1st Source Corporation Reports Second Quarter Results, Cash Dividend Declared
1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported net income of $18.50 million for the second quarter of 2020, up 12.73% from the $16.41 million reported in the first quarter of 2020 and down 20.88% from the $23.39 million reported in the second quarter a year ago, bringing the 2020 year-to-date net income to $34.92 million compared to $45.58 million in 2019, a decrease of 23.40%. The year-to-date net income comparison was negatively impacted by an increased provision for loan and lease losses of $12.56 million primarily due to sizeable impairments in a few accounts, the negative economic impact on our portfolio from COVID-19 and higher special attention loan balances in the first half of 2020. Additionally, net interest income decreased $2.53 million due to lower loan rates resulting from the Federal Reserve’s actions to lower interest rates and stimulate the economy in response to the economic effects of COVID-19. Non-recurring 2020 items which added to net income included $0.55 million in FDIC insurance premium credits received, bank owned life insurance claims of $0.09 million and a trust recovery of $0.17 million offset by $0.55 million in mortgage servicing rights impairment charges which reduced net income.
Diluted net income per common share for the second quarter of 2020 was up 12.50% to $0.72 versus $0.64 for the first quarter of 2020 and was down 20.88% versus $0.91 in the second quarter of 2019. Diluted net income per common share for the first half of 2020 was $1.36 compared to $1.76 a year earlier, a 22.73% decrease.
At its July 2020 meeting, the Board of Directors approved a cash dividend of $0.28 per common share, up 3.70% from the $0.27 per common share declared a year ago and equal to that declared in the previous quarter. The cash dividend is payable to shareholders of record on August 4, 2020 and will be paid on August 14, 2020.
Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “The second quarter results reflect a continuation of the impact of COVID-19 which began at the end of the first quarter. We focused our efforts and are pleased to have been able to help our customers deal with the uncertainties caused by the coronavirus pandemic. We believe we remain well-positioned for the long-term, are well-capitalized and have appropriate reserves with a strong balance sheet. That said, the near-term level of uncertainty remains unprecedented both in severity and length of the economic downturn tied to the coronavirus. The gradual easing of shelter-in-place in our markets is promising however, rising infection rates across the country could have further negative impacts on our clients and the markets we serve. In this environment of uncertainty, it is hard to predict what can or will happen and the impact it will have on us. While these are tumultuous times, we will continue our longstanding practice of providing straight talk, sound advice, always keeping our clients’ best interests in mind for the long-term.
“We have provided over 3,350 clients with Paycheck Protection Program (PPP) loans, totaling more than $590 million, helping them save over 59,000 jobs in Indiana and Michigan. From what we can glean from the Government’s release of the PPP program data through quarter end, we are the leading SBA lender among banks headquartered in Indiana with less than $10 billion in assets, having provided the highest number of PPP loans to businesses within the state among this group. Through the end of the quarter, 77% of the 3,350 PPP loans disbursed were for less than $150,000. We truly are serving our small business clients.
“In addition, we have approved and processed more than $835 million of loan modifications across our loan portfolios as of June 30, 2020. The majority of these in dollar terms are for customers primarily in the transportation (including auto rental and bus) and the hotel industries. We continue to take a long-term view of dealing with COVID-19 and its impact on the markets we serve. We are pleased to have entered this period well-capitalized, with appropriate reserves and a strong balance sheet so we are able to properly help our clients.
“During the second quarter, our net interest margin experienced the full impact of the 150 basis point decrease in the target Federal Funds Rate in March 2020 by the Federal Reserve. This resulted in a compression of our net interest margin as our earning assets repriced faster than interest-bearing liabilities. We also saw an increase in nonaccrual loans and leases during the second quarter as clients began to feel the full impact of business closures and stay-at-home orders in markets we serve. The majority of our present nonaccrual loans are tied to four customer relationships in our auto and light truck and construction equipment portfolios. During the second quarter, we recorded a provision for loan and lease losses of $10.38 million as we continue to monitor the negative impacts of the coronavirus pandemic for the intermediate and longer term. Continuing a positive trend from the first quarter, our residential mortgage loan business remained on record pace with high production volumes and profitable results.
