-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sFZbh+9fl3fYMg0yw7HdtHCPasyCXpz7jMlqmDUmQKQDuG1b1deo7YY23G5ppK2q xqA+RUQXY+EK3B21scGc6Q== 0000034782-95-000005.txt : 19950607 0000034782-95-000005.hdr.sgml : 19950607 ACCESSION NUMBER: 0000034782-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950511 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1ST SOURCE CORP CENTRAL INDEX KEY: 0000034782 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 351068133 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06233 FILM NUMBER: 95536883 BUSINESS ADDRESS: STREET 1: 100 N MICHIGAN ST CITY: SOUTH BEND STATE: IN ZIP: 46601 BUSINESS PHONE: 2192352702 MAIL ADDRESS: STREET 1: P O BOX 1602 STREET 2: P O BOX 1602 CITY: SOUTH BEND STATE: IN ZIP: 46634 FORMER COMPANY: FORMER CONFORMED NAME: FBT BANCORP INC DATE OF NAME CHANGE: 19820818 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1995 OR 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 0-5907 1ST SOURCE CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1068133 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 North Michigan Street South Bend, Indiana 46601 (Address of principal executive offices) (Zip Code) (219) 235-2702 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) 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. YES X NO Number of shares of common stock outstanding as of March 31, 1995 - 7,986,188 shares. PART I. FINANCIAL INFORMATION Item 1. Financial Statements a) Consolidated statements of financial condition -- March 31, 1995 and December 31, 1994 b) Consolidated statements of income -- three months ended March 31, 1995 and 1994 c) Consolidated statements of cash flows -- three months ended March 31, 1995 and 1994 -2- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1st Source Corporation and Subsidiaries (Dollars in thousands) March 31, December 3 1995 1994 ASSETS Cash and due from banks $71,400 $79,226 Interest bearing deposits with other banks 1,000 3,494 Federal funds sold 5,000 2,800 Investment securities: Securities available-for-sale, at fair value (amortized cost of $255,785 and $260,246 at March 31, 1995 and December 31, 1994) 247,601 245,753 Securities held-to-maturity, at amortized cost (fair value of $121,831 and $105,263 at March 31, 1995 and December 31, 1994) 118,209 104,132 Total Investment Securities 365,810 349,885 Loans - net of unearned discount 1,140,509 1,100,713 Reserve for loan losses (25,057) (23,868) Net Loans 1,115,452 1,076,845 Premises and equipment 23,892 21,306 Other assets 43,632 49,471 Total Assets $1,626,186 $1,583,027 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $171,609 $187,003 Interest bearing 1,153,679 1,114,334 Total Deposits 1,325,288 1,301,337 Federal funds purchased and securities sold under agreements to repurchase 86,159 76,403 Other short-term borrowings 28,040 24,162 Other liabilities 27,192 23,959 Long-term debt 22,655 28,084 Total Liabilities 1,489,334 1,453,945 Shareholders' equity: Common stock-no par value 5,429 5,170 Capital surplus 56,338 45,788 Retained earnings 83,513 90,444 Less cost of common stock in treasury (3,717) (4,036) Unrealized depreciation of investment securities, net (4,711) (8,284) Total Shareholders' Equity 136,852 129,082 Total Liabilities and Shareholders' Equity $1,626,186 $1,583,027 CONSOLIDATED STATEMENTS OF INCOME 1st Source Corporation and Subsidiaries (Dollars in thousands, except per share amounts) Three Months Ended March 31 1995 1994 Interest Income: Loans, including fees $25,726 $20,625 Investment securities: Taxable 3,480 3,158 Tax-exempt 1,765 1,612 Other 391 303 Total Interest Income 31,362 25,698 Interest Expense: Deposits 12,706 9,094 Short-term borrowings 1,073 889 Long-term debt 529 424 Total Interest Expense 14,308 10,407 Net Interest Income 17,054 15,291 Provision for Loan Losses 960 898 Net Interest Income After Provision for Loan Losses 16,094 14,393 Other Income: Trust fees 1,664 1,513 Service charges on deposit accounts 1,198 1,087 Mortgage servicing fees, commission income and other 1,950 936 Investment securities and other gains (losses) (153) 33 Total Other Income 4,659 3,569 Other Expense: Salaries and employee benefits 8,090 6,966 Net occupancy expense 870 846 Furniture and equipment expense 1,438 1,155 Insurance expense 856 766 Other 2,113 1,945 Total Other Expense 13,367 11,678 Income Before Income Taxes 7,386 6,284 Income taxes 2,532 1,948 Net Income $4,854 $4,336 Per Common Share: (1) Net Income $0.60 $0.54 Dividends $0.110 $0.095 Weighted Average Common Shares Outstanding 8,122,557 8,116,980 (1) The computation of per share data gives retroactive recognition to a 5 percent stock dividend declared January 23, 1995. -4- CONSOLIDATED STATEMENTS OF CASH FLOWS 1st Source Corporation and Subsidiaries (Dollars in thousands) Three Months Ended March 1995 1994 Operating Activities: Net