-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECuH26EimZo2jy/qSGhd5MVGARGZmYLFj8qkFjB1WzYPCW4jXbTHLPYbFNUFRNe4 sGvErGd2t30pIABNE95oew== 0000034782-97-000007.txt : 19970520 0000034782-97-000007.hdr.sgml : 19970520 ACCESSION NUMBER: 0000034782-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1ST SOURCE CORP CENTRAL INDEX KEY: 0000034782 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 97606468 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 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1997 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 of 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, 1997 - 15,674,651 shares. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Page Consolidated statements of financial condition -- 3 March 31, 1997, and December 31, 1996 Consolidated statements of income -- 4 three months ended March 31, 1997 and 1996 Consolidated statements of cash flows -- 5 three months ended March 31, 1997 and 1996 Notes to the Consolidated Financial Statements 6
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1st Source Corporation and Subsidiaries (Dollars in thousands) March 31, December 31, 1997 1996 ASSETS Cash and due from banks $ 86,440 $ 137,588 Interest bearing deposits with other banks 1,248 600 Investment securities: Securities available-for-sale, at fair value (amortized cost of $307,144 and $303,177 at March 31, 1997 and December 31, 1996) 305,232 302,602 Securities held-to-maturity, at amortized cost (fair value of $120,469 and $125,218 at March 31, 1997 and December 31, 1996) 117,241 120,494 Total Investment Securities 422,473 423,096 Loans - net of unearned discount 1,536,803 1,455,563 Reserve for loan losses (31,004) (29,516) Net Loans 1,505,799 1,426,047 Premises and equipment 28,288 27,780 Other assets 68,590 64,656 Total Assets $2,112,838 $2,079,767 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $ 228,510 $ 207,280 Interest bearing 1,394,626 1,426,698 Total Deposits 1,623,136 1,633,978 Federal funds purchased and securities sold under agreements to repurchase 127,143 112,580 Other short-term borrowings 89,570 112,283 Other liabilities 34,561 30,497 Long-term debt 18,575 18,596 Total Liabilities 1,892,985 1,907,934 Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures 42,500 -- Shareholders' equity: Common stock-no par value 5,700 5,700 Capital surplus 69,947 69,947 Retained earnings 107,798 102,399 Less cost of common stock in treasury (5,711) (6,670) Unrealized appreciation (depreciation) of investment securities, net (381) 457 Total Shareholders' Equity 177,353 171,833 Total Liabilities and Shareholders' Equity $2,112,838 $2,079,767 The accompanying notes are a part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME 1st Source Corporation and Subsidiaries (Dollars in thousands, except per share amounts) Three Months Ended March 31 1997 1996 Interest Income: Loans, including fees $ 33,010 $ 29,495 Investment securities: Taxable 4,022 3,478 Tax-exempt 2,034 1,973 Other 80 285 Total Interest Income 39,146 35,231 Interest Expense: Deposits 16,487 15,246 Short-term borrowings 2,670 1,803 Long-term debt 318 346 Total Interest Expense 19,475 17,395 Net Interest Income 19,671 17,836 Provision for Loan Losses 1,229 1,209 Net Interest Income After Provision for Loan Losses 18,442 16,627 Other Income: Trust fees 1,769 1,623 Service charges on deposit accounts 1,249 1,176 Mortgage servicing fees, and mortgage loan sale income 1,119 979 Equipment rental income 1,156 201 Commission, securitization and other income 1,687 1,429 Investment securities and other gains (losses) 181 38 Total Other Income 7,161 5,446 Other Expense: Salaries and employee benefits 9,691 8,652 Net occupancy expense 1,172 1,154 Furniture and equipment expense 1,544 1,295 Depreciation - leased equipment 768 226 Business development and marketing expense 493 471 Other 2,575 2,070 Total Other Expense 16,243 13,868 Income Before Income Taxes and Subsidiary Trust Distributions 9,360 8,205 Income taxes 3,235 2,839 Distribution on Preferred Securities of Subsidiary Trusts, Net of Tax 59 -- Net Income $ 6,066 $ 5,366 Per Common Share: Net Income $ 0.38 $ 0.34 Dividends $ 0.072 $ 0.064 Weighted Average Common Shares Outstanding 16,097,698 15,971,223 The computation of per share data gives retroactive recognition to a 5:4 stock split delcared on January 21, 1997. The accompanying notes are a part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS 1st Source Corporation and Subsidiaries (Dollars in thousands) Three Months Ended March 31 1997 1996 Operating