“In April, Keefe, Bruyette & Woods, Inc. (KBW) announced their annual Bank Honor Roll list, with 1st Source being named among those recognized. The Bank Honor Roll consists of banking institutions that have had 10 consecutive years of increased earnings per share. 1st Source is among the 15 banks in the nation included in the Bank Honor Roll this year, with roughly 375 banking institutions having been analyzed in consideration for the list. To be considered for this recognition, banks must be publicly traded institutions with more than $500 million in assets. Given the economic uncertainty resulting from the coronavirus pandemic, this was welcome confirmation that our history of strong, steady practices focusing on our clients’ best interests for the long-term has been successful.
“During the second quarter, we announced that the 1st Source Bank Board of Directors had elected Mr. Jim Seitz, Vice Chairman of the Board through the next Annual Meeting and Ms. Andrea Short, Chief Financial Officer, to the additional position as President of 1st Source Bank. Jim has served as President for eight years and has been an officer here for 35 years. Throughout his career, he has committed himself to delivering outstanding client service and supporting his colleagues in the strongest manner possible. He leaves a wonderful legacy of servant leadership, and his guidance to our Board and Andrea in the coming year will be helpful in the transition.
“Andrea earned her promotion to President of 1st Source Bank by demonstrating a strong track record of initiating and leading change, driving results, and by strengthening operational risk management and compliance. She was elected Chief Financial Officer of 1st Source Bank in 2013 and will continue in this capacity as well as serving as President. I am deeply grateful for and congratulate my two long-term colleagues as they enter these exciting new chapters in their lives. 1st Source has benefited tremendously from their dedication and leadership, and we look forward to their continued impact on our organization.
“Coincident with these promotions, a number of other promotions and changes were made to assure strong leadership for 1st Source for the future. All of our Consumer and Small Business Branch sales and service efforts, deposit offerings, and consumer and mortgage lending have been brought under the leadership of Mr. Ron Zeltwanger. Our Regional Presidents will report to Ron and he will report to Andrea Short. Similarly, Mr. Larry Mayers will direct all of our efforts serving business clients including our very successful SBA lending unit, Retirement Planning services, and our business banking practice groups across all regions. He also picks up direct responsibility for our national Solar financing business and will continue as our Fort Wayne Regional President. The business and operating units serving St. Joseph County, Indiana and Southwestern Michigan have been combined into the Central Region and Ms. Shelli Alexander was promoted to Regional President leading this unit. Also, a new group was created under the leadership of Mr. Kevin Murphy bringing together Marketing, Information Technology, our Virtual Branch, and digital strategy efforts serving clients and improving internal operations. Lastly, our Wealth Advisory Services and Insurance Group will now report to Mr. John Griffith, EVP and Chief Administrative Officer, giving new focus to its growth and profitability. All of these changes continue our process of building strong leadership for the future.” Mr. Murphy concluded.
SECOND QUARTER 2020 FINANCIAL RESULTS
Loans
Average loans and leases of $5.57 billion increased $563.77 million, up 11.27% in the second quarter of 2020 from the year ago quarter and have increased $466.76 million, up 9.16% from the first quarter. Year-to-date average loans and leases of $5.33 billion increased $401.60 million, up 8.15% from the first six months of 2019. Loan growth is primarily from PPP originations.
Deposits
Average deposits of $5.81 billion grew $545.67 million for the quarter ended June 30, 2020, up 10.36% from the year ago quarter and have increased $538.20 million, or 10.21% from the first quarter. Average deposits for the first six months of 2020 were $5.54 billion, an increase of $378.77 million, up 7.34% from the same period a year ago. Deposit growth is primarily from PPP loan fundings and government stimulus payments.
Net Interest Income and Net Interest Margin
Second quarter 2020 net interest income of $54.00 million decreased $2.43 million, or 4.30% from the second quarter a year ago and decreased $0.84 million, down 1.54% from the previous quarter. For the first six months of 2020, tax-equivalent net interest income was $109.13 million, a decrease of $2.60 million, or 2.33% compared to the same period a year ago.