income $4,854 $4,336 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 960 898 Depreciation of premises and equipment 609 494 Amortization of investment security premiums and accretion of discounts, net 212 289 Deferred income taxes 974 (195) Increase in trading account securities - 225 Realized investment securities (gains) losses 153 (33) Increase in interest receivable (32) (149) Increase in interest payable 3,297 1,662 Other 270 (746) Net Cash Provided by Operating Activities 11,297 6,781 Investing Activities: Proceeds from sales and maturities of investment 28,244 29,394 securities Purchases of investment securities (38,223) (30,047) Net (increase) decrease in short-term investments 294 (12,044) Loans sold or participated to others 39,806 37,703 Net increase in loans made to customers and principal collections on loans (79,356) (66,976) Principal payments received under leases 850 773 Purchase of assets to be leased (1,169) (1,165) Purchases of premises and equipment (681) (4,060) Other (94) 72 Net Cash Used in Investing Activities (50,329) (46,350) Financing Activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts (41,697) 4,840 Net increase in certificates of deposit 65,648 34,915 Net (decrease) increase in short-term borrowings 13,715 (7,097) Payments on long-term debt (5,429) (4) Acquisition of treasury stock (140) (937) Cash dividends (879) (765) Other (12) (12) Net Cash Provided by Financing Activities 31,206 30,940 Decrease in Cash and Cash Equivalents (7,826) (8,629) Cash and cash equivalents, beginning of year 79,226 77,375 Cash and Cash Equivalents, End of Period $71,400 $68,746 -5- PART I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods for which this report is submitted. This discussion and analysis should be read in conjunction with the Company's consolidated condensed financial statements and the financial and statistical data appearing elsewhere in this report. The amounts shown in this analysis have been adjusted to reflect tax-exempt income on a tax equivalent basis using a 40.525% rate. Effective December 31, 1993, 1st Source adopted, on a prospective basis, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), and revised its investment securities accounting policy. Securities that may be sold as part of 1st Source's asset/liability or liquidity management or in response to or in anticipation of changes in interest rates and resulting prepayment risk, or for other similar factors, are classified as available-for-sale and carried at fair market value. Unrealized holding gains and losses on such securities are reported net of related deferred income taxes as a separate component of shareholders' equity. Trading securities are carried at fair market value with unrealized gains and losses included in current earnings. Securities that 1st Source has the ability and positive intent to hold to maturity are classified as held-to-maturity and carried at amortized cost. Realized gains and losses on the sales of all securities are reported in earnings and computed using the specific identification cost basis. On September 30, 1994, 1st Source Corporation purchased the remaining shares of the outstanding common stock of Mortgage Acquisition Company the parent company of Trustcorp Mortgage Company, a South Bend based full service mortgage banker (collectively "Trustcorp Mortgage Company" or "Trustcorp"). 1st Source previously owned 30% of the outstanding common stock of Trustcorp. The purchase price consisted of approximately $2.6 million in cash, $500,000 in guaranteed notes maturing in one to two years and 91,504 shares of 1st Source Corporation common stock with a market value of approximately $2.4 million. The acquired net assests of Trustcorp consisted of $17 million of mortgage loans held for sale, $5.2 million of mortgage servicing rights, and $1.9 million of other assets. Liabilities assumed consisted of $20.5 million of borrowings and $1.1 million of other liabilities. A premium in excess of book value of $3.6 million was paid in the transaction and allocated to purchased mortgage servicing rights ($2.2 million) and goodwill ($1.4 million). At the date of its acquisition, Trustcorp had a mortgage loan servicing portfolio in excess of $1.0 billion. During the third quarter of 1994, 1st Source Bank completed the securitization of $60 million of aircraft loans originated by its Transportation and Equipment Financing Group. 1st Source Bank will continue to service the loans for a fee. A total of $1.45 million was expensed in connection with this transaction. Due to reduced loan outstandings, a similar amount was released from the reserve for loan losses which made the transaction income neutral in the third quarter of 1994. 