1st Source Corporation Announces Record Earnings for Year, History of Increased Dividends Continues

Thu Jan 19, 2012 4:05pm EST

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1st Source Corporation Announces Record Earnings for Year, History of Increased Dividends Continues

1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today announced net income of $48.20 million for the year of 2011, an increase of 16.85% over the $41.24 million reported in 2010. The annual net income sets a record as the highest in company history. Fourth quarter net income was $11.18 million, down 11.02% compared to $12.57 million in the fourth quarter of 2010, partially due to lower interest recoveries on nonperforming loans and lower mortgage banking income in the quarter.

Diluted net income per common share for the year was $1.96, an all-time record and an increase of 61.98% over the $1.21 per common share a year earlier. Diluted net income per common share for the fourth quarter was $0.45, up 80.00% compared to $0.25 per common share reported in the fourth quarter of the previous year. The December 2010 TARP repurchase led to significant improvement in diluted earnings per share, as diluted net income per common share for the fourth quarter and year of 2010 was negatively impacted by the preferred stock dividends and the accretion of discount on the preferred stock issued to the US Treasury under the TARP program in January 2009. Adjusting for these, the diluted net income would have been $1.70 per common share for the year of 2010 and $0.52 per common share for the fourth quarter of 2010.

At the January 2012 meeting, the Board of Directors approved a cash dividend of $0.16 per common share. The cash dividend is payable on February 15, 2012 to shareholders of record on February 6, 2012. Dividends for 2011 increased 4.92% over the previous year and achieved 24 years of consecutive dividend growth.

Christopher J. Murphy, III, Chairman of 1st Source, commented, "2011 was a good year for 1st Source Corporation. We set a record for annual net income and for earnings per share; and we continue a record of 24 years of consecutive dividend growth. 1st Source is strong and stable, and because of that, through good times and bad, we have been able to live up to our commitment of keeping our client’s best interests in mind while working to meet their unique individual needs.

“Our focus has been on three things – outstanding customer service, pristine credit quality, and superior financial returns. We concentrated on providing guidance to our clients, along with friendly, helpful service which assisted in expanding our relationships with them. We attracted new primary customers within our retail market area, and are pleased to have achieved our new client growth goals for the year. With all the financial uproar over the past year, from Occupy Wall Street to Bank Transfer Day, we remain a community bank committed to delivering highly personal service and distinctive convenience to our clients.

“Credit continues to improve. Our 30 day delinquency rate ended 2011 at 0.30% of total loans and leases; our net charge-offs for 2011 were 0.27% to average net loans and leases; while our net charge-offs in dollars were $8.36 million compared to $20.57 million a year earlier.

“At 1st Source, we’ve tightly managed our expenses, while spending money to grow when we needed to, whether by adding new staff members, or upgrading our facilities. I thank my colleagues and our loyal clients for a good year," Mr. Murphy concluded.

The net interest margin was 3.66% for the fourth quarter of 2011 versus 3.67% for the same period in 2010. The net interest margin was 3.69% for the year ending December 31, 2011, versus 3.59% for the same period in 2010. Tax-equivalent net interest income was $37.89 million for the fourth quarter of 2011, compared to $39.96 million for 2010’s fourth quarter. 2010’s fourth quarter included $0.95 million more in net interest recoveries than were experienced in 2011. For the twelve months of 2011, tax-equivalent net interest income was $150.91 million, compared to $150.87 million for the twelve months of 2010.

As of December 31, 2011, the 1st Source common equity-to-assets ratio was 11.98%, compared to 10.94% at December 31, 2010 and its tangible common equity-to-tangible assets ratio was 10.18% at December 31, 2011 compared to 9.12% at December 31, 2010. Common shareholders’ equity was $523.92 million, up from $486.38 million a year ago. Total assets at the end of 2011 were $4.37 billion, down slightly from the same period last year. Total loans and leases at December 31, 2011 were $3.09 billion, up slightly, and total deposits at December 31, 2011 were $3.52 billion, down 2.83% from the comparable figures at the end of 2010.

