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1st Source Corporation Reports Record Second Quarter Results, Increased Cash Dividend Declared
[July 19, 2018]

1st Source Corporation Reports Record Second Quarter Results, Increased Cash Dividend Declared


1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $21.96 million for the second quarter of 2018, an improvement of 31.77% compared to $16.67 million reported in the second quarter a year ago, bringing the 2018 year-to-date net income to $41.08 million compared to $32.88 million in 2017, an increase of 24.96%. Income before taxes was $27.50 million compared to $26.15 million in the second quarter of 2017 and $52.49 million for the first six months of 2018 compared to $51.07 million for the same period in 2017. The year-to-date pretax income comparison was positively impacted by increased net interest income of $14.11 million primarily due to rising lending rates, higher average loan and lease balances, and recognition of a $0.62 million unaccreted purchase loan discount and $0.41 million prepayment penalty on two separate early loan payoffs. These positives were offset by a $4.87 million increase in the provision for loan and lease losses to support loan and lease growth along with additional specific reserves on nonaccrual loans and a $9.21 million rise in noninterest expense. Non-recurring 2018 costs were approximately $2.40 million.

Diluted net income per common share for the second quarter of 2018 was a record high $0.84, versus $0.64 in the second quarter of 2017. Diluted net income per common share for the first half of 2018 was $1.57 compared to $1.26 earned a year earlier.

At its July 2018 meeting, the Board of Directors approved a cash dividend of $0.25 per common share, up 31.58% from the $0.19 per common share declared a year ago, and up 4.17% from the $0.24 per common share in the prior quarter. The cash dividend is payable to shareholders of record on August 6, 2018 and will be paid on August 15, 2018.

According to Christopher J. Murphy III, Chairman, "We are pleased with our record net income in the second quarter as 1st Source Corporation continues to experience healthy growth in loans and leases and deposits. Credit quality remains stable with some deterioration in the nonperforming loan ratio but with year-to-date net charge-offs of only $479,000 or 0.02% of average loans and leases. Average loans and leases were up a solid 10.73% for the quarter, compared to the same period a year ago. Average deposits were also up with a strong increase of 11.37% from this time last year. Net interest income has increased 15.94% from the second quarter 2017, and noninterest income increased 3.68% while noninterest expense growth increased by 11.61% over the same quarter in 2017."

"We have had a busy summer with renovations in the South Bend region. In May, we celebrated the completion of our Granger Martin's banking center remodel, leading the way to bring side-by-side banking to the S.R. 23 corridor, in the Mishawaka-Granger area. In August, we will complete the remodels for our BankMart and Granger banking centers. Also coming in August, we will open a banking center on the campus of Indiana University South Bend - subject to final regulatory approval. With many of our own colleagues achieving a diploma or attending classes at the University, it is an outstanding partner for us. This expansion will help build upon our already strong relationship with the University and underscores our commitment to relationship banking, distinctive convenience, and community partnerships."

"We are pleased to announce that Forbes has identified 1st Source Bank as the top ranked bank headquartered in Indiana. Forbes recently conducted a survey to rank the best banks and credit unions in every state. Banks and credit unions were rated by more than 25,000 respondents on overall recommendations and satisfaction, as well as five subdimensions: trust, terms and conditions, branch services, digital services, and financial advice. We remain grateful to our customers and the community for this award. As always, we are committed to providing outstanding service to our clients whether they prefer to bank with us in person, online, or with their mobile device using our highly rated app." Mr. Murphy concluded.

SECOND QUARTER 2018 FINANCIAL RESULTS

Loans

Average loans and leases of $4.77 billion increased $462.09 million, up 10.73% in the second quarter of 2018 from the year ago quarter and have increased $181.58 million, up 3.96% from the first quarter. Year-to-date average loans and leases of $4.68 billion increased $431.99 million, up 10.17% from the first six months of 2017.

Deposits

Average deposits of $4.96 billion grew $506.50 million, up 11.37% for the quarter ended June 30, 2018 from the year ago quarter and have increased $253.03 million, up 5.37% compared to the first quarter. Average deposits for the first six months of 2018 were $4.84 billion, an increase of $458.26 million, up 10.47% from the same period a year ago.