1st Source adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) on January 1, 1995. Under the new standard, a loan is considered impaired, based on current information and events, if it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral- dependent loans are measured for impairment based on the fair value of the collateral. At March 31, 1995, 1st Source has not yet completed its analysis of the impact of SFAS 114, but management feels current policies for establishing the allowance for loan losses include those loans that may be considered impaired under SFAS 114, therefore, management does not expect any increase in the provision for loan losses as a result of this adoption. In accordance with the aforementioned, the adoption of SFAS 114 is not expected to affect the comparability between any of the periods in the years ended December 31, 1995 and 1994. -7- COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994 Net income for the three month period ended March 31, 1995 was $4,854,000 compared to $4,336,000 for the equivalent period in 1994. The primary reasons for the increase were an increase in net interest income and an increase in other income offset by a slight increase in the provision for loan losses and an increase in other expense. Net income per share increased to $0.60 for the three month period ended March 31, 1995 from $0.54 in 1994. Return on average equity was 14.09% for the three months ended March 31, 1995 compared to 14.17% in 1994. This ratio is based on shareholders' equity before the market value adjustment for securities designated as "available for sale" as required by SFAS No. 115. The ratio after the market value adjustment was 14.81% for the three months ended March 31, 1995 compared to 13.94% for the same period in 1994. The return on total average assets was 1.24% for the three months ended March 31, 1995 compared to 1.18% in 1994. NET INTEREST INCOME The taxable equivalent net interest income for the three month period ended March 31, 1995 was $17,991,000, an increase of 10.81% over the same period in 1994, resulting in a net yield of 4.95% compared to 4.75% in 1994. Total average earning assets increased 6.39% for the period ended March 31, 1995 compared to the period ended March 31, 1994. Total average investment securities increased 0.29% from one year ago, and an 8.56% increase in average loans occurred primarily in commercial and real estate loans. The taxable equivalent yields on total average earning assets were 8.89% and 7.80% for the periods ended March 31, 1995 and 1994, respectively. Average deposits increased 10.03% from the first quarter of 1994 to the first quarter of 1995. The cost rate on average interest bearing funds was 4.59% for the period ended March 31, 1995 compared to 3.55% for the three months ended March 31, 1994. The majority of the growth in deposits from last year has occurred in time deposits of $100 thousand and over and time deposits greater than one year. An increase of 8.24% in average non-interest bearing deposits for the period ended March 31, 1995 over the same period in 1994 was a factor in preserving the net yield on earning assets. The following table sets forth consolidated information regarding average balances and rates. -8-
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Dollars in thousands) Three months ended March 31, 1995 1994 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ASSETS: Interest bearing deposits $999 $6 2.56% $179 $1 2.92% Investment securities: Taxable 241,924 3,762 6.31% 258,561 3,430 5.38% Tax exempt 114,801 2,651 9.37% 101,299 2,498 10.00% Net loans 1,109,321 25,777 9.42% 1,021,856 20,684 8.21% Other investments 7,044 103 5.91% 3,671 30 3.28% Total Earning Assets 1,474,089 32,299 8.89% 1,385,566 26,643 7.80% Cash and due from banks 70,383 74,974 Reserve for loan losses (24,157) (22,641) Other assets 69,161 52,803 Total $1,589,476 $1,490,702 LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing deposits $1,144,237 12,706 4.50% $1,037,463 9,094 3.55% Short-term borrowings 94,176 1,073 4.62% 126,079 889 2.86% Long-term debt 26,811 529 8.00% 25,471 424 6.75% Total Interest Bearing Liabilities 1,265,224 14,308 4.59% 1,189,013 10,407 3.55% Noninterest bearing deposits 165,468 152,873 Other liabilities 25,827 22,652 Shareholders' equity 132,957 126,164 Total $1,589,476 $1,490,702 Net Interest Income $17,992 $16,236 Net Yield on Earning Assets on a Taxable Equivalent Basis 4.95% 4.75% Interest income includes the effects of taxable equivalent adjustments, using a 40.525% rate for 1995 and 1994. The tax equivalent adjustments were $886 in 1995 and 1994. Loan income includes fees on loans of $761 in 1995 and $784 in 1994. Loan income also includes the effects of taxable equivalent adjustments, using a 40.525% rate for 1995 and 1994. The tax equivalent adjustments were $51 in 1995 and $59 in 1994. For purposes of this computation, nonaccruing loans are included in the daily average loan amounts outstanding.
