1st Source Corporation Reports Record Second Quarter Results
Cash Dividend Declared
QUARTERLY HIGHLIGHTS
- Net income was a record $23.39 million, up 6.47% over the second quarter of 2018. Diluted net income per common share was also a record of $0.91, up from the prior year’s second quarter of $0.84.
- Return on average assets of 1.45% and return on average common shareholders’ equity of 11.89% compared to 1.43% and 11.96%, respectively in the second quarter of 2018.
- Net charge-offs of $1.19 million and nonperforming assets to loans and leases of 0.41% compared to $0.14 million and 0.89%, respectively in the second quarter of 2018.
- Average loans and leases grew $231.03 million, up 4.84% from the second quarter of 2018. Average deposits grew $303.44 million, up 6.12% from the second quarter of 2018.
- Net interest income increased $3.26 million, up 6.13% from the second quarter of 2018.
- Noninterest income increased $0.64 million, up 2.56% from the second quarter of 2018 (increased 5.04% excluding leased equipment depreciation).
- Noninterest expenses increased $1.48 million, up 3.22% from the second quarter of 2018 (increased 4.49% excluding leased equipment depreciation).
South Bend, IN - 1st Source Corporation (NASDAQ:
SRCE), parent company of 1st Source Bank, today reported a record high net
income of $23.39 million for the second quarter of 2019, an improvement of
6.47% compared to $21.96 million reported in the second quarter a year ago,
bringing the 2019 year-to-date net income to $45.58 million compared to $41.08
million in 2018, an increase of 10.96%. The year-to-date net income comparison
was positively impacted by increased net interest income of $7.67 million
primarily due to higher loan rates and higher average loan and lease balances.
It was negatively impacted by a $1.12 million rise in noninterest expense.
Non-recurring 2019 items included a negative $1.10 million valuation adjustment
on a repossessed asset and $1.32 million gain on the sale of our former
headquarters building.
Diluted net
income per common share for the second quarter of 2019 was up 8.3% to a record
high of $0.91, versus $0.84 in the second quarter of 2018.
Diluted net income
per common share for the first half of 2019 was $1.76 compared to $1.57 earned
a year earlier, a 12.1% increase.
At its July
2019 meeting, the Board of Directors approved a cash dividend of $0.27 per
common share, up 8.0% from the $0.25 per common share declared a year ago. The
cash dividend is payable to shareholders of record on August 5, 2019 and will
be paid on August 15, 2019.
Christopher
J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased
with our record net income in the second quarter as 1st Source Corporation
continues to experience organic growth in loans and leases and deposits.
Seasonal trends within our specialty finance group portfolios contributed to an
increase in average loans and leases during the quarter of 4.84%. Credit
quality was also a bright spot for the quarter – the ratio of nonperforming
assets to loans and leases of 0.41% was the lowest it has been in over ten
years.”
“Recently,
1st Source was recognized as one of the 18 banks in the nation to be included
in the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll, with nearly 375
banking institutions having been screened in consideration for the list. Every
year, the Bank Honor Roll consists of banking institutions that have had 10
consecutive years of increased earnings per share, and this year’s list in
unique in that the banks included have done so since the 2009 financial crisis.
To be considered for this recognition, banks must be publicly traded
institutions with more than $500 million in total assets. For the last 156 years,
1st Source has been built upon strong, steady practices, and our mission has
always included giving straight talk and sound advice while keeping our
clients’ best interests in mind for the long-term. Being named among 18
institutions in our industry that have proven their strength since such a
tumultuous time for our country is a welcome confirmation that we continue to
be strong and steady and deliver on our mission.”
“The second
quarter of the year also saw further investment in our banking centers -
specifically our Niles and Erskine banking centers located inside the Martin’s
Super Market stores in Niles, Michigan and South Bend, Indiana, respectively.
The two locations underwent complete renovations and have been converted to our
signature side-by-side banking model. Side-by-side banking invites the client
behind the ‘teller line,’ allowing for the Bank’s clients and bankers to have a
more transparent and inclusive experience. These renovations were part of an
overall initiative to update our existing locations and continue our investment
in the communities where we live, do business and raise families.”
SECOND QUARTER 2019 FINANCIAL RESULTS
Loans
Average
loans and leases of $5.00 billion increased $231.03 million, up 4.84% in the
second quarter of 2019 from the year ago quarter and have increased $143.21
million, up 2.95% from the first quarter. Year-to-date average loans and leases
of $4.93 billion increased $250.11 million, up 5.34% from the first six months
of 2018.