Second quarter 2020 net interest margin was 3.23%, a decrease of 50 basis points from the 3.73% for the same period in 2019 and decreased 34 basis points from the previous quarter. Second quarter 2020 net interest margin on a fully tax-equivalent basis was 3.24%, a decrease of 50 basis points from the 3.74% for the same period in 2019 and was lower by 34 basis points compared to the previous quarter. The margin continues to experience pressure from the numerous Federal Reserve interest rate decreases during the second half of 2019 and the first three months of 2020. Additionally, PPP loans had a negative impact on the net interest margin of four basis points for the quarter.
Net interest margin for the first six months on 2020 was 3.39%, a decrease of 36 basis points from the 3.75% for the same period in 2019. Net interest margin on a fully-taxable-equivalent basis for the first half of 2020 was 3.40%, a decrease of 37 basis points from the 3.77% for the first half of 2019. PPP loans had a negative impact of five basis points on the year-to-date net interest margin.
Noninterest Income
Second quarter 2020 noninterest income of $25.24 million decreased $0.42 million, or 1.65% from the second quarter a year ago and increased $0.62 million, or 2.51% from the first quarter of 2020. For the first six months of 2020, noninterest income was $49.86 million, relatively flat from the same period a year ago.
Noninterest income during the three months ended June 30, 2020 was lower compared to a year ago mainly from lower service charges on deposit accounts due to fewer overdraft and non-sufficient fund transactions and less equipment rental income due to a reduction in the size of the average equipment rental portfolio offset by improved mortgage banking income driven by gains on a higher volume of loan sales. Additionally, we recognized a $0.55 million impairment charge on our mortgage servicing rights during the second quarter of 2020 as prepayment speeds increased.
The increase in noninterest income from the first quarter of 2020 was primarily the result of improved mortgage banking income driven by gains on a higher volume of loan sales, seasonal trust and wealth advisory tax fees, and higher customer swap fees, and increased debit card income offset by lower equipment rental income due to a reduction in the size of the average equipment rental portfolio, decreased service charges on deposit accounts due to fewer overdraft and non-sufficient fund transactions, and a $0.55 million impairment charge on our mortgage servicing rights during the second quarter of 2020.
Noninterest Expense
Second quarter 2020 noninterest expense of $44.83 million decreased $2.53 million, or 5.34% from the second quarter a year ago and decreased $1.71 million, down 3.67% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were down 3.10% from the second quarter a year ago and down 3.47% from the prior quarter. For the first six months of 2020, noninterest expense was $91.36 million, a decrease of $1.20 million, down 1.29% compared to the same period a year ago.
The decrease in noninterest expense during the second quarter of 2020 compared to a year ago was mainly due to lower leased equipment depreciation from a reduction in the average equipment rental portfolio, less professional consulting fees, decreased group insurance costs on fewer claims and lower business development expenses. These decreases were offset by higher salaries as a result of normal merit increases and a rise in general collection and repossession costs.
The decrease in noninterest expense from the prior quarter was primarily the result of reduced business development expenses, a decrease in the valuation provision for interest rate swaps with customers, and higher deferred salary expense on PPP loan originations. These decreases were offset by increased incentives, fewer gains on the sale of operating lease equipment and higher collection and repossession expenses.
Credit
The reserve for loan and lease losses as of June 30, 2020 was 2.31% of total loans and leases compared to 2.35% at March 31, 2020 and 2.05% at June 30, 2019. The reserve calculation includes PPP loans which are guaranteed by the SBA. Excluding these loans from the calculation results in a reserve of 2.54% at June 30, 2020 compared to 2.35% at March 31, 2020. Net recoveries of $0.11 million were recorded for the second quarter of 2020 compared with net charge-offs of $1.19 million in the same quarter a year ago and $1.81 million of net charge-offs in the prior quarter.
The provision for loan and lease losses was $10.38 million for the second quarter of 2020, an increase of $6.13 million compared with the same period in 2019 and a decrease of $0.98 million from the first quarter of 2020. The ratio of nonperforming assets to loans and leases was 1.20% as of June 30, 2020, compared to 0.68% on March 31, 2020 and 0.41% on June 30, 2019. Excluding PPP loans, the ratio of non-performing assets to loans and leases was 1.33% at June 30, 2020 and 0.68% at March 31, 2020.