Net Interest Income and Net Interest Margin

Second quarter 2018 net interest income of $53.17 million increased $7.31 million, up 15.94% from the second quarter a year ago and increased $2.64 million, up 5.22% from the first quarter.

For the first six months of 2018, tax-equivalent net interest income was $104.12 million, an increase of $13.61 million, up 15.04% compared to the same period a year ago.

Second quarter 2018 net interest margin was 3.69%, an improvement of 16 basis points from the 3.53% for the same period in 2017 and remained stable with the first quarter. Second quarter 2018 net interest margin on a fully tax-equivalent basis was 3.71%, an increase of 14 basis points from the 3.57% for the same period in 2017 and also remained stable with the first quarter.

Net interest margin for the first six months of 2018 was 3.69%, an increase of 18 basis points from the 3.51% for the same period in 2017. Net interest margin on a fully tax-equivalent basis for the first six months of 2018 was 3.71%, an increase of 16 basis points from the 3.55% for the same period in 2017.

Noninterest Income

Second quarter 2018 noninterest income of $25.02 million increased $0.89 million, up 3.68% from the second quarter a year ago and increased $1.22 million, up 5.11% from the first quarter.

For the first six months of 2018, noninterest income was $48.83 million, an increase of $1.39 million, up 2.92% compared to the same period a year ago.

The growth in noninterest income during 2018 compared to a year ago was mainly due to higher equipment rental income resulting from an increase in the average lease portfolio, improved debit card income due to growth in those transactions, higher customer swap fees, improved insurance commissions due to new business, and increased trust and wealth advisory fees, which were offset by reduced gains on the sale of available-for-sale equity securities and lower mortgage banking income.

The increase in noninterest income from the first quarter of 2018 was primarily the result of seasonal trust and wealth advisory tax fees, increased equipment rental income resulting from an increase in the average lease portfolio, and further improvement in debit card income offset by lower insurance contingent commissions and reduced partnership investment gains.

Noninterest Expense

Second quarter 2018 noninterest expense of $45.88 million increased $4.77 million or 11.61% from the second quarter a year ago and was flat from the prior quarter.

For the first six months of 2018, noninterest expense was $91.43 million, an increase of $9.21 million, or 11.20% compared to the same period a year ago.

Excluding depreciation on leased equipment, noninterest expenses were up 12.59% and 11.49% for the second quarter and first six months of 2018, respectively.

The increase in noninterest expense from the same periods a year ago was primarily due to higher salaries as a result of normal merit increases and incentive compensation, increased group insurance costs, a rise in furniture and equipment expense due to increased software maintenance costs and computer processing charges, higher depreciation on leased equipment as the lease portfolio grew and higher valuation adjustments on repossessed assets. In addition, non-recurring 2018 costs were approximately $2.40 million due to consulting fees for a customer relationship management project, a regulatory compliance project, and information technology projects of $1.20 million, repossessed asset valuation adjustments of $0.90 million, and trust losses of $0.30 million.

Noninterest expense was relatively flat from the first quarter of 2018. Increased group insurance costs were offset by reduced valuation adjustments on repossessed assets as the primary factors.

Credit

The reserve for loan and lease losses as of June 30, 2018 was 2.13% of total loans and leases compared to 2.10% at March 31, 2018 and June 30, 2017. Net charge-offs of $0.14 million were recorded for the second quarter of 2018 compared with net charge-offs of $0.94 million in the same quarter a year ago and down from the $0.34 million of net charge-offs in the first quarter. Year-to-date net charge-offs of $0.48 million have been recorded in 2018, compared to net charge-offs of $0.37 million for the first half of 2017.

The provision for loan and lease losses was $4.82 million for the second quarter and $8.60 million for the first six months of 2018, an increase of $2.08 million and $4.87 million, respectively, compared with the same periods in 2017.

The ratio of nonperforming assets to loans and leases was 0.89% as of June 30, 2018, compared to 0.66% on June 30, 2017 and 0.74% on March 31, 2018.

Capital

As of June 30, 2018, the common equity-to-assets ratio was 11.71%, compared to 11.99% at March 31, 2018 and 12.29% a year ago. The tangible common equity-to-tangible assets ratio was 10.52% at June 30, 2018 and 10.75% at March 31, 2018 compared to 10.98% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.15% at June 30, 2018 compared to 12.22% at March 31, 2018 and 12.43% 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.