Deposits
Average
deposits of $5.26 billion grew $303.44 million for the quarter ended
June 30, 2019, up 6.12% from the year ago quarter and have increased
$205.55 million, up 4.06% compared to the first quarter. Average deposits for
the first six months of 2019 were $5.16 billion, an increase of $327.05
million, up 6.76% from the same period a year ago.
Net Interest Income and Net Interest Margin
Second
quarter 2019 net interest income of $56.43 million increased $3.26 million, up
6.13% from the second quarter a year ago and increased $1.48 million, up 2.69%
from the first quarter. For the first six months of 2019, tax-equivalent net
interest income was $111.73 million, an increase of $7.62 million, up 7.32%
compared to the same period a year ago.
Second
quarter 2019 net interest margin was 3.73%, an improvement of four basis points
from the 3.69% for the same period in 2018 and decreased five basis point from
the first quarter. Second quarter 2019 net interest margin on a fully
tax-equivalent basis was 3.74%, an increase of three basis points from the
3.71% for the same period in 2018 and was lower by five basis points compared
to the first quarter. The margin continued to see pressure from deposit
competition and rate increases.
Net
interest margin for the first six months of 2019 was 3.75%, an increase of six
basis points from the 3.69% for the same period in 2018. Net interest margin on
a fully-taxable-equivalent basis for the first half of 2019 was 3.77%, an
increase of six basis points from the 3.71% for the first half of 2018.
Noninterest Income
Second
quarter 2019 noninterest income of $25.66 million increased $0.64 million, up
2.56% from the second quarter a year ago and increased $1.54 million, up 6.38%
from the first quarter. For the first six months of 2019, noninterest income was
$49.79 million, an increase of $0.96 million, up 1.96% compared to the same
period a year ago.
The growth
in noninterest income during 2019 compared to a year ago was mainly due to
higher debit card income from increased customer use, higher insurance commissions
primarily from increased business and higher contingent commissions, reduced
losses on the sale of available-for-sale securities, increased customer swap
fees and higher claim proceeds on bank owned life insurance. These positives
were offset by lower trust and wealth advisory fees resulting from a lower
value of assets under management due to stock market movements and reduced net
gains on partnership investments.
The
increase in noninterest income from the first quarter of 2019 was primarily the
result of seasonal trust and wealth advisory tax fees, increased debit card
income, growth in deposit account fees, higher customer swap fees, and
increased claim proceeds on bank owned life insurance. These positives were
offset by reduced insurance commissions from seasonal contingent commissions.
Noninterest Expense
Second
quarter 2019 noninterest expense of $47.35 million increased $1.48 million, up
3.22% from the second quarter a year ago and increased $2.15 million, up 4.75%
from the first quarter. Excluding depreciation on leased equipment, noninterest
expenses were up 4.49% from the second quarter a year ago and up 5.88% from the
first quarter. For the first six months of 2019, noninterest expense was $92.56
million, an increase of $1.12 million, or 1.23% compared to the same period a
year ago.
The
increase in noninterest expense during 2019 compared to a year ago was mainly
due to higher salaries as a result of normal merit increases, increased group
insurance costs, a rise in furniture and equipment expense due to increased
software maintenance costs and equipment depreciation, and growth in the
provision for unfunded loan commitments. These increases were offset by higher
gains on the sale of fixed assets, decreased incentive compensation from fewer
vestings of share-based compensation arrangements, lower business development
and marketing costs from fewer marketing promotions, and reduced professional
fees from consulting services.
The growth
in noninterest expense from the first quarter was primarily the result of fewer
gains on the sale of fixed assets, increased business development and marketing
expenses, growth in the provision for unfunded loan commitments, and higher
group insurance costs, offset by lower repossessed asset valuation adjustments.
Credit
The reserve
for loan and lease losses as of June 30, 2019 was 2.05% of total loans and
leases compared to 2.07% at March 31, 2019 and 2.13% at June 30,
2018. Net charge-offs of $1.19 million were recorded for the second quarter of
2019 compared with net charge-offs of $0.14 million in the same quarter a year
ago and down from the $3.54 million of net charge-offs in the first quarter.
The majority of the second quarter charge-off was related to one relationship
within the medium and heavy duty truck portfolio.
The
provision for loan and lease losses was $4.25 million for the second quarter of
2019, a decrease of $0.57 million compared with the same period in 2018 and a
decrease of $0.67 million from the first quarter. The ratio of nonperforming
assets to loans and leases was an improved 0.41% as of June 30, 2019,
compared to 0.49% on March 31, 2019 and 0.89% on June 30, 2018.
