Consecutive Record Quarterly Earnings, Cash Dividend Declared
- Net income increased to $17.18 million, 20.46% over the third quarter of 2016 and diluted net income per common share increased to $0.66 from the prior year’s quarter of $0.55.
- Return on average assets increased to 1.19% and return on average common shareholders’ equity of 9.61% from 1.05% and 8.47% in the third quarter of 2016.
- Net charge-offs of $0.16 million and nonperforming assets to loans and leases of 0.64% were considerably lower compared to $4.63 million and 0.68% in the third quarter of 2016.
- Average loans and leases grew $198.41 million or 4.74% from the third quarter of 2016.
- Average deposits grew $175.01 million or 4.02% from the third quarter of 2016.
- Net interest income increased $4.54 million or 10.62% from the third quarter of 2016.
- Noninterest income increased $2.93 million or 12.91% from the third quarter of 2016 (increased 11.30% excluding leased equipment depreciation).
- Noninterest expenses increased $3.32 million or 8.06% from the third quarter of 2016 (increased 6.52% 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 $17.18 million for the third quarter of 2017, an increase of 20.46% compared to $14.26 million reported in the third quarter a year ago, bringing the 2017 year-to-date net income to $50.06 million compared to $42.56 million in 2016, an increase of 17.61%. The year-to-date net income comparison was positively impacted by gains on the sale of investment securities available-for-sale of $2.76 million. Also, gains on the sale of fixed assets and leased equipment of $0.86 million and solar tax equity investment gains of $0.32 million added additional income. These increases were partially offset by costs on repossessed aircraft of $0.74 million, the writedown of fixed assets of $0.60 million and a contribution to the 1st Source Foundation of $0.50 million.
Diluted net income per common share for the third quarter of 2017 was a record high at $0.66, versus $0.55 in the third quarter of 2016. Diluted net income per common share for the first nine months of 2017 was also a record at $1.92 compared to the $1.63 a year earlier.
At its October 2017 meeting, the Board of Directors approved a cash dividend increase to $0.20 per common share from $0.19. The cash dividend is payable to shareholders of record on November 6, 2017 and will be paid on November 15, 2017. This brings year-to-date dividends in 2017 to $0.76 per common share, an increase of 5.56% compared to $0.72 per common share at the same time last year.
According to Christopher J. Murphy III, Chairman, "1st Source Corporation had a strong third quarter. We continue to achieve record net income and see healthy growth in loans, leases, and deposits. Credit quality remains favorable with year-to-date net charge-offs of only $529,000 or 0.02% of average loans and leases. Average loans and leases were up a solid 4.74% for the quarter compared to the same period last year. Average deposits grew 4.02% from the third quarter of 2016. Net interest income has increased 10.62% from the third quarter 2016, along with noninterest income increasing 12.91%. Noninterest expenses increased 8.06% from the same quarter of 2016."
"We believe Hurricanes Harvey and Irma will have little to no impact on our financial results. We are however, working proactively to help our banking and specialty finance clients that live and operate businesses in the affected areas of Texas, Florida, and St. Thomas in the U.S. Virgin Islands. In order to provide relief and aid in recovery, we have offered interest only or deferred payments on loans based on the customer's preference and level of damage." Mr. Murphy concluded.
THIRD QUARTER 2017 FINANCIAL RESULTS
Average loans and leases of $4.39 billion increased $198.41 million, or 4.74% in the third quarter of 2017 from the year ago quarter and have increased $79.47 million or 1.84% from the second quarter. Year-to-date average loans and leases of $4.30 billion increased $193.87 million, or 4.73% from the first nine months of 2016.
Average deposits of $4.53 billion grew $175.01 million, or 4.02% for the quarter ended September 30, 2017 from the year ago quarter and have increased $73.29 million, or 1.65% compared to the second quarter. Average deposits for the first nine months of 2017 were $4.43 billion, an increase of $158.96 million or 3.72% from the same period a year ago.
Net Interest Income and Net Interest Margin
Third quarter 2017 net interest income of $47.23 million increased $4.54 million, or 10.62% from the third quarter of 2016 and increased $1.37 million, or 2.98% from the second quarter.
For the first nine months of 2017, tax-equivalent net interest income was $138.18 million, an increase of $10.53 million, or 8.25% compared to the same period a year ago.
Third quarter 2017 net interest margin was 3.53%, an improvement of 18 basis points from the 3.35% for the same period in 2016 and was unchanged from the second quarter. Third quarter 2017 net interest margin on a fully tax-equivalent basis was 3.57%, an increase of 18 basis points from the 3.39% for the same period in 2016 and was unchanged from the second quarter.
Net interest margin for the first nine months of 2017 was 3.52%, an increase of 13 basis points from the 3.39% for the same period in 2016. Net interest margin on a fully tax-equivalent basis for the first nine months of 2017 was 3.56%, an increase of 13 basis points over 3.43% for the same period in 2016.
Noninterest income increased $2.93 million or 12.91% and $6.45 million or 9.68% in the three and nine month periods ended September 30, 2017, respectively over the same periods a year ago. The growth in noninterest income during the third quarter and year-to-date compared to the same period a year ago was mainly due to higher equipment rental income resulting from an increase in the average lease portfolio, increased trust and wealth advisory fees, customer swap fees, and gains on the sale of available-for-sale equity securities, which were offset by reduced partnership gains resulting from the liquidation of an investment during 2016 and lower mutual fund income.
Noninterest expense increased $3.32 million or 8.06% and $4.80 million or 3.94% for the three and nine months ended September 30, 2017, respectively over the comparable periods a year ago. Excluding depreciation on leased equipment, noninterest expenses were up 6.52% and 2.24% for the third quarter and first nine months of 2017, respectively. The increase in noninterest expense from the same quarter a year ago was primarily due to higher depreciation on leased equipment, increased collection and repossession expenses, the writedown of a repossessed asset and higher consulting fees offset by reduced salaries and ATM losses that occurred during 2016.
The increase in noninterest expense for the first nine months of 2017 compared to the first nine months of 2016 was mainly due to higher depreciation on leased equipment, additional marketing promotions, increased consulting fees, and increased charitable contributions offset by reduced group insurance claims, lower FDIC insurance assessments and gains on the sale of leased equipment.
Noninterest expense increased from the second quarter of 2017 primarily as a result of higher group insurance costs, the writedown of a repossessed asset and lower gains on the sale of leased equipment, offset by a reduction in marketing expenses.
The reserve for loan and lease losses as of September 30, 2017 and June 30, 2017 was 2.10% of total loans and leases compared to 2.13% at September 30, 2016. Net charge-offs of $0.16 million were recorded for the third quarter of 2017 compared with net charge-offs of $4.63 million in the same quarter a year ago and $0.94 million of net charge-offs in the second quarter. Year-to-date net charge-offs of $0.53 million have been recorded in 2017, compared to net charge-offs of $4.31 million for the first nine months of 2016.
The ratio of nonperforming assets to loans and leases was 0.64% as of September 30, 2017, comparable to the 0.68% on September 30, 2016 and the 0.66% on June 30, 2017.
As of September 30, 2017, the common equity-to-assets ratio was 12.24%, compared to 12.29% at June 30, 2017 and 12.30% a year ago. The tangible common equity-to-tangible assets ratio was 10.95% at September 30, 2017 and 10.98% at June 30, 2017 compared to 10.93% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.52% at September 30, 2017 compared to 12.43% at June 30, 2017 and 12.35% a year ago.
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 79 banking centers, 23 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.