1st Source Corporation announces third quarter earnings
QUARTERLY HIGHLIGHTS
- Net income improved to $14.26 million and diluted net income per common share improved to $0.55 from the prior year's quarter.
- Return on average assets of 1.05% and return on average common shareholders' equity of 8.47%.
- Net charge-offs of $4.63 million and nonperforming assets to loans and leases of 0.68%.
- Average loans and leases grew $278.36 million or 7.12% from the third quarter of 2015.
- Average deposits grew $357.46 million or 8.95% from the third quarter of 2015.
- Net interest income increased $0.49 million or 1.15% from the third quarter of 2015.
- Noninterest income increased $1.53 million or 7.25% from the third quarter of 2015 (increased 4.96% excluding equipment rental income).
- Noninterest expenses increased slightly from the third quarter of 2015 (decreased 1.75% excluding leased equipment depreciation).
South Bend, IN - 1st Source Corporation (NASDAQ:
SRCE), parent company of 1st Source Bank, today reported net income of $14.26
million for the third quarter of 2016, compared to $13.93 million reported in
the third quarter a year ago bringing the 2016 year-to-date net income to
$42.56 million compared to $43.07 million in 2015. The year-to-date net income
comparison was negatively impacted by a reduction in net interest recoveries of
$1.45 million, a higher provision for loan and lease losses of $2.93 million,
and by the writedown of an available-for-sale equity investment. These
negatives were partially offset by gains of $1.86 million on a Volcker Rule
required liquidation of a partnership investment and gains of $0.99 million on
the sale of investment securities available-for-sale.
Diluted net income per common share for
the third quarter of 2016 was $0.55, versus $0.53 in the third quarter of 2015.
Diluted net income per common share was $1.63 for the first nine months of 2016
and 2015.
At its October 2016 meeting, the Board of
Directors approved a cash dividend of $0.18 per common share. The cash dividend
is payable to shareholders of record on November 1, 2016 and will be paid on
November 11, 2016. This brings dividends this year to $0.720 per common share
compared to $0.671 per common share at the same time last year.
According to Christopher J. Murphy III,
Chairman, “We again saw healthy growth in loans, leases and deposits this
quarter as we continued to add new clients to the bank. Average loans and
leases were up a solid 7.12% from a year ago along with a strong average
deposit increase of 8.95% during that same period. We had a steady performance
overall, with expenses held flat and net income up slightly for the quarter
compared to third quarter 2015.”
“While we are pleased with this growth,
recent consolidation of clients in some of the industries we serve is likely to
lead to payoffs and reduced opportunities in these industries. Also, continued
low interest rates are a challenge to holding our net interest margin stable.”
“Earlier this month, we opened our 81st
banking center in a fast growing area of Elkhart, Indiana, and next month we
will open a new larger office in the heart of downtown Warsaw, Indiana,
replacing our current downtown location. As always, we remain committed to
helping our clients achieve security, build wealth and realize their dreams by
giving straight talk and sound advice, keeping their best interests in mind for
the long term.” Mr. Murphy concluded.
THIRD QUARTER 2016 FINANCIAL RESULTS
Loans
Average
loans and leases of $4.19 billion increased $278.36 million, or 7.12% in the
third quarter of 2016 from the year ago quarter and have increased $84.23
million, or 2.05% from the second quarter. Year to date average loans and
leases of $4.10 billion increased $305.36 million, or 8.04% from the first nine
months of 2015.
Deposits
Average
deposits of $4.35 billion grew $357.46 million, or 8.95% for the quarter ended
September 30, 2016 from the year ago quarter and have increased $52.85 million,
or 1.23% compared to the second quarter. Average deposits for the first nine
months of 2016 were $4.27 billion an increase of $355.35 million or 9.08% from
the same period a year ago.
Net Interest Income and Net Interest Margin
Third quarter
2016 net interest income of $42.69 million increased $0.49 million, or 1.15%
from the third quarter a year ago and increased $0.40 million, or 0.95% from
the second quarter.
For the
first nine months of 2016, net interest income was $126.28 million, an increase
of $2.97 million, or 2.41% compared to the same period a year ago. Net interest
recoveries for the first nine months of 2016 were down $1.45 million from the
first nine months of 2015, resulting in a 4 basis point reduction to the net
interest margin.
