1st Source Earnings 2019-06-30

SRCE 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Wdesk | Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-6233

1st Source Corporation

(Exact name of registrant as specified in its charter)



Indiana		35-1068133
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



100 North Michigan Street
South Bend,	IN	46601
(Address of principal executive offices)		(Zip Code)

(574) 235-2000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock - without par value	SRCE	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Number of shares of common stock outstanding as of July 12, 2019 — 25,535,212 shares

Table of Contents

TABLE OF CONTENTS



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition — June 30, 2019 and December 31, 2018	3
	Consolidated Statements of Income — three and six months ended June 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income — three and six months ended June 30, 2019 and 2018	5
	Consolidated Statements of Shareholders’ Equity — three and six months ended June 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows — six months ended June 30, 2019 and 2018	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45

SIGNATURES		46

EXHIBITS
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	Exhibit 32.2

Table of Contents

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited - Dollars in thousands)



	June 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	71,910		$	94,907
Federal funds sold and interest bearing deposits with other banks	24,578			4,172
Investment securities available-for-sale	1,021,786			990,129
Other investments	28,404			28,404
Mortgages held for sale	19,178			11,290
Loans and leases, net of unearned discount:
Commercial and agricultural	1,173,000			1,073,205
Auto and light truck	635,100			559,987
Medium and heavy duty truck	300,042			283,544
Aircraft	811,163			803,111
Construction equipment	686,633			645,239
Commercial real estate	835,919			809,886
Residential real estate and home equity	529,749			523,855
Consumer	137,731			136,637
Total loans and leases	5,109,337			4,835,464
Reserve for loan and lease losses	(104,911		)	(100,469		)
Net loans and leases	5,004,426			4,734,995
Equipment owned under operating leases, net	126,502			134,440
Net premises and equipment	51,570			52,139
Goodwill and intangible assets	83,985			83,998
Accrued income and other assets	217,766			159,271
Total assets	$	6,650,105		$	6,293,745

LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,238,604		$	1,217,120
Interest-bearing deposits:
Interest-bearing demand	1,665,456			1,614,959
Savings	810,122			822,477
Time	1,689,663			1,467,766
Total interest-bearing deposits	4,165,241			3,905,202
Total deposits	5,403,845			5,122,322
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	119,781			113,627
Other short-term borrowings	66,228			85,717
Total short-term borrowings	186,009			199,344
Long-term debt and mandatorily redeemable securities	71,542			71,123
Subordinated notes	58,764			58,764
Accrued expenses and other liabilities	125,259			78,602
Total liabilities	5,845,419			5,530,155

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 at June 30, 2019 and December 31, 2018	436,538			436,538
Retained earnings	431,091			398,980
Cost of common stock in treasury (2,670,462 shares at June 30, 2019 and 2,421,946 shares at December 31, 2018)	(75,380		)	(62,760		)
Accumulated other comprehensive income (loss)	2,413			(10,676		)
Total shareholders’ equity	794,662			762,082
Noncontrolling interests	$	10,024		$	1,508
Total equity	$	804,686		$	763,590
Total liabilities and equity	$	6,650,105		$	6,293,745

The accompanying notes are a part of the consolidated financial statements.

Table of Contents

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in thousands, except per share amounts)