1st Source’s reserve for loan and lease losses as of December 31, 2011 was 2.64% of total loans and leases, compared to 2.83% as of December 31, 2010. Net charge-offs were $2.17 million for the fourth quarter 2011, compared to $6.08 million in the fourth quarter 2010. Net charge-offs for the full year were $8.36 million in 2011 compared to $20.57 million in 2010. The ratio of nonperforming assets to net loans and leases was 2.28% on December 31, 2011, compared to 2.81% on December 31, 2010.

Noninterest income for the fourth quarter of 2011 was $20.27 million, down 9.60% compared to $22.42 million for the fourth quarter of 2010. For the year, noninterest income was $80.87 million, down 6.71% from the $86.69 million in 2010. The predominate factors in the fourth quarter and year-to-date change were lower mortgage banking income, equipment rental income, and investment securities and other investment gains.

Noninterest expense for the fourth quarter of 2011 was $40.79 million, up 2.13% compared to $39.94 million for the fourth quarter of 2010. The leading factors for the fourth quarter increase were higher loan and lease collection and repossession expense and salaries and employee benefits expense offset by lower expenses associated with the disposal of fixed assets. For the year ending December 31, 2011, noninterest expense was $152.35 million, down 1.39% from $154.51 million one year ago. The annual decrease was a result of lower depreciation on leased equipment, FDIC and other insurance expense, and lower expenses associated with the disposal of fixed assets offset by higher furniture and equipment expense and salaries and employee benefit expenses.

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 75 community banking centers in 17 counties, 23 specialty finance locations nationwide, 8 trust and wealth management locations, and 8 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 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
4th QUARTER 2011 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
   
Three Months Ended Twelve Months Ended
December 31 December 31
2011     2010 2011     2010
END OF PERIOD BALANCES
Assets $ 4,374,071 $ 4,445,281
Loans and leases 3,090,543 3,070,623
Deposits 3,520,141 3,622,745
Reserve for loan and lease losses 81,644 86,874
Intangible assets 87,675 88,955
Common shareholders' equity 523,918 486,383
Total shareholders' equity 523,918 486,383
 
AVERAGE BALANCES
Assets $ 4,421,259 $ 4,651,845 $ 4,402,554 $ 4,543,702
Earning assets 4,102,618 4,325,823 4,090,297 4,207,485
Investments 858,941 951,074 899,895 914,253
Loans and leases 3,063,248 3,087,494 3,078,581 3,109,508
Deposits 3,548,246 3,684,587 3,555,454 3,605,195
Interest bearing liabilities 3,247,367 3,454,799 3,286,246 3,402,199
Common shareholders' equity 522,267 495,808 506,939 485,793
Total shareholders' equity 522,267 598,383 506,939 590,464
 
INCOME STATEMENT DATA
Net interest income $ 37,330 $ 39,162 $ 148,400 $ 147,497
Net interest income - FTE 37,893 39,963 150,907 150,872
(Recovery of) provision for loan and lease losses (396) 3,443 3,129 19,207
Noninterest income 20,265 22,416 80,872 86,691
Noninterest expense 40,787 39,936 152,354 154,505
Net income 11,182 12,567 48,195 41,244
Net income available to common shareholders 11,182 6,127 48,195 29,655
 
PER SHARE DATA
Basic net income per common share $ 0.45 $ 0.25 $ 1.96 $ 1.21
Diluted net income per common share 0.45 0.25 1.96 1.21
Common cash dividends declared 0.16 0.16 0.64 0.61
Book value per common share 21.64 20.12 21.64 20.12
Tangible book value per common share 18.02 16.44 18.02 16.44
Market value - High 26.06 20.75 26.06 20.75
Market value - Low 19.91 17.01 17.86 14.25
Basic weighted average common shares outstanding 24,213,834 24,186,469 24,237,924 24,232,092
Diluted weighted average common shares outstanding 24,224,751 24,195,208 24,247,456 24,239,194
 