Capital
As of June 30, 2020, the common equity-to-assets ratio was 11.74%, compared to 12.63% at March 31, 2020 and 11.95% a year ago. The tangible common equity-to-tangible assets ratio was 10.73% at June 30, 2020 compared to 11.53% at March 31, 2020 and 10.82% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.76% at June 30, 2020 compared to 12.57% at March 31, 2020 and 11.83% a year ago. All of the June 30, 2020 calculations except the regulatory capital ratios are impacted by the inclusion of PPP loan balances at the close of the quarter. There were no shares repurchased for treasury during 2020.
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, 15 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.
Category: Earnings
(charts attached)
1st SOURCE CORPORATION
2nd QUARTER 2020 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,
2020
2020
2019
2020
2019
AVERAGE BALANCES
Assets
$
7,185,406
$
6,611,121
$
6,487,744
$
6,898,264
$
6,389,610
Earning assets
6,727,011
6,181,794
6,067,871
6,454,403
5,982,757
Investments
1,045,310
1,030,640
1,001,142
1,037,975
994,405
Loans and leases
5,565,160
5,098,397
5,001,392
5,331,779
4,930,183
Deposits
5,810,578
5,272,376
5,264,912
5,541,477
5,162,704
Interest bearing liabilities
4,580,419
4,415,552
4,468,591
4,497,986
4,392,491
Common shareholders’ equity
862,209
844,724
789,009
853,467
782,370
Total equity
891,606
867,605
792,884
879,605
785,094
INCOME STATEMENT DATA
Net interest income
$
54,001
$
54,844
$
56,427
$
108,845
$
111,375
Net interest income - FTE(1)
54,138
54,995
56,604
109,133
111,734
Provision for loan and lease losses
10,375
11,353
4,247
21,728
9,165
Noninterest income
25,241
24,622
25,664
49,863
49,788
Noninterest expense
44,825
46,535
47,353
91,360
92,557
Net income
18,526
16,418
23,417
34,944
45,613
Net income available to common shareholders
18,502
16,413
23,385
34,915
45,581
PER SHARE DATA
Basic net income per common share
$
0.72
$
0.64
$
0.91
$
1.36
$
1.76
Diluted net income per common share
0.72
0.64
0.91
1.36
1.76
Common cash dividends declared
0.28
0.29
0.27
0.57
0.54
Book value per common share(2)
33.85
33.32
31.12
33.85
31.12
Tangible book value per common share(1)
30.57
30.03
27.83
30.57
27.83
Market value - High
38.70
52.16
48.66
52.16
50.15
Market value - Low
26.72
26.07
43.34
26.07
39.11
Basic weighted average common shares outstanding
25,540,855
25,523,356
25,615,718
25,532,105
25,687,056
Diluted weighted average common shares outstanding
25,540,855
25,523,356
25,615,718
25,532,105
25,687,056
KEY RATIOS
Return on average assets
1.04
%
1.00
%
1.45
%
1.02
%
1.44
%
Return on average common shareholders’ equity
8.63
7.81
11.89
8.23
11.75
Average common shareholders’ equity to average assets
12.00
12.78
12.16
12.37
12.24
End of period tangible common equity to tangible assets(1)
10.73
11.53
10.82
10.73
10.82
Risk-based capital - Common Equity Tier 1(3)
12.76
12.57
11.83
12.76
11.83
Risk-based capital - Tier 1(3)
14.32
13.97
12.94
14.32
12.94
Risk-based capital - Total(3)
15.58
15.23
14.20
15.58
14.20
Net interest margin
3.23
3.57
3.73
3.39
3.75
Net interest margin - FTE(1)
3.24
3.58
3.74
3.40
3.77
Efficiency ratio: expense to revenue
56.57
58.56
57.68
57.56
57.43
Efficiency ratio: expense to revenue - adjusted(1)
53.63
55.79
54.07
54.71
53.64
Net (recoveries) charge offs to average loans and leases
(0.01)
0.14
0.10
0.06
0.19
Loan and lease loss reserve to loans and leases
2.31
2.35
2.05
2.31
2.05
Nonperforming assets to loans and leases
1.20
0.68
0.41
1.20
0.41
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
END OF PERIOD BALANCES
Assets
$
7,365,146
$
6,735,118
$
6,622,776
$
6,691,070
$
6,650,105
Loans and leases
5,692,322
5,129,514
5,085,527
5,099,546
5,109,337
Deposits
5,993,456
5,275,911
5,357,326
5,391,679
5,403,845
Reserve for loan and lease losses
131,283
120,798
111,254
108,941
104,911
Goodwill and intangible assets
83,959
83,964
83,971
83,978
83,985
Common shareholders’ equity
864,995
850,897
828,277
813,167
794,662
Total equity
901,653
877,302
848,636
833,042
804,686
ASSET QUALITY
Loans and leases past due 90 days or more
$
256
$
191
$
309
$
311
$
156
Nonaccrual loans and leases
62,800
26,301
9,789
10,188
12,212
Other real estate
303
362
522
629
543
Repossessions
6,132
9,020
8,623
6,610
8,799
Equipment owned under operating leases
57
—
—
—
—
Total nonperforming assets
$
69,548
$
35,874
$
19,243
$
17,738
$
21,710
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.