Activities: Net income $ 6,066 $ 5,366 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,229 1,209 Depreciation of premises and equipment 1,557 785 Amortization of investment security premiums and accretion of discounts, net 226 131 Deferred income taxes (626) 0 Realized investment securities (gains) (181) (38) Increase in interest receivable (585) (791) Increase in interest payable 2,813 1,590 Other 548 294 Net Cash Provided by Operating Activities 11,047 8,546 Investing Activities: Proceeds from sales and maturities of investment securities 30,481 34,329 Purchases of investment securities (31,239) (37,839) Net (decrease) increase in short-term investments (648) 156 Loans sold or participated to others 37,367 27,620 Net increase in loans made to customers and principal collections on loans (117,033) (82,732) Net increase in leased assets (1,389) (1,490) Purchases of premises and equipment (859) (1,526) Other (1,206) (203) Net Cash Used in Investing Activities (84,526) (61,685) Financing Activities: Net decrease in demand deposits, NOW accounts and savings accounts (14,802) (11,346) Net increase in certificates of deposit 3,961 47,418 Net (decrease) increase in short-term borrowings (8,150) 1,620 Payments on long-term debt (21) (1,642) New issuance of trust preferred securities 42,500 0 Acquisition of treasury stock (23) (220) Cash dividends (1,126) (999) Other (8) (12) Net Cash Provided by Financing Activities 22,331 34,819 Decrease in Cash and Cash Equivalents (51,148) (18,320) Cash and Cash Equivalents, Beginning of Year 137,588 94,517 Cash and Cash Equivalents, End of Period $ 86,440 $ 76,197 The accompanying notes are a part of the consolidated financial statements.
Notes to Consolidated Financial Statements 1. 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 (all which are normal and recurring in nature) 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. The notes to the consolidated financial statements contained in the annual report 10-K for the year ended December 31, 1996, should be read in conjunction with these statements. 2. 1st Source has adopted Financial Accounting Standard No. 125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," as of January 1, 1997. SFAS 125 requires that after a transfer of financial assets, an entity must recognize the financial and servicing assets controlled and liabilities incurred and derecognize financial assets and liabilities in which control is surrendered or when debt is extinguished. The impact on 1st Source's financial position and results of operations has not been material. 3. In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," was issued by the Financial Accounting Standards Board. 1st Source is required to adopt this pronouncement as of December 31, 1997. SFAS No. 128 will require 1st Source to make a dual presentation of basic and fully diluted earnings per share on the face of its consolidated statements of income. The Company does not presently anticipate that SFAS No. 128 will have a significant impact on the Company's historically reported earnings per share. 4. On March 21, 1997, 1st Source raised $42.5 million through the issuance of Cumulative Trust Preferred Securities. 1st Source Capital Trust I issued $27.5 million of 9.00% Cumulative Trust Preferred Securities. 1st Source Capital Trust II issued $15 million of floating rate Cumulative Trust Preferred Securities. 1st Source Capital Trust I and 1st Source Capital Trust II are wholly-owned consolidated subsidiaries of the Company. 1st Source Capital Trust II issued an additional $2.25 million of floating rate Cumulative Trust Preferred Securities on April 10, 1997. The Holders of the Fixed Rate Preferred Securities are entitled to receive preferential cumulative cash distributions from 1st Source Capital Trust I, at the annual rate of 9.00% of the liquidation amount of $25 per Preferred Security, accruing from the date of original issuance and payable quarterly in arrears on the last day of March, June, September and December of each year. Holders of the Floating Rate Preferred Securities are entitled to receive preferential cumulative cash distributions from 1st Source Capital Trust II, at the annual rate equal to the sum of the 3-Month Treasury plus 2.25% of the liquidation amount of $25 per Floating Rate Preferred Security accruing from the date of original issuance and payable quarterly in arrears on the last day of March, June, September and December of each year. The Company, 1st Source Capital Trust I and 1st Source Capital Trust II have executed a guarantee with regard to the trust preferred securities. The guarantee, when taken together with the company's obligations under the trust debentures, the indenture pursuant to which the trust debentures were issued, and the applicable trust document, provides a full and unconditional guarantee of the trusts' obligations under the trust preferred securities. 