrease of 26.05% compared to $22.20
million reported in the first quarter a year ago. The net income comparison was
negatively impacted by an increased provision for loan and lease losses of
$6.44 million primarily due to a sizeable impairment on one account, the likely
negative economic impact on our portfolio from COVID-19, higher special
attention outstandings in the quarter and increased loan and lease balances.
Non-recurring 2020 items included $0.45 million in FDIC insurance premium
credits received.
Diluted net
income per common share for the first quarter of 2020 was down 25.58% to $0.64,
versus $0.86 in the first quarter of 2019.
At its
April 2020 meeting, the Board of Directors approved a cash dividend of $0.28
per common share, up 3.70% from the $0.27 per common share declared a year ago.
The cash dividend is payable to shareholders of record on May 5, 2020 and will
be paid on May 15, 2020.
Christopher
J. Murphy III, Chairman and Chief Executive Officer, commented, “While this has
been a tough quarter, we are pleased that we have been able to help our
customers navigate through the uncertainties presented by the current
coronavirus (COVID-19) pandemic and we will continue to do so. We are
well-positioned for the long term, are well-capitalized, have appropriate
reserves, and have a strong balance sheet. That said, the near-term
level of uncertainty is unprecedented as to the severity and length of the
economic downturn tied to the coronavirus offset possibly by the effectiveness
of the government’s enormous stimulus efforts. The continuation of
shelter-in-place in our markets for prolonged periods of time, the inability to
control the virus, and its possible return in the fall or winter could have
serious negative impact on our clients and the markets we serve. In this
environment of uncertainty, it is hard to predict what can or will happen and
the impact it will have on us.
“As the
current pandemic continues to negatively impact the economy, resulting in
layoffs and rising unemployment in our local community banking markets and
stresses among our specialty finance clients, we are working proactively to
support our clients through this difficult period with a heightened sense of
purpose and determination to deliver exceptional service to them. To date, we
have approved and processed more than $494 million of loan modifications across
our loan portfolios. The largest volume of loan modifications has been in the
Auto and Light Truck, Construction and Commercial loan portfolios where business
operations were directly impacted early-on by the pandemic. In addition, we are
participating in the Small Business Administration Paycheck Protection Program
(PPP) and have processed 2,061 small business PPP loans totaling more than $554
million to date. The PPP is a loan program designed to help small businesses
keep their workforces employed during the coronavirus crisis and is one of a
number of stimulus initiatives we have stood up and are delivering to our
business and consumer clients. While these are tumultuous times, we will
continue our longstanding practice of providing straight talk, sound advice,
always keeping our clients’ best interests in mind for the long-term.
“On a more
positive note, our residential mortgage loan business has been booming. We are
seeing highproduction volumes and
profitable results. Prior year Lean initiatives to streamline and hone our
mortgage loan processes have allowed us to keep pace with the surging demand.
“In late
January, we opened our newly constructed stand-alone banking center in the
Middlebury, Ind. community. Our prior location there, where we had been a
tenant for many years, was not consistent with the atmosphere our customers
have come to know and expect from our banking centers. The new banking center
features our signature side-by-side banking experience, as well as drive up
teller service lanes and ATM. A few weeks after that, we opened the doors to
our new banking center in downtown Auburn, Ind. We entered this community
outside Fort Wayne strategically, and we have received a tremendous response
from the people and businesses there. We have of course joined with our clients
and the communities we serve to adjust the experience in all our banking
centers to “flatten the curve” and support our first responders and health-care
professionals in this unprecedented global response to an invisible enemy.
“In
closing, I’d like to reassure you that 1st Source is committed to the essential
work we do in the banking industry and for our clients. We have put many
precautions in place so that we may continue to serve our clients through this
difficult time while also ensuring their health and well-being as well as the
health and well-being of our employees and all of our families and the
communities we serve. Teams have been split up so that infection cannot spread
across entire departments, disrupting the important work our employees do. We
are encouraging virtual meetings and conference calls in place of in-person
meetings, including our annual shareholders meeting which will be held
virtually this year. Additionally, travel has been restricted, and we are
promoting social distancing, frequent hand washing and thorough disinfection of
all surfaces. We have a dedicated executive pandemic response team that meets daily
and is closely monitoring developments and providing guidance for additional
precautions and initiatives. We are resolute in our commitment to serve our
clients and communities just as we have for over 156 years and will do so for
many years to come.” Mr. Murphy concluded.
FIRST QUARTER 2020 FINANCIAL RESULTS
Loans
Average
loans and leases of $5.10 billion increased $240.21 million, up 4.94% in the
first quarter of 2020 from the year ago quarter and have increased $51.76
million, up 1.03% from the fourth quarter of 2019.