Third
quarter 2016 net interest margin was 3.35%, a decrease of 19 basis points from
the 3.54% for the same period in 2015 and decreased 6 basis points from the
3.41% in the second quarter. Third quarter 2016 net interest margin on a fully
tax-equivalent basis was 3.39%, a decrease of 18 basis points from the 3.57%
for the same period in 2015 and decreased 6 basis points from the 3.45% in the
second quarter.
Net
interest margin for the first nine months of 2016 was 3.39%, a decrease of 17
basis points from the 3.56% for the same period in 2015.Net interest margin on
a fully tax-equivalent basis for the first nine months of 2016 was 3.43%, a
decrease of 17 basis points from the 3.60% for the same period in 2015.
Noninterest Income
Noninterest
income increased $1.53 million or 7.25% and $4.18 million or 6.69% in the three
and nine month periods ended September 30, 2016, respectively over the same
periods a year ago. The increase in noninterest income during the third quarter
was mainly due to higher equipment rental income related to an increase in the
average equipment rental portfolio and gains on the sale of available-for-sale
equity securities, which was offset by lower monogram fund income and decreased
customer swap fees. The increase in noninterest income during the first nine
months of 2016 was primarily due to higher equipment rental income related to
an increase in the average equipment rental portfolio, gains on the liquidation
of a partnership investment required by the Volcker Rule and gains on the sale
of available-for-sale equity securities, which was offset by lower monogram
fund income, an other than temporary writedown on an available-for-sale equity
security and decreased customer swap fees.
Noninterest Expense
Noninterest
expense was flat for the quarter ended September 30, 2016 and increased $4.51
million or 3.85% for the first nine months of 2016, respectively over the
comparable periods a year ago. The increase in noninterest expense was
primarily due to higher depreciation on leased equipment, furniture and
equipment and increased loan and lease collection and repossession expenses
offset by reduced residential mortgage foreclosure expenses, business
development and marketing and lower FDIC insurance assessments. Depreciation on
leased equipment was higher as a result of an increase in the average equipment
rental portfolio. Excluding depreciation on leased equipment, noninterest
expenses were up 1.67%. Furniture and equipment expense was higher due to
increased software maintenance costs, depreciation on new equipment with
banking center remodels and computer processing charges. Loan and lease
collection and repossession expenses increased mainly due to lower recoveries
on repurchased mortgage loans, fewer gains on the sale of other real estate
owned and repossessions.
Credit
The reserve
for loan and lease losses as of September 30, 2016 was 2.13% of total loans and
leases compared to 2.20% at June 30, 2016 and 2.22% at September 30, 2015. Net
charge-offs of $4.63 million were recorded for the third quarter of 2016
compared with net recoveries of $0.04 million in the same quarter a year ago.
Year to date, net charge-offs of $4.31 million have been recorded in 2016,
compared to net recoveries of $0.39 million for the first nine months of 2015.
Due
primarily to an increase in loan and lease outstandings, the provision for loan
and lease losses for the third quarter 2016 increased $1.08 million compared
with the same period in 2015 and was comparable to the second quarter. The
provision for loan and lease losses for the first nine months of 2016 was $5.09
million up $2.93 million from the same period in 2015.
The ratio
of nonperforming assets to net loans and leases was 0.68% as of September 30,
2016, comparable to the 0.66% on
September 30, 2015 and up from the 0.49% on June 30, 2016.
Capital
As of
September 30, 2016 and June 30, 2016, the common equity-to-assets ratio was
12.30%, compared to 12.52% a year ago. The tangible common equity-to-tangible
assets ratio was 10.93% at September 30, 2016 and 10.90% at June 30, 2016
compared to 11.04% a year earlier. The Common Equity Tier 1 ratio, calculated
under banking regulatory guidelines, was 12.35% at September 30, 2016 compared
to 12.20% at June 30, 2016 and 12.48% a year ago. During 2016, the Company
repurchased $8.03 million of common stock in several open market transactions.
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 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 81
community banking centers in 17 counties, 8 trust and wealth management
locations, 10 1st Source Insurance offices, as well as 22 specialty finance
locations nationwide.
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.
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