5. In February, 1997, members of the Department of Financial Institutions, in the State of Indiana, approved an Order which waives the prohibition of the sale of life insurance by State Chartered banks in Indiana who have branches located in states other than Indiana. 1st Source Bank's two Michigan branches will be required to meet all licensee requirements in that state. PART I. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 and the 1996 1st Source Corporation Annual Report on Form 10-K. The amounts shown in this analysis have been adjusted to reflect tax-exempt income on a tax equivalent basis using a 40.525% rate. COMPARISON OF THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 Net income for the three-month period ended March 31, 1997, was $6,066,000 compared to $5,366,000 for the equivalent period in 1996. The primary reasons for the increase were an increase in net interest income and a strong increase in other income offset by an increase in the provision for loan losses and an increase in other expense. Net income per share increased to $0.38 for the three-month period ended March 31, 1997, from $0.34 in 1996. Return on average common shareholders' equity was 14.10% for the three months ended March 31, 1997, compared to 13.93% in 1996. The return on total average assets was 1.22% for the three months ended March 31, 1997, compared to 1.20% in 1996. NET INTEREST INCOME The taxable equivalent net interest income for the three-month period ended March 31, 1997, was $20,623,000, an increase of 9.81% over the same period in 1996, resulting in a net yield of 4.43% compared to 4.51% in 1996. Total average earning assets increased 12.86% for the three-month period ended March 31, 1997, compared to the period ended March 31, 1996. Total average investment securities increased 6.48% from one year ago due to an increase in municipal and agency securities, while a 14.45% increase in average loans occurred primarily in transportation and equipment loans. The taxable equivalent yields on total average earning assets were 8.61% and 8.69% for the periods ended March 31, 1997, and 1996 respectively. Average deposits increased 9.83% from the first quarter of 1996 to the first quarter of 1997. The cost rate on average interest-bearing funds was 4.88% for the three-months ended March 31, 1997, compared to 4.89% for the three months ended March 31, 1996. 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. The following table sets forth consolidated information regarding average balances and rates.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Dollars in thousands) Three Months Ended March 31 1997 1996 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ASSETS: Investment securities: Taxable $ 268,132 $ 4,022 6.08% $ 249,379 $ 3,717 6.00% Tax exempt 150,335 2,950 7.96% 141,882 2,879 8.16% Net loans 1,463,451 33,046 9.16% 1,278,685 29,533 9.29% Other investments 6,762 81 4.83% 3,585 46 4.94% Total Earning Assets 1,888,680 40,098 8.61% 1,673,531 36,175 8.69% Cash and due from banks 70,154 72,251 Reserve for loan losses (29,833) (27,566) Other assets 93,595 73,394 Total $2,022,596 $1,791,610 LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing deposits $1,389,972 16,487 4.81% $1,266,349 15,245 4.84% Short-term borrowings 210,805 2,670 5.14% 144,566 1,804 5.02% Long-term debt 18,585 318 6.93% 20,840 346 6.68% Total Interest Bearing Liabilities 1,619,362 19,475 4.88% 1,431,755 17,395 4.89% Noninterest bearing deposits 190,387 172,550 Other liabilities 38,436 32,340 Shareholders' equity 174,411 154,965 Total $2,022,596 $1,791,610 Net Interest Income $20,623 $18,780 Net Yield on Earning Assets on a Taxable Equivalent Basis 4.43% 4.51% Interest income includes the effects of taxable equivalent adjustments, using a 40.525% rate for 1997 and 1996. Tax equivalent adjustments were $916 in 1997 and $906 in 1996. Loan income includes fees of $797 in 1997 and $756 in 1996. Loan income also includes the effects of taxable equivalent adjustments, using a 40.525% rate for 1997 and 1996. The tax equivalent adjustments were $36 in 1997 and $38 in 1996. For purposes of this computation, non-accruing loans are included in the daily average loan amounts outstanding.