(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.
(3) 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,
2020
2020
2019
2019
ASSETS
Cash and due from banks
$
67,591
$
72,756
$
67,215
$
71,910
Federal funds sold and interest bearing deposits with other banks
112,645
49,543
16,150
24,578
Investment securities available-for-sale
1,055,797
1,057,169
1,040,583
1,021,786
Other investments
30,619
28,414
28,414
28,404
Mortgages held for sale
36,508
13,449
20,277
19,178
Loans and leases, net of unearned discount:
Commercial and agricultural
1,710,712
1,166,462
1,132,791
1,173,000
Auto and light truck
563,606
577,757
588,807
635,100
Medium and heavy duty truck
284,432
278,076
294,824
300,042
Aircraft
782,160
773,132
784,040
811,163
Construction equipment
739,027
718,307
705,451
686,633
Commercial real estate
942,971
930,757
908,177
835,919
Residential real estate and home equity
531,972
545,606
532,003
529,749
Consumer
137,442
139,417
139,434
137,731
Total loans and leases
5,692,322
5,129,514
5,085,527
5,109,337
Reserve for loan and lease losses
(131,283)
(120,798)
(111,254)
(104,911)
Net loans and leases
5,561,039
5,008,716
4,974,273
5,004,426
Equipment owned under operating leases, net
86,183
101,238
111,684
126,502
Net premises and equipment
51,486
52,431
52,219
51,570
Goodwill and intangible assets
83,959
83,964
83,971
83,985
Accrued income and other assets
279,319
267,438
227,990
217,766
Total assets
$
7,365,146
$
6,735,118
$
6,622,776
$
6,650,105
LIABILITIES
Deposits:
Noninterest-bearing demand
$
1,684,102
$
1,219,327
$
1,216,834
$
1,238,604
Interest-bearing deposits:
Interest-bearing demand
1,866,415
1,591,419
1,677,200
1,665,456
Savings
942,891
840,606
814,794
810,122
Time
1,500,048
1,624,559
1,648,498
1,689,663
Total interest-bearing deposits
4,309,354
4,056,584
4,140,492
4,165,241
Total deposits
5,993,456
5,275,911
5,357,326
5,403,845
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase
169,483
135,942
120,459
119,781
Other short-term borrowings
7,536
146,903
25,434
66,228
Total short-term borrowings
177,019
282,845
145,893
186,009
Long-term debt and mandatorily redeemable securities
81,760
81,877
71,639
71,542
Subordinated notes
58,764
58,764
58,764
58,764
Accrued expenses and other liabilities
152,494
158,419
140,518
125,259
Total liabilities
6,463,493
5,857,816
5,774,140
5,845,419
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, 2020, March 31, 2020, December 31, 2019, and June 30, 2019, respectively
436,538
436,538
436,538
436,538
Retained earnings
484,491
472,911
463,269
431,091
Cost of common stock in treasury (2,655,319, 2,670,290, 2,696,200, and 2,670,462 shares at June 30, 2020, March 31, 2020, December 31, 2019, and
June 30, 2019, respectively)
(75,922)
(76,203)
(76,702)
(75,380)
Accumulated other comprehensive income (loss)
19,888
17,651
5,172
2,413
Total shareholders’ equity
864,995
850,897
828,277
794,662
Noncontrolling interests
36,658
26,405
20,359
10,024
Total equity
901,653
877,302
848,636
804,686
Total liabilities and equity
$
7,365,146
$
6,735,118
$
6,622,776
$
6,650,105