-9- PROVISION FOR LOAN LOSSES The provision for loan losses for the three month period ended March 31, 1995 and 1994 was $960,000 and $898,000, respectively. Year- to-date Net Recoveries of $229,000 have been recorded in 1995, compared to $492,000 of Net Charge-offs in the same period in 1994. The reserve for loan losses was $25,057,000 or 2.20% of net loans at March 3, 1995 compared to $23,868,000 or 2.17% of net loans at December 31, 1994. Nonperforming assets at March 31, 1995 were $4,753,000 compared to $4,700,000 at December 31, 1994, a slight increase of 1.13%. At March 31, 1995, nonperforming assets were .42% of net loans compared to .43% at December 31, 1994. It is management's opinion that the reserve for loan losses is adequate to absorb anticipated losses in the loan portfolio as of March 31, 1995. OTHER INCOME Other income for the three month periods ended March 31, 1995 and 1994 was $4,659,000 and $3,569,000, respectively. Trust fees increased 9.98%, service charges on deposit accounts increased 10.21% and other mortgage servicing fees, commission income and other income increased 108.33% over the same period in 1994. The significant increases in the last category were due to income recorded of $156,000 for the aircraft securitization, $575,000 growth in mortgage servicing fees and net gains on the sale of mortgage loans and servicing from the acquisition of Trustcorp Mortgage Company in September 1994. Investment securities and other losses were $153,000 in 1995 compared to $33,000 in gains in 1994. These losses were primarily due to a $159,000 adjustment made to the carrying value of certain partnership investments. OTHER EXPENSE Other expense for the three month period ended March 31, 1995 was $13,367,000, an increase of 14.46% over the same period in 1994. For the three month period ended March 31, 1995, salaries and employee benefits increased 16.14%, furniture and equipment costs increased 24.50%, insurance expense increased 11.75%, business development and marketing expense decreased 29.17% and miscellaneous other expenses increased 14.37% over the same period in 1994. The increase in these expenses was primarily due to the acquisition of Trustcorp Mortgage Company in September 1994. INCOME TAXES The provision for income taxes for the three months ended March 31, 1995 was $2,532,000 compared to $1,948,000 for the comparable period in 1994. The increase was due to increased taxable income in 1995. -10- CAPITAL RESOURCES The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. These guidelines require all banks to maintain a minimum leverage capital ratio of 4.00% for adequately capitalized banks and 5.00% for well capitalized banks. 1st Source's leverage capital ratio was 8.47% at March 31, 1995. The Federal Reserve Board has also approved final risk-based capital guidelines for U. S. banking organizations. The guidelines established a conceptual framework calling for risk weights to be assigned to on and off-balance sheet items in arriving at risk-adjusted total assets, with the resulting ratio compared to a minimum standard to determine whether a bank has adequate capital. The minimum standard risk-based capital ratios effective in 1995 are 4.00% for adequately capitalized banks and 6.00% for well capitalized banks for Tier 1 risk- based capital and 8.00% and 10.00%, respectively, for total risk-based capital. 1st Source's Tier 1 risked-based capital ratio on March 31, 1995 was 11.71% and the total risk-based capital ratio was 14.06%. LIQUIDITY AND INTEREST RATE SENSITIVITY Asset and liability management includes the management of interest rate sensitivity and the maintenance of an adequate liquidity position. The purpose of liquidity management is to match the sources and uses of funds to anticipated customers' deposits and withdrawals, to anticipate borrowing requirements and to provide for cash flow needs of 1st Source. The purpose of interest rate sensitivity management is to stabilize net interest income during periods of changing interest rates. Close attention is given to various interest sensitivity gaps and interest spreads. Maturities of rate sensitive assets are carefully maintained relative to the maturities of rate sensitive liabilities and interest rate forecasts. At March 31, 1995, the consolidated statement of financial condition was rate sensitive by $88,984,000 more assets than liabilities scheduled to reprice within one year or 112.27%. Management adjusts the composition of its assets and liabilities to manage the interest rate sensitivity gap based upon its expectations of interest rate fluctuations. -11- PART II. OTHER INFORMATION Item l. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. None -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 1ST SOURCE CORPORATION ---------------------- (Registrant) DATE 5/9/95 Christopher J. Murphy III /s/ ------------------------------------ (Signature) Christopher J. Murphy III, President DATE 5/9/95 Larry E. Lentych /s/ ------------------------------------ (Signature) Larry E. Lentych, Treasurer (Chief Accounting and Financial Officer) -13- EX-27 2
9 1,000 3-MOS DEC-31-1995 MAR-31-1995 71,400 1,000 5,000 0 247,601 118,209 121,831 1,140,509 25,057 1,626,186 1,325,288 114,199 27,192 22,655 5,429 0 0 131,423 1,626,186 25,726 5,636 0 31,362 12,706 14,308 17,054 960 (153) 13,367 7,386 4,854 0 0 4,854 .60 .60 4.95 3,501 450 0 0 23,868 81 310 25,057 9,132 0 15,925
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