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Interest income:
Loans and leases	$	65,599		$	58,520	$	128,282		$	112,211
Investment securities, taxable	5,186			4,473		10,701			9,081
Investment securities, tax-exempt	353			475		738			1,006
Other	499			397		937			805
Total interest income	71,637			63,865		140,658			123,103
Interest expense:
Deposits	12,978			8,319		24,448			14,881
Short-term borrowings	540			826		1,471			1,602
Subordinated notes	928			908		1,856			1,791
Long-term debt and mandatorily redeemable securities	764			643		1,508			1,128
Total interest expense	15,210			10,696		29,283			19,402
Net interest income	56,427			53,169		111,375			103,701
Provision for loan and lease losses	4,247			4,817		9,165			8,603
Net interest income after provision for loan and lease losses	52,180			48,352		102,210			95,098
Noninterest income:
Trust and wealth advisory	5,583			5,800		10,441			10,988
Service charges on deposit accounts	2,785			2,625		5,283			5,109
Debit card	3,669			3,427		6,889			6,530
Mortgage banking	999			1,073		1,935			1,957
Insurance commissions	1,518			1,487		3,692			3,445
Equipment rental	7,809			8,104		15,791			15,859
Losses on investment securities available-for-sale	—			—		—			(345		)
Other	3,301			2,507		5,757			5,287
Total noninterest income	25,664			25,023		49,788			48,830
Noninterest expense:
Salaries and employee benefits	23,787			23,696		47,282			46,227
Net occupancy	2,481			2,115		5,253			4,981
Furniture and equipment	6,289			5,718		12,313			11,173
Depreciation – leased equipment	6,400			6,684		12,924			13,112
Professional fees	1,706			1,728		3,304			3,745
Supplies and communication	1,608			1,499		3,101			3,052
FDIC and other insurance	608			714		1,253			1,412
Business development and marketing	1,678			1,725		2,627			3,258
Loan and lease collection and repossession	230			565		1,591			1,516
Other	2,566			1,433		2,909			2,958
Total noninterest expense	47,353			45,877		92,557			91,434
Income before income taxes	30,491			27,498		59,441			52,494
Income tax expense	7,074			5,534		13,828			11,414
Net income	$	23,417		$	21,964	$	45,613		$	41,080
Net (income) loss attributable to noncontrolling interests	(32		)	—		(32		)	—
Net income available to common shareholders	23,385			21,964		45,581			41,080
Per common share:
Basic net income per common share	$	0.91		$	0.84	$	1.76		$	1.57
Diluted net income per common share	$	0.91		$	0.84	$	1.76		$	1.57
Cash dividends	$	0.27		$	0.24	$	0.54		$	0.46
Basic weighted average common shares outstanding	25,615,718			25,958,128		25,687,056			25,954,278
Diluted weighted average common shares outstanding	25,615,718			25,958,128		25,687,056			25,954,278

The accompanying notes are a part of the consolidated financial statements.

Table of Contents

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - Dollars in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	23,417		$	21,964		$	45,613		$	41,080
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of available-for-sale securities	7,668			(1,949		)	17,241			(11,363		)
Reclassification adjustment for realized losses included in net income	—			—			—			345
Income tax effect	(1,847		)	469			(4,152		)	2,653
Other comprehensive income (loss), net of tax	5,821			(1,480		)	13,089			(8,365		)
Comprehensive income	29,238			20,484			$	58,702		$	32,715
Comprehensive (income) loss attributable to noncontrolling interests	(32		)	—			(32		)	—
Comprehensive income available to common shareholders	$	29,206		$	20,484		$	58,670		$	32,715

The accompanying notes are a part of the consolidated financial statements.

Table of Contents

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - Dollars in thousands, except per share amounts)



	Three Months Ended
	Preferred Stock		Common Stock		Retained Earnings			Cost of Common Stock in Treasury			Accumulated Other Comprehensive Income (Loss), Net			Total Shareholders’ Equity			Noncontrolling Interests		Total Equity
Balance at April 1, 2018	$	—	$	436,538	$	354,608		$	(54,602	)	$	(10,935	)	$	725,609		$	—	$	725,609
Net income	—		—		21,964			—			—			21,964			—		21,964
Other comprehensive loss	—		—		—			—			(1,480		)	(1,480		)	—		(1,480		)
Issuance of 9,911 common shares under stock based compensation awards	—		—		188			236			—			424			—		424
Cost of 5 shares of common stock acquired for treasury	—		—		—			(1		)	—			(1		)	—		(1		)
Common stock dividend ($0.24 per share)	—		—		(6,239		)	—			—			(6,239		)	—		(6,239		)
Balance at June 30, 2018	$	—	$	436,538	$	370,521		$	(54,367	)	$	(12,415	)	$	740,277		$	—	740,277