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,
2020
2020
2019
2020
2019
Interest income:
Loans and leases
$
58,815
$
61,526
$
65,599
$
120,341
$
128,282
Investment securities, taxable
4,487
5,550
5,186
10,037
10,701
Investment securities, tax-exempt
232
264
353
496
738
Other
316
346
499
662
937
Total interest income
63,850
67,686
71,637
131,536
140,658
Interest expense:
Deposits
8,265
10,851
12,978
19,116
24,448
Short-term borrowings
90
254
540
344
1,471
Subordinated notes
835
884
928
1,719
1,856
Long-term debt and mandatorily redeemable securities
659
853
764
1,512
1,508
Total interest expense
9,849
12,842
15,210
22,691
29,283
Net interest income
54,001
54,844
56,427
108,845
111,375
Provision for loan and lease losses
10,375
11,353
4,247
21,728
9,165
Net interest income after provision for loan and lease losses
43,626
43,491
52,180
87,117
102,210
Noninterest income:
Trust and wealth advisory
5,589
4,848
5,583
10,437
10,441
Service charges on deposit accounts
1,910
2,605
2,785
4,515
5,283
Debit card
3,601
3,373
3,669
6,974
6,889
Mortgage banking
3,315
2,336
999
5,651
1,935
Insurance commissions
1,695
1,881
1,518
3,576
3,692
Equipment rental
5,990
6,630
7,809
12,620
15,791
(Losses) gains on investment securities available-for-sale
(1)
280
—
279
—
Other
3,142
2,669
3,301
5,811
5,757
Total noninterest income
25,241
24,622
25,664
49,863
49,788
Noninterest expense:
Salaries and employee benefits
23,999
24,401
23,787
48,400
47,282
Net occupancy
2,504
2,721
2,481
5,225
5,253
Furniture and equipment
6,258
6,407
6,289
12,665
12,313
Depreciation – leased equipment
5,142
5,427
6,400
10,569
12,924
Professional fees
1,258
1,442
1,706
2,700
3,304
Supplies and communication
1,390
1,634
1,608
3,024
3,101
FDIC and other insurance
599
288
608
887
1,253
Business development and marketing
1,121
1,359
1,678
2,480
2,627
Loan and lease collection and repossession
838
763
230
1,601
1,591
Other
1,716
2,093
2,566
3,809
2,909
Total noninterest expense
44,825
46,535
47,353
91,360
92,557
Income before income taxes
24,042
21,578
30,491
45,620
59,441
Income tax expense
5,516
5,160
7,074
10,676
13,828
Net income
18,526
16,418
23,417
34,944
45,613
Net (income) loss attributable to noncontrolling interests
(24)
(5)
(32)
(29)
(32)
Net income available to common shareholders
$
18,502
$
16,413
$
23,385
$
34,915
$
45,581
Per common share:
Basic net income per common share
$
0.72
$
0.64
$
0.91
$
1.36
$
1.76
Diluted net income per common share
$
0.72
$
0.64
$
0.91
$
1.36
$
1.76
Cash dividends
$
0.28
$
0.29
$
0.27
$
0.57
$
0.54
Basic weighted average common shares outstanding
25,540,855
25,523,356
25,615,718
25,532,105
25,687,056
Diluted weighted average common shares outstanding
25,540,855
25,523,356
25,615,718
25,532,105
25,687,056
1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
Three Months Ended
June 30, 2020
March 31, 2020
June 30, 2019
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
$
995,776
$
4,487
1.81
%
$
973,421
$
5,550
2.29
%
$
929,264
$
5,186
2.24
%
Tax exempt(1)
49,534
286
2.32
%
57,219
325
2.28
%
71,878
437
2.44
%
Mortgages held for sale
27,016
198
2.95
%
