1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today reported net income of $7.80 million for the second quarter of 2010, an increase of 24.20% over the $6.28 million reported in the second quarter of 2009. For the first six months of 2010, net income for 1st Source Corporation was $17.47 million, up 39.43% compared to $12.53 million reported for the same period in 2009. Diluted net income per common share for the second quarter amounted to $0.25 compared with $0.19, an increase of 31.58% over the second quarter of 2009. Diluted net income per common share for the first half of 2010 was $0.57, up 46.15% over the $0.39 earned a year earlier.

At its July meeting, the Board of Directors approved a cash dividend of $0.15 per common share, payable on August 16, 2010 to shareholders of record on August 6, 2010.

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “I am pleased with our performance in the second quarter. We’ve seen a small decrease in our non-performing assets over each of the last two quarters, and our net charge-offs of loans and leases are down over the same period from a year ago. Also, our net interest margin has been slowly increasing each quarter for the past year. Our capital ratios both with and without TARP are quite strong and exceed the regulatory 'well capitalized' minimums. As positive as this is, we still see instability in the economy and will continue to keep close tabs on our loan portfolios and on our expenses. Similarly, we are retaining the TARP investment until we are more convinced that there will not be a second and more severe dip in the economy.

“Unfortunately, it seems that the stimulus package initiatives instigated by Washington have increased the cost of government while underperforming in their intent. Additionally, Washington continues to increase the regulatory burden on financial institutions without differentiating between smaller community-based banks versus the 'big box' mega regional, national and investment banks that caused many of the country’s financial problems. Both of these challenges will have immediate and long range impacts on the cost of doing business for 1st Source as they will for everyone else in our industry. With these thoughts in mind, we will continue to take a very cautious view of the economy, keeping our clients best interests in mind for the long run, while remaining strong, stable, local and personal for our community,” Mr. Murphy concluded.

As of June 30, 2010, the 1st Source common equity-to-assets ratio was 10.68% compared to 10.22% a year ago and the tangible common equity to tangible assets ratio was 8.88% compared to 8.39% a year earlier. Total assets at June 30, 2010 were $4.53 billion, steady from a year earlier. Total loans and leases were $3.13 billion, down slightly from June 30, 2009. Total deposits were $3.61 billion, also down slightly from the comparable figures at June 30, 2009.

The 1st Source reserve for loan and lease losses as of June 30, 2010 was 2.81% of total loans and leases compared to 2.64% at June 30, 2009. Net charge-offs were $5.61 million in the second quarter 2010, compared with net charge-offs of $9.72 million in the same quarter a year ago. Year-to-date, net charge-offs of $10.41 million have been recorded in 2010, compared to net charge-offs of $12.92 million for the first half of 2009. The ratio of nonperforming assets to net loans and leases was 2.71% on June 30, 2010, compared to 2.48% on June 30, 2009.

The net interest margin was 3.57% for the second quarter of 2010 versus 3.11% for the same period in 2009. The net interest margin was 3.53% for the six months ending June 30, 2010, versus 3.07% for the same period in 2009. Tax-equivalent net interest income was $37.11 million for the second quarter of 2010, compared to $32.84 million for 2009’s second quarter. For the first six months of 2010, tax-equivalent net interest income was $72.89 million, compared to $64.48 million for the first six months of 2009. The net interest margin increased primarily due to a reduction in the cost of funds as a result of certificates of deposit interest rate re-pricing.

Noninterest income for the second quarter of 2010 was $20.60 million, down 9.29% from the same period in 2009. For the first six months, noninterest income was $41.52 million, down 4.00% from 2009. Noninterest income decreased primarily as a result of lower mortgage banking income due to impairment charges on mortgage servicing rights in the second quarter of 2010 and a reduction in the gain on sale of mortgage loans for the first six months of 2010.

Noninterest expense was $39.65 million for the second quarter of 2010, up 6.16% from the second quarter of 2009. For the first six months, noninterest expense was $76.76 million, up 1.01% compared with $75.99 million for the same period in 2009. The leading factors in the change were higher employee benefits, professional fees and loan and lease collection and repossession expense offset by reduced furniture and equipment expense and FDIC and other insurance expense.

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, construction and environmental equipment. The Corporation includes 76 community banking centers in 17 counties, 23 specialty finance locations nationwide, 7 trust and wealth management locations, and 7 1st Source Insurance offices. With a history dating back to 1863, 1st Source Bank has a tradition of providing superior service to clients while playing a leadership role in the continued development of the communities it serves.