(charts attached)



 
1st SOURCE CORPORATION
2nd QUARTER 2018 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
  Three Months Ended   Six Months Ended
June 30, March 31, June 30, June 30, June 30,
    2018 2018 2017 2018 2017
AVERAGE BALANCES
Assets $ 6,167,017 $ 5,939,574 $ 5,586,192 $ 6,053,924 $ 5,512,131
Earning assets 5,776,822 5,552,779 5,205,508 5,665,419 5,140,819
Investments 948,335 916,979 836,915 932,744 838,093
Loans and leases 4,770,361 4,588,782 4,308,276 4,680,073 4,248,088
Deposits 4,961,473 4,708,439 4,454,975 4,835,655 4,377,400
Interest bearing liabilities 4,370,692 4,154,214 3,882,915 4,263,051 3,815,706
Common shareholders' equity 736,310 726,242 697,229 731,304 690,476
 
INCOME STATEMENT DATA
Net interest income $ 53,169 $ 50,532 $ 45,861 $ 103,701 $ 89,588
Net interest income - FTE(1) 53,372 50,744 46,319 104,116 90,507
Provision for loan and lease losses 4,817 3,786 2,738 8,603 3,738
Noninterest income 25,023 23,807 24,136 48,830 47,443
Noninterest expense 45,877 45,557 41,105 91,434 82,224
Net income 21,964 19,116 16,669 41,080 32,875
 
PER SHARE DATA
Basic net income per common share $ 0.84 $ 0.73 $ 0.64 $ 1.57 $ 1.26
Diluted net income per common share 0.84 0.73 0.64 1.57 1.26
Common cash dividends declared 0.24 0.22 0.19 0.46 0.37
Book value per common share 28.51 27.96 26.96 28.51 26.96
Tangible book value per common share(1) 25.27 24.72 23.73 25.27 23.73
Market value - High 56.77 54.65 50.78 56.77 50.78
Market value - Low 49.58 48.26 43.58 48.26 42.15
Basic weighted average common shares outstanding 25,958,128 25,950,386 25,927,032 25,954,278 25,915,280
Diluted weighted average common shares outstanding 25,958,128 25,950,386 25,927,032 25,954,278 25,915,280
 
KEY RATIOS
Return on average assets 1.43 % 1.31 % 1.20 % 1.37 % 1.20 %
Return on average common shareholders' equity 11.96 10.67 9.59 11.33 9.60
Average common shareholders' equity to average assets 11.94 12.23 12.48 12.08 12.53
End of period tangible common equity to tangible assets(1) 10.52 10.75 10.98 10.52 10.98
Risk-based capital - Common Equity Tier 1(2) 12.15 12.22 12.43 12.15 12.43
Risk-based capital - Tier 1(2) 13.18 13.29 13.58 13.18 13.58
Risk-based capital - Total(2) 14.44 14.54 14.88 14.44 14.88
Net interest margin 3.69 3.69 3.53 3.69 3.51
Net interest margin - FTE(1) 3.71 3.71 3.57 3.71 3.55
Efficiency ratio: expense to revenue 58.67 61.28 58.72 59.94 60.00
Efficiency ratio: expense to revenue - adjusted(1) 54.71 57.47 54.66 56.05 56.20
Net charge offs to average loans and leases 0.01 0.03 0.09 0.02 0.02
Loan and lease loss reserve to loans and leases 2.13 2.10 2.10 2.13 2.10
Nonperforming assets to loans and leases 0.89 0.74 0.66 0.89 0.66
 
June 30, March 31, December 31, September 30, June 30,
    2018 2018 2017   2017 2017
END OF PERIOD BALANCES
Assets $ 6,320,058 $ 6,051,463 $ 5,887,284 $ 5,806,735 $ 5,687,230
Loans and leases 4,839,823 4,691,097 4,527,678 4,436,718 4,381,314
Deposits 5,108,439 4,781,325 4,752,730 4,573,712 4,482,036
Reserve for loan and lease losses 103,007 98,331 94,883 93,372 91,914
Goodwill and intangible assets 84,104 84,124 83,742 83,795 83,848
Common shareholders' equity 740,277 725,609 718,537 710,497 699,202
 