PROVISION FOR LOAN LOSSES The provision for loan losses for the three-month periods ended March 31, 1997, and 1996, was $1,229,000 and $1,209,000, respectively. Year-to-date Net Recoveries of $259,000 have been recorded in 1997, compared to $1,109,000 of Net Charge-offs for the same period in 1996. The reserve for loan losses was $31,004,000 or 2.02% of net loans at March 31, 1997, compared to $29,516,000 or 2.03% of net loans at December 31, 1996. Non-performing assets at March 31, 1997, were $7,641,000 compared to $7,773,000 at December 31, 1996, a decrease of 1.70%. At March 31, 1997, non-performing assets were .50% of net loans compared to .53% at December 31, 1996. 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, 1997. OTHER INCOME Other income for the three-month periods ended March 31, 1997, and 1996 was $7,161,000 and $5,446,000, respectively. Trust fees increased 9.00%, service charges on deposit accounts increased 6.21%, mortgage servicing fees and mortgage loan sale income increased 14.30%, equipment rental income increased 575.12% and commission, securitization and other income increased 18.05%. The significant increase in equipment rental income was primarily due to large sales growth. Investment Security gains and other gains for the three-month period ended March 31, 1997, were $181,000 compared to $38,000 in 1996. The net gains in 1977 and 1996 were primarily due to adjustments made to the carrying value of certain partnership investments. OTHER EXPENSE Other expense for the three-month period ended March 31, 1997, was $16,243,000, an increase of 17.13% over the same period in 1996. For the three-month period ended March 31, 1997, salaries and employee benefits increased 12.01%, net occupancy expense increased 1.56%, furniture and equipment expense increased 19.23%, depreciation on leased equipment increased 339.82%, business development and marketing expense increased 4.67%, and miscellaneous other expenses increased 24.40% over the same period in 1996. The increase in salaries, furniture and equipment expense, business development and marketing expense is primarily due to ten new branches being opened in 1996. The increase in miscellaneous expense is due to supplies and communications. The increase in depreciation of leased equipment is due to a significant volume increase from the prior year. INCOME TAXES The provision for income taxes for the three-month period ended March 31, 1997, was $3,235,000 compared to $2,839,000 for the comparable period in 1996. The provision for income taxes for the three months ended March 31, 1997, and 1996, is at a rate which management believes approximates the effective rate for the year. The increase was due to increased taxable income in 1997. 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 10.73% at March 31, 1997. The Federal Reserve Board has established 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 1996 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 risk-based capital ratio on March 31, 1997, was 13.49% and the total risk-based capital ratio was 14.99%. 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, 1997, the consolidated statement of financial condition was rate sensitive by $86,156,000 more liabilities than assets scheduled to reprice within one year or 92.46%. Management adjusts the composition of its assets and liabilities to manage the interest rate sensitivity gap based upon its expectations of interest rate fluctuations. 1st Source has entered into two off-balance sheet interest rate swaps as part of its interest rate risk management strategy. The swaps are being used to hedge against the Company's Prime floating rate loans. The notional amount of the first swap as of March 31, 1997, is $28 million. It has a maturity date of January, 2002, and has a current fair value of $(878,000). The second swap also has a notional amount of $28 million as of March 31, 1997. It has a maturity date of March, 2001, and has a current fair value of $(579,000). The Company pays a variable interest rate (one-month LIBOR) on each swap and receives a fixed rate. The interest rate swaps are the most efficient means of protecting the bank's net interest rate margin in a declining interest rate environment. Conversely, if interest rates increase, the increased contribution to net interest income from on-balance sheet assets will substantially offset any negative impact on net interest income from these swap transactions. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults Upon Senior Securities None ITEM 4. None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K None 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 ___________________ DATE 5/14/97 /s/ Christopher J. Murphy III (Signature) Christopher J. Murphy III, President DATE 5/14/97 /s/ Larry E. Lentych (Signature) Larry E. Lentych, Treasurer (Chief Accounting and Financial Officer) EX-27 2
9 1000 3-MOS DEC-31-1997 MAR-31-1997 86440 1248 0 0 305232 117241 120469 1536803 31004 2112838 1623136 216713 34561 61075 0 0 5700 171653 2112838 33010 6136 0 39146 16487 19475 19671 1229 181 16243 9360 6066 0 0 6066 .38 .38 4.43 6652 397 0 0 29516 141 400 31004 11471 0 19533
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