In addition to the results presented in accordance with generally accepted accounting principles (GAAP), in the United States of America, this press release contains certain non-GAAP financial measures. 1st Source Corporation believes that providing non-GAAP financial measures provides investors with information useful to understanding our financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including measures based on “tangible equity” which is “common shareholders’ equity” excluding intangible assets.

1st Source may be accessed on its home page at “ www.1stsource.com.” Its 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". 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.
1st SOURCE CORPORATION
2nd QUARTER 2010 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except for per share data)
 

Three Months Ended June 30,

Six Months Ended June 30,
2010   2009 2010   2009
END OF PERIOD BALANCES
Assets $ 4,531,313 $ 4,544,369
Loans and leases 3,131,749 3,154,416
Deposits 3,609,586 3,615,043
Reserve for loan and lease losses 88,014 83,124
Intangible assets 89,618 91,009
Common shareholders' equity 483,919 464,592
Total shareholders' equity 589,502 568,890
 
AVERAGE BALANCES
Assets $ 4,517,624 $ 4,525,757 $ 4,501,598 $ 4,531,013
Earning assets 4,174,376 4,231,724 4,160,120 4,230,479
Investments 917,151 850,106 904,946 814,447
Loans and leases 3,120,871 3,179,034 3,110,565 3,211,858
Deposits 3,592,827 3,591,315 3,583,529 3,589,205
Interest bearing liabilities 3,399,245 3,461,696 3,397,971 3,485,730
Common shareholders' equity 481,462 467,732 477,534 466,305
Total shareholders' equity 586,835 571,830 582,746 557,747
 
INCOME STATEMENT DATA
Net interest income $ 36,249 $ 31,913 $ 71,151 $ 62,635
Net interest income - FTE 37,113 32,841 72,890 64,483
Provision for loan and lease losses 5,798 8,487 10,186 16,272
Noninterest income 20,602 22,705 41,524 43,254
Noninterest expense 39,649 37,349 76,759 75,989
Net income 7,795 6,283 17,474 12,534
Net income available to common shareholders 6,078 4,587 14,046 9,525
 
PER SHARE DATA
Basic net income per common share $ 0.25 $ 0.19 $ 0.57 $ 0.39
Diluted net income per common share 0.25 0.19 0.57 0.39
Common cash dividends declared 0.15 0.14 0.30 0.28
Book value per common share 19.93 19.21 19.93 19.21
Tangible book value per common share 16.24 15.45 16.24 15.45
Market value - High 20.36 21.98 20.36 23.92
Market value - Low 16.58 15.36 14.25 14.16
Basic weighted average common shares outstanding 24,284,519 24,185,415 24,247,586 24,167,905
Diluted weighted average common shares outstanding 24,292,491 24,226,542 24,254,098 24,208,966
 
KEY RATIOS
Return on average assets 0.69 % 0.56 % 0.78 % 0.56 %
Return on average common shareholders' equity 5.06 3.93 5.93 4.12
Average common shareholders' equity to average assets 10.66 10.33 10.61 10.29
End of period tangible common equity to tangible assets 8.88 8.39 8.88 8.39
Risk-based capital - Tier 1 16.58 15.62 16.58 15.62
Risk-based capital - Total 17.87 16.90 17.87 16.90
Net interest margin 3.57 3.11 3.53 3.07
Efficiency: expense to revenue 66.70 64.89 65.27 67.92
Net charge-offs to average loans and leases 0.72 1.23 0.67 0.81
Loan and lease loss reserve to loans and leases 2.81 2.64 2.81 2.64
Nonperforming assets to loans and leases 2.71 2.48 2.71 2.48
 
ASSET QUALITY
Loans and leases past due 90 days or more $ 1,230 $ 621
Nonaccrual and restructured loans and leases 68,433 67,983
Other real estate 6,673 1,790
Former bank premises held for sale 2,363 3,095
Repossessions 8,670 6,960
Equipment owned under operating leases 337 269
Total nonperforming assets 87,706 80,718
 
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
  June 30, 2010   June 30, 2009

ASSETS
Cash and due from banks $ 65,337 $ 70,798

Federal funds sold and interest bearing deposits with other banks
42,979 29,545

Investment securities available-for-sale (amortized cost of $909,516 and $874,562 at June 30, 2010 and 2009, respectively)
932,583 883,047
Other investments 21,012 18,612
Trading account securities 113 104
Mortgages held for sale 59,084 136,505
 