Deposits
Average
deposits of $5.27 billion grew $213.01 million for the quarter ended
March 31, 2020, up 4.21% from the year ago quarter and have decreased
$142.05 million, or 2.62% compared to the fourth quarter of 2019.
Net Interest Income and Net Interest Margin
First
quarter 2020 net interest income of $54.84 million was relatively flat from the
first quarter a year ago and decreased $0.45 million, down 0.82% from the
fourth quarter of 2019.
First
quarter 2020 net interest margin was 3.57%, a decrease of 21 basis points from
the 3.78% for the same period in 2019 and increased six basis points from the
fourth quarter of 2019. First quarter 2020 net interest margin on a fully
tax-equivalent basis was 3.58%, a decrease of 21 basis points from the 3.79%
for the same period in 2019 and was higher by six basis points compared to the
previous quarter. The margin continues to experience pressure from the numerous
Federal Reserve interest rate decreases during the second half of 2019 and the
first three months of 2020. Interest-bearing deposit repricing and a shift in
the deposit mix during the first quarter of 2020 resulted in a positive margin
impact when compared to the year end margin.
Noninterest Income
First
quarter 2020 noninterest income of $24.62 million increased $0.50 million, up
2.06% from the first quarter a year ago and decreased $0.96 million, or 3.73%
from the fourth quarter of 2019.
Noninterest
income during the three months ended March 31, 2020 was higher compared to a
year ago mainly from improved mortgage banking income driven by gains on a
higher volume of loan sales, increased gains on the sale of available-for-sale
securities, increased gains on partnership investments, higher debit card
income and increased service charges on deposit accounts. These positives were
offset by lower equipment rental income due to a reduction in the size of the
average equipment rental portfolio, reduced insurance commissions due to a
decline in contingent commissions received and decreased customer swap fees.
The
decrease in noninterest income from the fourth quarter of 2019 was primarily
the result of lower equipment rental income due to a reduction in the size of
the average equipment rental portfolio, decreased trust and wealth advisory
fees, reduced brokerage fees and commissions, and decreased customer swap fees.
These negatives were offset by higher mortgage banking income on a higher
volume of loan sales and increased insurance commissions on property and
casualty policies.
Noninterest Expense
First
quarter 2020 noninterest expense of $46.54 million increased $1.33 million, or
2.94% from the first quarter a year ago and decreased $2.81 million, down 5.70%
from the prior quarter. Excluding depreciation on leased equipment, noninterest
expenses were up 6.28% from the first quarter a year ago and down 5.15% from
the prior quarter.
The
increase in noninterest expense during the first quarter compared to a year ago
was mainly due to reduced gains on the sale of fixed assets, higher salaries as
a result of normal merit increases and slightly increased staffing levels, a
rise in the valuation provision for interest rate swaps with customers, and
higher business development and marketing expenses due to marketing promotions.
These increases were offset by fewer valuation adjustments on repossessed
assets, lower leased equipment depreciation resulting from a reduction in the
average equipment rental portfolio, a decrease in executive cash incentives,
reduced insurance costs due to FDIC assessment credits and higher gains on the
sale of off-lease operating equipment.
The
decrease in noninterest expense from the prior quarter was primarily the result
of decreased group insurance costs on lower claims, fewer valuation adjustments
on repossessed assets, a decrease in executive cash incentives, a decline in
employee commissions and awards, reduced leased equipment depreciation, and
fewer professional consulting fees. These decreases were offset by an increased
valuation provision for interest rate swaps with customers and higher
collection and repossession expenses.
Credit
The reserve
for loan and lease losses as of March 31, 2020 was 2.35% of total loans
and leases compared to 2.19% at December 31, 2019 and 2.07% at March 31,
2019. Net charge-offs of $1.81 million were recorded for the first quarter of
2020 compared with net charge-offs of $3.54 million in the same quarter a year
ago and $0.64 million of net charge-offs in the prior quarter.
The
provision for loan and lease losses was $11.35 million for the first quarter of
2020, an increase of $6.44 million compared with the same period in 2019 and an
increase of $8.40 million from the fourth quarter of 2019. The ratio of
nonperforming assets to loans and leases was 0.68% as of March 31, 2020,
compared to 0.37% on December 31, 2019 and 0.49% on March 31, 2019.
Capital
As of
March 31, 2020, the common equity-to-assets ratio was 12.63%, compared to
12.51% at December 31, 2019 and 12.20% a year ago. The tangible common
equity-to-tangible assets ratio was 11.53% at March 31, 2020 compared to
11.38% at December 31, 2019 and 11.03% a year earlier. The Common Equity Tier 1
ratio, calculated under banking regulatory guidelines, was 12.57% at
March 31, 2020 compared to 12.55% at December 31, 2019 and 12.28% a year
ago. There were no shares repurchased for treasury during 2020.