Balance at April 1, 2019	$	—	$	436,538	$	414,428		$	(69,136	)	$	(3,408	)	$	778,422		$	2,679	$	781,101
Net income	—		—		23,385			—			—			23,385			32		23,417
Other comprehensive income	—		—		—			—			5,821			5,821			—		5,821
Issuance of 8,906 common shares under stock based compensation awards	—		—		217			177			—			394			—		394
Cost of 141,627 shares of common stock acquired for treasury	—		—		—			(6,421		)	—			(6,421		)	—		(6,421		)
Common stock dividend ($0.27 per share)	—		—		(6,939		)	—			—			(6,939		)	—		(6,939		)
Contributions from noncontrolling interests	—		—		—			—			—			—			7,313		7,313
Balance at June 30, 2019	$	—	$	436,538	$	431,091		$	(75,380	)	$	2,413		$	794,662		$	10,024	$	804,686



	Six Months Ended
	Preferred Stock		Common Stock		Retained Earnings			Cost of Common Stock in Treasury			Accumulated Other Comprehensive Income (Loss), Net			Total Shareholders’ Equity			Noncontrolling Interests		Total Equity
Balance at January 1, 2018	$	—	$	436,538	$	339,959		$	(54,628	)	$	(3,332	)	$	718,537		$	—	$	718,537
Cumulative-effect adjustment	—		—		718			—			(718		)	—			—		—
Balance at January 1, 2018, adjusted	—		436,538		340,677			(54,628		)	(4,050		)	718,537			—		718,537
Net income	—		—		41,080			—			—			41,080			—		41,080
Other comprehensive loss	—		—		—			—			(8,365		)	(8,365		)	—		(8,365		)
Issuance of 44,102 common shares under stock based compensation awards	—		—		723			1,047			—			1,770			—		1,770
Cost of 15,789 shares of common stock acquired for treasury	—		—		—			(786		)	—			(786		)	—		(786		)
Common stock dividend ($0.46 per share)	—		—		(11,959		)	—			—			(11,959		)	—		(11,959		)
Balance at June 30, 2018	$	—	$	436,538	$	370,521		$	(54,367	)	$	(12,415	)	$	740,277		$	—	740,277

Balance at January 1, 2019	$	—	$	436,538	$	398,980		$	(62,760	)	$	(10,676	)	$	762,082		$	1,508	$	763,590
Cumulative-effect adjustment	—		—		(301		)	—			—			(301		)	—		(301		)
Balance at January 1, 2019, adjusted	—		436,538		398,679			(62,760		)	(10,676		)	761,781			1,508		763,289
Net income	—		—		45,581			—			—			45,581			32		45,613
Other comprehensive income	—		—

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$47.30	26	$1,210

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-18	Earnings, Exhibits
8-K	2019-07-09	Officers
8-K	2019-05-31	Regulation FD, Exhibits
8-K	2019-04-18	Earnings, Exhibits
8-K	2019-04-18	Shareholder Vote
8-K	2019-02-14	Regulation FD, Exhibits
8-K	2019-01-24	Earnings, Exhibits
8-K	2019-01-24	Earnings, Exhibits
8-K	2018-10-31	Regulation FD, Exhibits
8-K	2018-08-16	Regulation FD, Exhibits
8-K	2018-05-08	Regulation FD, Exhibits
8-K	2018-04-19	Shareholder Vote, Other Events, Exhibits
8-K	2018-04-03	Officers, Exhibits
8-K	2018-02-07	Regulation FD, Exhibits
8-K	2018-01-29	Other Events, Exhibits
8-K	2018-01-18	Earnings, Exhibits

AGR	Avangrid	15,160
SMG	Scotts Miracle-Gro	4,970
ALKS	Alkermes	4,210
NCR	NCR	3,760
CFX	Colfax	3,150
SKYW	Skywest	3,090
PRLB	Proto Labs	2,890
CTB	Cooper Tire & Rubber	1,460
SVT	Servotronics	32
JFIL	Jubilant Flame	0

EX-31.1	ex31163019.htm
EX-31.2	ex31263019.htm
EX-32.1	ex32163019.htm
EX-32.2	ex32263019.htm