Capital
As of
June 30, 2019, the common equity-to-assets ratio was 11.95%, compared to
12.20% at March 31, 2019 and 11.71% a year ago. The tangible common
equity-to-tangible assets ratio was 10.82% at June 30, 2019 compared to
11.03% at March 31, 2019 and 10.52% a year earlier. The Common Equity Tier
1 ratio, calculated under banking regulatory guidelines, was 11.83% at June 30,
2019 compared to 12.28% at March 31, 2019 and 12.15% a year ago. During
the second quarter of 2019, 141,627 shares were repurchased for treasury
reducing common shareholders’ equity by $6.42 million. During 2019, common
shareholders’ equity declined by $13.68 million due to 295,787 shares acquired
for treasury.
ABOUT 1ST SOURCE CORPORATION
1st Source
common stock is traded on the NASDAQ Global Select Market under “SRCE” and
appears in the National Market System tables in many daily newspapers under the
code name “1st Src.” Since 1863, 1st Source has been committed to the success
of its clients, individuals, businesses and the communities it serves. For more
information, visit www.1stsource.com.
1st Source
serves the northern half of Indiana and southwest Michigan and is the largest
locally controlled financial institution headquartered in the area. While
delivering a comprehensive range of consumer and commercial banking services
through its community bank offices, 1st Source has distinguished itself with
highly personalized services. 1st Source Bank also competes for business
nationally by offering specialized financing services for new and used private
and cargo aircraft, automobiles for leasing and rental agencies, medium and
heavy duty trucks, and construction equipment. The Corporation includes 80
banking centers, 18 1st Source Bank Specialty Finance Group locations
nationwide, eight Wealth Advisory Services locations and ten 1st Source
Insurance offices.
FORWARD LOOKING STATEMENTS
Except for historical
information contained herein, the matters discussed in this document express
“forward-looking statements.” Generally, the words “believe,” “contemplate,”
“seek,” “plan,” “possible,” “assume,” “expect,” “intend,” “targeted,”
“continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,”
“indicate,” “would,” “may” and similar expressions indicate forward-looking
statements. Those statements, including statements, projections, estimates or
assumptions concerning future events or performance, and other statements that
are other than statements of historical fact, are subject to material risks and
uncertainties. 1st Source cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
1st Source
may make other written or oral forward-looking statements from time to time.
Readers are advised that various important factors could cause 1st Source’s
actual results or circumstances for future periods to differ materially from
those anticipated or projected in such forward-looking statements. Such
factors, among others, include changes in laws, regulations or accounting
principles generally accepted in the United States; 1st Source’s competitive
position within its markets served; increasing consolidation within the banking
industry; unforeseen changes in interest rates; unforeseen downturns in the
local, regional or national economies or in the industries in which 1st Source
has credit concentrations; and other risks discussed in 1st Source’s filings
with the Securities and Exchange Commission, including its Annual Report on
Form 10-K, which filings are available from the SEC. 1st Source undertakes no
obligation to publicly update or revise any forward-looking statements.
NON-GAAP FINANCIAL MEASURES
The accounting and reporting
policies of 1st Source conform to generally accepted accounting principles
(“GAAP”) in the United States and prevailing practices in the banking industry.
However, certain non-GAAP performance measures are used by management to
evaluate and measure the Company’s performance. Although these non-GAAP
financial measures are frequently used by investors to evaluate a financial
institution, they have limitations as analytical tools, and should not be
considered in isolation, or as a substitute for analyses of results as reported
under GAAP. These include taxable-equivalent net interest income (including its
individual components), net interest margin (including its individual
components), the efficiency ratio, tangible common equity-to-tangible assets
ratio and tangible book value per common share. Management believes that these
measures provide users of the Company’s financial information a more meaningful
view of the performance of the interest-earning assets and interest-bearing
liabilities and of the Company’s operating efficiency. Other financial holding
companies may define or calculate these measures differently.
Management reviews yields on
certain asset categories and the net interest margin of the Company and its
banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this
non-GAAP presentation, net interest income is adjusted to reflect tax-exempt
interest income on an equivalent before-tax basis. This measure ensures
comparability of net interest income arising from both taxable and tax-exempt
sources. Net interest income on a FTE basis is also used in the calculation of
the Company’s efficiency ratio. The efficiency ratio, which is calculated by
dividing non-interest expense by total taxable-equivalent net revenue (less
securities gains or losses and lease depreciation), measures how much it costs
to produce one dollar of revenue. Securities gains or losses and lease
depreciation are excluded from this calculation to better match revenue from
daily operations to operational expenses. Management considers the tangible
common equity-to-tangible assets ratio and tangible book value per common share
as useful measurements of the Company’s equity.
See the
table marked “Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of certain non-GAAP financial measures used by the Company with
their most closely related GAAP measures.