ASSET QUALITY
Loans and leases past due 90 days or more $ 263 $ 123 $ 459 $ 208 $ 178
Nonaccrual loans and leases 34,582 25,360 19,405 15,066 15,923
Other real estate 133 1,184 1,312 1,341 710
Repossessions 9,389 9,432 10,114 12,913 13,052
Equipment owned under operating leases   -   2   9     14   21  
Total nonperforming assets   $ 44,367   $ 36,101   $ 31,299     $ 29,542   $ 29,884  
 
(1)   See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.
(2) Calculated under banking regulatory guidelines.
 
 
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
  June 30,   March 31,   December 31,   June 30,
    2018   2018   2017   2017

ASSETS

Cash and due from banks $ 71,102 $ 29,404 $ 73,635 $ 63,473
Federal funds sold and interest bearing deposits with other banks 73,358 21,748 4,398 12,561
Investment securities available-for-sale 968,349 942,076 904,033 850,314
Other investments 28,159 27,265 25,953 24,238
Mortgages held for sale 8,235 8,626 13,123 16,204
Loans and leases, net of unearned discount:
Commercial and agricultural 1,047,705 1,011,700 929,997 876,404
Auto and light truck 580,045 511,051 496,816 512,021
Medium and heavy duty truck 276,273 280,010 296,935 290,687
Aircraft 863,496 868,419 844,657 787,516
Construction equipment 642,634 619,219 563,437 539,097
Commercial real estate 769,659 748,926 741,568 720,078
Residential real estate and home equity 524,112 518,130 526,122 526,592
Consumer   135,899     133,642     128,146     128,919  
Total loans and leases 4,839,823 4,691,097 4,527,678 4,381,314
Reserve for loan and lease losses   (103,007 )   (98,331 )   (94,883 )   (91,914 )
Net loans and leases 4,736,816 4,592,766 4,432,795 4,289,400
Equipment owned under operating leases, net 143,024 144,129 139,581 144,509
Net premises and equipment 53,363 54,841 54,612 54,783
Goodwill and intangible assets 84,104 84,124 83,742 83,848
Accrued income and other assets   153,548     146,484     155,412     147,900  
Total assets   $ 6,320,058     $ 6,051,463     $ 5,887,284     $ 5,687,230  
 

LIABILITIES

Deposits:
Noninterest-bearing demand $ 1,106,495 $ 1,030,902 $ 1,064,271 $ 979,801
Interest-bearing deposits:
Interest-bearing demand 1,651,533 1,514,299 1,554,898 1,519,419
Savings 843,558 855,729 863,588 832,341
Time   1,506,853     1,380,395     1,269,973     1,150,475  
Total interest-bearing deposits   4,001,944     3,750,423     3,688,459     3,502,235  
Total deposits   5,108,439     4,781,325     4,752,730     4,482,036  
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 106,861 143,913 205,834 148,109
Other short-term borrowings   170,233     212,051     8,761     158,474  
Total short-term borrowings   277,094     355,964     214,595     306,583  
Long-term debt and mandatorily redeemable securities 71,194 71,335 70,060 70,438
Subordinated notes 58,764 58,764 58,764 58,764
Accrued expenses and other liabilities   64,290     58,466     72,598     70,207  
Total liabilities   5,579,781     5,325,854     5,168,747     4,988,028  
 

SHAREHOLDERS' EQUITY

Preferred stock; no par value

Authorized 10,000,000 shares; none issued or outstanding

- - - -

Common stock; no par value

Authorized 40,000,000 shares; issued 28,205,674 shares at June 30, 2018, March 31, 2018, December 31, 2017, and June 30, 2017, respectively

436,538 436,538 436,538 436,538
Retained earnings 370,521 354,608 339,959 314,889
Cost of common stock in treasury (2,240,597, 2,250,503, 2,268,910, and 2,270,350 shares at June 30, 2018, March 31, 2018, December 31, 2017, and June 30, 2017, respectively) (54,367 ) (54,602 ) (54,628 ) (54,662 )
Accumulated other comprehensive (loss) income   (12,415 )   (10,935 )   (3,332 )   2,437  
Total shareholders' equity   740,277     725,609     718,537     699,202  
Total liabilities and shareholders' equity   $ 6,320,058     $ 6,051,463     $ 5,887,284     $ 5,687,230  
 