Loans and leases, net of unearned discount:
Commercial and agricultural loans 539,003 593,914
Auto, light truck and environmental equipment 416,152 338,774
Medium and heavy duty truck 185,954 225,345
Aircraft financing 596,138 619,797
Construction equipment financing 308,602 345,928
Loans secured by real estate 983,054 910,728
Consumer loans   102,846     119,930  
Total loans and leases 3,131,749 3,154,416
Reserve for loan and lease losses   (88,014 )   (83,124 )
Net loans and leases 3,043,735 3,071,292
 
Equipment owned under operating leases, net 91,288 87,094
Net premises and equipment 36,573 38,837
Goodwill and intangible assets 89,618 91,009
Accrued income and other assets   148,991     117,526  
 
Total assets $ 4,531,313   $ 4,544,369  
 

LIABILITIES
Deposits:
Noninterest bearing $ 487,719 $ 434,729
Interest bearing   3,121,867     3,180,314  
Total deposits   3,609,586     3,615,043  
 

Federal funds purchased and securities sold under agreements to repurchase
113,638 146,529
Other short-term borrowings 28,136 27,464
Long-term debt and mandatorily redeemable securities 29,854 19,947
Subordinated notes 89,692 89,692
Accrued expenses and other liabilities   70,905     76,804  
Total liabilities 3,941,811 3,975,479
 

SHAREHOLDERS' EQUITY
Preferred stock; no par value 105,583 104,298
Common stock; no par value 350,275 350,263
Retained earnings 149,799 140,355
Cost of common stock in treasury (30,486 ) (31,314 )
Accumulated other comprehensive income   14,331     5,288  
Total shareholders' equity   589,502     568,890  
 
Total liabilities and shareholders' equity $ 4,531,313   $ 4,544,369  
 
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands)
 

Three Months Ended June 30,
 

Six Months Ended June 30,
2010   2009 2010   2009
Interest income:    
Loans and leases $ 43,099 $ 44,474 $ 85,369 $ 89,071
Investment securities, taxable 5,279 4,207 10,680 8,243
Investment securities, tax-exempt 1,422 1,685 2,889 3,395
Other   250       264     524       597  
Total interest income 50,050 50,630 99,462 101,306
 
Interest expense:
Deposits 11,573 16,596 23,978 34,202
Short-term borrowings 206 295 394 644
Subordinated notes 1,647 1,647 3,294 3,294
Long-term debt and mandatorily redeemable securities   375       179     645       531  
Total interest expense   13,801       18,717     28,311       38,671  
 
Net interest income 36,249 31,913 71,151 62,635
Provision for loan and lease losses   5,798       8,487     10,186       16,272  
Net interest income after provision for loan and lease losses 30,451 23,426 60,965 46,363
 
Noninterest income:
Trust fees 4,062 3,887 7,807 7,691
Service charges on deposit accounts 5,275 5,219 9,895 9,965
Mortgage banking income 425 3,339 1,202 5,909
Insurance commissions 1,061 1,076 2,526 2,592
Equipment rental income 6,672 6,402 13,417 12,549
Other income 3,012 2,356 5,701 4,591
Investment securities and other investment gains (losses)   95       426     976       (43 )
Total noninterest income   20,602       22,705     41,524       43,254  
 
Noninterest expense:
Salaries and employee benefits 18,848 16,829 37,658 36,915
Net occupancy expense 1,939 2,273 4,426 4,874
Furniture and equipment expense 3,196 3,765 5,996 7,246
Depreciation - leased equipment 5,304 5,088 10,668 10,044
Professional fees 1,418 815 2,932 1,877
Supplies and communication 1,338 1,428 2,707 2,995
FDIC and other insurance 1,667 3,719 3,341 5,269
Business development and marketing expense 880 794 1,447 1,279
Loan and lease collection and respossession expense 3,267 1,070 4,373 1,629
Other expense   1,792       1,568     3,211       3,861  
Total noninterest expense   39,649       37,349     76,759       75,989  
 
Income before income taxes 11,404 8,782 25,730 13,628
Income tax expense   3,609       2,499     8,256       1,094  
 
Net income 7,795 6,283 17,474 12,534
Preferred stock dividends and discount accretion   (1,717 )     (1,696 )   (3,428 )     (3,009 )
Net income available to common shareholders $ 6,078     $ 4,587   $ 14,046     $ 9,525  
 
The Nasdaq Global Select Market Symbol: "SRCE" (CUSIP #336901 10 3)

Please contact us at shareholder@1stsource.com

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