11,294
96
3.42
%
12,014
127
4.24
%
Loans and leases, net of unearned discount(1)
5,565,160
58,700
4.24
%
5,098,397
61,520
4.85
%
5,001,392
65,565
5.26
%
Other investments
89,525
316
1.42
%
41,463
346
3.36
%
53,323
499
3.75
%
Total earning assets(1)
6,727,011
63,987
3.83
%
6,181,794
67,837
4.41
%
6,067,871
71,814
4.75
%
Cash and due from banks
73,523
65,407
67,448
Reserve for loan and lease losses
(124,186)
(112,239)
(102,787)
Other assets
509,058
476,159
455,212
Total assets
$
7,185,406
$
6,611,121
$
6,487,744
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
$
4,248,478
$
8,265
0.78
%
$
4,076,270
$
10,851
1.07
%
$
4,137,118
$
12,978
1.26
%
Short-term borrowings
191,411
90
0.19
%
202,545
254
0.50
%
201,401
540
1.08
%
Subordinated notes
58,764
835
5.71
%
58,764
884
6.05
%
58,764
928
6.33
%
Long-term debt and mandatorily redeemable securities
81,766
659
3.24
%
77,973
853
4.40
%
71,308
764
4.30
%
Total interest-bearing liabilities
4,580,419
9,849
0.86
%
4,415,552
12,842
1.17
%
4,468,591
15,210
1.37
%
Noninterest-bearing deposits
1,562,100
1,196,106
1,127,794
Other liabilities
151,281
131,858
98,475
Shareholders’ equity
862,209
844,724
789,009
Noncontrolling interests
29,397
22,881
3,875
Total liabilities and equity
$
7,185,406
$
6,611,121
$
6,487,744
Less: Fully tax-equivalent adjustments
(137)
(151)
(177)
Net interest income/margin (GAAP-derived)(1)
$
54,001
3.23
%
$
54,844
3.57
%
$
56,427
3.73
%
Fully tax-equivalent adjustments
137
151
177
Net interest income/margin - FTE(1)
$
54,138
3.24
%
$
54,995
3.58
%
$
56,604
3.74
%
(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, 2020
June 30, 2019
Average
Balance
Interest
Income/Expense
Yield/
Rate
Average
Balance
Interest
Income/Expense
Yield/
Rate
ASSETS
Investment securities available-for-sale:
Taxable
$
984,598
$
10,037
2.05
%
$
919,398
$
10,701
2.35
%
Tax exempt(1)
53,377
611
2.30
%
75,007
909
2.44
%
Mortgages held for sale
19,155
294
3.09
%
10,429
228
4.41
%
Loans and leases, net of unearned discount(1)
5,331,779
120,220
4.53
%
4,930,183
128,242
5.25
%
Other investments
65,494
662
2.03
%
47,740
937
3.96
%
Total earning assets(1)
6,454,403
131,824
4.11
%
5,982,757
141,017
4.75
%
Cash and due from banks
69,465
65,677
Reserve for loan and lease losses
(118,212)
(102,245)
Other assets
492,608
443,421
Total assets
$
6,898,264
$
6,389,610
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
4,162,374
19,116
0.92
%
4,036,578
24,448
1.22
%
Short-term borrowings
196,978
344
0.35
%
226,252
1,471
1.31
%
Subordinated notes
58,764
1,719
5.88
%
58,764
1,856
6.37
%
Long-term debt and mandatorily redeemable securities
79,870
1,512
3.81
%
70,897
1,508
4.29
%
Total interest-bearing liabilities
4,497,986
22,691
1.01
%
4,392,491
29,283
1.34
%
Noninterest-bearing deposits
1,379,103
1,126,126
Other liabilities
141,570
85,899
Shareholders’ equity
853,467
782,370
Noncontrolling interests
26,138
2,724
Total liabilities and equity
$
6,898,264
$
6,389,610
Less: Fully tax-equivalent adjustments
(288)
(359)
Net interest income/margin (GAAP-derived)(1)
$
108,845
3.39
%
$
111,375
3.75
%