         
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
    2018   2018   2017   2018   2017
Interest income:
Loans and leases $ 58,520 $ 53,691 $ 48,032 $ 112,211 $ 92,916
Investment securities, taxable 4,428 4,568 3,370 8,996 6,884
Investment securities, tax-exempt 520 571 677 1,091 1,360
Other   397     408     319     805     610
Total interest income   63,865     59,238     52,398     123,103     101,770
Interest expense:
Deposits 8,319 6,562 4,511 14,881 8,245
Short-term borrowings 826 776 272 1,602 499
Subordinated notes 908 883 1,055 1,791 2,110
Long-term debt and mandatorily redeemable securities   643     485     699     1,128     1,328
Total interest expense   10,696     8,706     6,537     19,402     12,182
Net interest income 53,169 50,532 45,861 103,701 89,588
Provision for loan and lease losses   4,817     3,786     2,738     8,603     3,738
Net interest income after provision for loan and lease losses   48,352     46,746     43,123     95,098     85,850
Noninterest income:
Trust and wealth advisory 5,800 5,188 5,627 10,988 10,628
Service charges on deposit accounts 2,336 2,228 2,464 4,564 4,703
Debit card 3,427 3,103 2,986 6,530 5,736
Mortgage banking 1,073 884 1,304 1,957 2,251
Insurance commissions 1,487 1,958 1,310 3,445 3,077
Equipment rental 8,104 7,755 7,586 15,859 14,418
(Losses) gains on investment securities available-for-sale - (345 ) 465 (345 ) 1,750
Other   2,796     3,036     2,394     5,832     4,880
Total noninterest income   25,023     23,807     24,136     48,830     47,443
Noninterest expense:
Salaries and employee benefits 23,696 22,531 20,712 46,227 42,057
Net occupancy 2,115 2,866 2,368 4,981 4,962
Furniture and equipment 5,718 5,455 5,108 11,173 9,901
Depreciation - leased equipment 6,684 6,428 6,296 13,112 11,976
Professional fees 1,728 2,017 1,672 3,745 2,749
Supplies and communication 1,499 1,553 1,345 3,052 2,595
FDIC and other insurance 714 698 573 1,412 1,196
Business development and marketing 1,725 1,533 1,501 3,258 3,153
Loan and lease collection and repossession 565 951 329 1,516 965
Other   1,433     1,525     1,201     2,958     2,670
Total noninterest expense   45,877     45,557     41,105     91,434     82,224
Income before income taxes 27,498 24,996 26,154 52,494 51,069
Income tax expense   5,534     5,880     9,485     11,414     18,194
Net income   $ 21,964     $ 19,116     $ 16,669     $ 41,080     $ 32,875
Per common share:
Basic net income per common share   $ 0.84     $ 0.73     $ 0.64     $ 1.57     $ 1.26
Diluted net income per common share   $ 0.84     $ 0.73     $ 0.64     $ 1.57     $ 1.26
Cash dividends   $ 0.24     $ 0.22     $ 0.19     $ 0.46     $ 0.37
Basic weighted average common shares outstanding   25,958,128     25,950,386     25,927,032     25,954,278     25,915,280
Diluted weighted average common shares outstanding   25,958,128     25,950,386     25,927,032     25,954,278     25,915,280
 
 
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
  Three Months Ended
June 30, 2018   March 31, 2018   June 30, 2017
   

Average
Balance

 

Interest
Income/
Expense

 

Yield/
Rate

 

 

Average
Balance

 

Interest
Income/
Expense

 

Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Yield/
Rate

ASSETS

     
Investment securities available-for-sale:
Taxable $ 851,348 $ 4,428 2.09 % $ 807,447 $ 4,568 2.29 % $ 707,373 $ 3,370 1.91 %
Tax exempt(1) 96,987 634 2.62 % 109,532 695 2.57 % 129,542 983 3.04 %
Mortgages held for sale 6,985 92 5.28 % 7,719 80 4.20 % 11,325 115 4.07 %
Loans and leases, net of unearned discount(1) 4,770,361 58,517 4.92 % 4,588,782 53,699 4.75 % 4,308,276 48,069 4.48 %
Other investments   51,141     397   3.11 %   39,299     408   4.21 %   48,992     319   2.61 %
Total earning assets(1) 5,776,822 64,068 4.45 % 5,552,779 59,450 4.34 % 5,205,508 52,856 4.07 %
Cash and due from banks 65,895 61,395 61,801
Reserve for loan and lease losses (99,277 ) (95,707 ) (91,044 )
Other assets   423,577             421,107             409,927          
Total assets   $ 6,167,017             $ 5,939,574             $ 5,586,192          
 

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing deposits 3,950,546 8,319 0.84 % 3,702,882 6,562 0.72 % 3,503,444 4,511 0.52 %
Short-term borrowings 290,220 826 1.14 % 322,257 776 0.98 % 236,716 272 0.46 %
Subordinated notes 58,764 908 6.20 % 58,764 883 6.09 % 58,764 1,055 7.20 %
Long-term debt and mandatorily redeemable securities   71,162     643   3.62 %   70,311     485   2.79 %   83,991     699   3.34 %
Total interest-bearing liabilities 4,370,692 10,696 0.98 % 4,154,214 8,706 0.85 % 3,882,915 6,537 0.68 %
Noninterest-bearing deposits 1,010,927 1,005,557 951,531
Other liabilities 49,088 53,561 54,517
Shareholders' equity   736,310             726,242             697,229          
Total liabilities and shareholders' equity   $ 6,167,017             $ 5,939,574             $ 5,586,192          
Less: Fully tax-equivalent adjustments (203 ) (212 ) (458 )
Net interest income/margin (GAAP-derived)(1)       $ 53,169   3.69 %       $ 50,532   3.69 %       $ 45,861   3.53 %
Fully tax-equivalent adjustments 203 212 458
Net interest income/margin - FTE(1)       $ 53,372   3.71 %       $ 50,744   3.71 %       $ 46,319   3.57 %

 

(1)   See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.
 
       
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Six Months Ended
June 30, 2018 June 30, 2017
   

Average
Balance

 

Interest
Income/
Expense

 

Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Yield/
Rate

ASSETS

Investment securities available-for-sale:
Taxable $ 829,519 $ 8,996 2.19 % $ 707,809 $ 6,884 1.96 %
Tax exempt(1) 103,225 1,329 2.60 % 130,284 1,977 3.06 %
Mortgages held for sale 7,350 172 4.72 % 9,748 196 4.05 %
Loans and leases, net of unearned discount(1) 4,680,073 112,216 4.84 % 4,248,088 93,022 4.42 %
Other investments   45,252     805   3.59 %   44,890     610   2.74 %
Total earning assets(1) 5,665,419 123,518 4.40 % 5,140,819 102,689 4.03 %
Cash and due from banks 63,657 60,889
Reserve for loan and lease losses (97,502 ) (90,635 )
Other assets   422,350             401,058          
Total assets   $ 6,053,924             $ 5,512,131          
 

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing deposits 3,827,398 14,881 0.78 % 3,424,992 8,245 0.49 %
Short-term borrowings 306,150 1,602 1.06 % 252,183 499 0.40 %
Subordinated notes 58,764 1,791 6.15 % 58,764 2,110 7.24 %
Long-term debt and mandatorily redeemable securities   70,739     1,128   3.22 %   79,767     1,328   3.36 %
Total interest-bearing liabilities 4,263,051 19,402 0.92 % 3,815,706 12,182 0.64 %
Noninterest-bearing deposits 1,008,257 952,408
Other liabilities 51,312 53,541
Shareholders' equity   731,304             690,476          
Total liabilities and shareholders' equity   $ 6,053,924             $ 5,512,131          
Less: Fully tax-equivalent adjustments (415 ) (919 )
Net interest income/margin (GAAP-derived)(1)       $ 103,701   3.69 %       $ 89,588   3.51 %
Fully tax-equivalent adjustments 415 919
Net interest income/margin - FTE(1)       $ 104,116   3.71 %       $ 90,507   3.55 %

 

(1)   See "Reconciliation of Non-GAAP Financial Measures" for more information on this performance measure/ratio.
 
