1st Source Corporation Reports Fourth Consecutive Quarter of Record Results, Cash Dividend Increased
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.
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 North Central
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.”
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.
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.
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.
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.