Fully tax-equivalent adjustments
288
359
Net interest income/margin - FTE(1)
$
109,133
3.40
%
$
111,734
3.77
%
(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,
2020
2020
2019
2020
2019
Calculation of Net Interest Margin
(A)
Interest income (GAAP)
$
63,850
$
67,686
$
71,637
$
131,536
$
140,658
Fully tax-equivalent adjustments:
(B)
– Loans and leases
83
90
93
173
188
(C)
– Tax exempt investment securities
54
61
84
115
171
(D)
Interest income – FTE (A+B+C)
63,987
67,837
71,814
131,824
141,017
(E)
Interest expense (GAAP)
9,849
12,842
15,210
22,691
29,283
(F)
Net interest income (GAAP) (A-E)
54,001
54,844
56,427
108,845
111,375
(G)
Net interest income - FTE (D-E)
54,138
54,995
56,604
109,133
111,734
(H)
Annualization factor
4.022
4.022
4.011
2.011
2.017
(I)
Total earning assets
$
6,727,011
$
6,181,794
$
6,067,871
$
6,454,403
$
5,982,757
Net interest margin (GAAP-derived) (F*H)/I
3.23
%
3.57
%
3.73
%
3.39
%
3.75
%
Net interest margin – FTE (G*H)/I
3.24
%
3.58
%
3.74
%
3.40
%
3.77
%
Calculation of Efficiency Ratio
(F)
Net interest income (GAAP)
$
54,001
$
54,844
$
56,427
$
108,845
$
111,375
(G)
Net interest income – FTE
54,138
54,995
56,604
109,133
111,734
(J)
Plus: noninterest income (GAAP)
25,241
24,622
25,664
49,863
49,788
(K)
Less: gains/losses on investment securities and partnership investments
(248)
(513)
(131)
(761)
(148)
(L)
Less: depreciation – leased equipment
(5,142)
(5,427)
(6,400)
(10,569)
(12,924)
(M)
Total net revenue (GAAP) (F+J)
79,242
79,466
82,091
158,708
161,163
(N)
Total net revenue – adjusted (G+J–K–L)
73,989
73,677
75,737
147,666
148,450
(O)
Noninterest expense (GAAP)
44,825
46,535
47,353
91,360
92,557
(L)
Less:depreciation – leased equipment
(5,142)
(5,427)
(6,400)
(10,569)
(12,924)
(P)
Noninterest expense – adjusted (O–L)
39,683
41,108
40,953
80,791
79,633
Efficiency ratio (GAAP-derived) (O/M)
56.57
%
58.56
%
57.68
%
57.56
%
57.43
%
Efficiency ratio – adjusted (P/N)
53.63
%
55.79
%
54.07
%
54.71
%
53.64
%
End of Period
June 30,
March 31,
June 30,
2020
2020
2019
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(Q)
Total common shareholders’ equity (GAAP)
$
864,995
$
850,897
$
794,662
(R)
Less: goodwill and intangible assets
(83,959)
(83,964)
(83,985)
(S)
Total tangible common shareholders’ equity (Q–R)
$
781,036
$
766,933
$
710,677
(T)
Total assets (GAAP)
7,365,146
6,735,118
6,650,105
(R)
Less: goodwill and intangible assets
(83,959)
(83,964)
(83,985)
(U)
Total tangible assets (T–R)
$
7,281,187
$
6,651,154
$
6,566,120
Common equity-to-assets ratio (GAAP-derived) (Q/T)
11.74
%
12.63
%
11.95
%
Tangible common equity-to-tangible assets ratio (S/U)
10.73
%
11.53
%
10.82
%
Calculation of Tangible Book Value per Common Share
(Q)
Total common shareholders’ equity (GAAP)
$
864,995
$
850,897
$
794,662
(V)
Actual common shares outstanding
25,550,355
25,535,384
25,535,212
Book value per common share (GAAP-derived) (Q/V)*1000
$
33.85
$
33.32
$
31.12
Tangible common book value per share (S/V)*1000
$
30.57
$
30.03
$
27.83
The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)
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