 
1st SOURCE CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited - Dollars in thousands, except per share data)
     
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
        2018 2018 2017   2018 2017

Calculation of Net Interest Margin

(A) Interest income (GAAP) $ 63,865 $ 59,238 $ 52,398 $ 123,103 $ 101,770
Fully tax-equivalent adjustments:
(B) - Loans and leases 89 88 152 177 302
(C)   - Tax exempt investment securities   114   124   306     238   617  
(D) Interest income - FTE (A+B+C) 64,068 59,450 52,856 123,518 102,689
(E) Interest expense (GAAP) 10,696 8,706 6,537 19,402 12,182
(F)   Net interest income (GAAP) (A-E)   53,169   50,532   45,861     103,701   89,588  
(G)   Net interest income - FTE (D-E)   53,372   50,744   46,319     104,116   90,507  
(H) Annualization factor 4.011 4.056 4.011 2.017 2.017
(I) Total earning assets $ 5,776,822 $ 5,552,779 $ 5,205,508 $ 5,665,419 $ 5,140,819
Net interest margin (GAAP-derived) (F*H)/I 3.69 % 3.69 % 3.53 % 3.69 % 3.51 %
Net interest margin - FTE (G*H)/I 3.71 % 3.71 % 3.57 % 3.71 % 3.55 %
 

Calculation of Efficiency Ratio

(F) Net interest income (GAAP) $ 53,169 $ 50,532 $ 45,861 $ 103,701 $ 89,588
(G) Net interest income - FTE 53,372 50,744 46,319 104,116 90,507
(J) Plus: noninterest income (GAAP) 25,023 23,807 24,136 48,830 47,443
(K) Less: gains/losses on investment securities and partnership investments (76 ) (32 ) (477 ) (108 ) (1,791 )
(L)   Less: depreciation - leased equipment   (6,684 ) (6,428 ) (6,296 )   (13,112 ) (11,976 )
(M)   Total net revenue (GAAP) (F+J)   78,192   74,339   69,997     152,531   137,031  
(N)   Total net revenue - adjusted (G+J-K-L)   71,635   68,091   63,682     139,726   124,183  
(O) Noninterest expense (GAAP) 45,877 45,557 41,105 91,434 82,224
(L) Less:depreciation - leased equipment (6,684 ) (6,428 ) (6,296 ) (13,112 ) (11,976 )
(P)   Less: contribution expense limited to gains on investment securities in (K)   -   -   -     -   (462 )
(Q) Noninterest expense - adjusted (O-L-P) 39,193 39,129 34,809 78,322 69,786
Efficiency ratio (GAAP-derived) (O/M) 58.67 % 61.28 % 58.72 % 59.94 % 60.00 %
Efficiency ratio - adjusted (Q/N) 54.71 % 57.47 % 54.66 % 56.05 % 56.20 %
 
End of Period
June 30, March 31, June 30,
        2018 2018 2017

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(R) Total common shareholders' equity (GAAP) $ 740,277 $ 725,609 $ 699,202
(S)   Less: goodwill and intangible assets   (84,104 ) (84,124 ) (83,848 )
(T)   Total tangible common shareholders' equity (R-S)   $ 656,173   $ 641,485   $ 615,354  
(U) Total assets (GAAP) 6,320,058 6,051,463 5,687,230
(S)   Less: goodwill and intangible assets   (84,104 ) (84,124 ) (83,848 )
(V)   Total tangible assets (U-S)   $ 6,235,954   $ 5,967,339   $ 5,603,382  
Common equity-to-assets ratio (GAAP-derived) (R/U) 11.71 % 11.99 % 12.29 %
Tangible common equity-to-tangible assets ratio (T/V) 10.52 % 10.75 % 10.98 %
 

Calculation of Tangible Book Value per Common Share

(R) Total common shareholders' equity (GAAP) $ 740,277 $ 725,609 $ 699,202
(W)   Actual common shares outstanding   25,965,077   25,955,171   25,935,324  
Book value per common share (GAAP-derived) (R/W)*1000 $ 28.51 $ 27.96 $ 26.96
Tangible common book value per share (T/W)*1000 $ 25.27 $ 24.72 $ 23.73
 

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