KEY RATIOS
Return on average assets 1.00 % 1.07 % 1.09 % 0.91 %
Return on average common shareholders' equity 8.49 4.90 9.51 6.10
Average common shareholders' equity to average assets 11.81 10.66 11.51 10.69
End of period tangible common equity to tangible assets 10.18 9.12 10.18 9.12
Risk-based capital - Tier 1 15.21 14.05 15.21 14.05
Risk-based capital - Total 16.51 15.34 16.51 15.34
Net interest margin 3.66 3.67 3.69 3.59
Efficiency: expense to revenue 68.60 62.10 64.35 63.26
Net charge-offs to average loans and leases 0.28 0.78 0.27 0.66
Loan and lease loss reserve to loans and leases 2.64 2.83 2.64 2.83
Nonperforming assets to loans and leases 2.28 2.81 2.28 2.81
 
ASSET QUALITY
Loans and leases past due 90 days or more $ 460 $ 361
Nonaccrual loans and leases 56,440 74,853
Other real estate 7,621 6,392
Former bank premises held for sale 1,134 1,200
Repossessions 6,792 5,670
Equipment owned under operating leases 29 236
Total nonperforming assets 72,476 88,712
 
   
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
December 31, 2011 December 31, 2010

ASSETS

Cash and due from banks $ 61,406 $ 62,313
Federal funds sold and interest bearing deposits with other banks 52,921 34,559
Investment securities available-for-sale
(amortized cost of $853,204 and $952,101 at
December 31, 2011 and 2010, respectively) 883,000 969,018
Other investments 18,974 21,343
Trading account securities 132 138
Mortgages held for sale 12,644 32,599
 
Loans and leases, net of unearned discount:
Commercial and agricultural loans 545,570 530,228
Auto, light truck and environmental equipment 435,965 396,500
Medium and heavy duty truck 159,796 162,824
Aircraft financing 620,782 614,357
Construction equipment financing 261,204 285,634
Commercial real estate 545,457 594,729
Residential real estate 423,606 390,951
Consumer loans   98,163     95,400  
Total loans and leases 3,090,543 3,070,623
Reserve for loan and lease losses   (81,644 )   (86,874 )
Net loans and leases 3,008,899 2,983,749
 
Equipment owned under operating leases, net 69,551 78,138
Net premises and equipment 39,857 33,881
Goodwill and intangible assets 87,675 88,955
Accrued income and other assets   139,012     140,588  
 
Total assets $ 4,374,071   $ 4,445,281  
 

LIABILITIES

Deposits:
Noninterest bearing $ 580,101 $ 524,564
Interest bearing   2,940,040     3,098,181  
Total deposits 3,520,141 3,622,745
 
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to purchase 106,991 136,028
Other short-term borrowings   18,243     19,961  
Total short-term borrowings 125,234 155,989
Long-term debt and mandatorily redeemable securities 37,156 24,816
Subordinated notes 89,692 89,692
Accrued expenses and other liabilities   77,930     65,656  
Total liabilities 3,850,153 3,958,898
 

SHAREHOLDERS' EQUITY

Preferred stock; no par value - -
Common stock; no par value 346,535 350,282
Retained earnings 190,261 157,875
Cost of common stock in treasury (31,389 ) (32,284 )
Accumulated other comprehensive income   18,511     10,510  
Total shareholders' equity   523,918     486,383  
 
Total liabilities and shareholders' equity $ 4,374,071   $ 4,445,281  
 
   
1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands)
 
  Three Months Ended Twelve Months Ended
December 31, December 31,
2011   2010 2011   2010
Interest income:  
Loans and leases $ 40,236 $ 44,435 $ 163,986 $ 173,526
Investment securities, taxable 4,445 4,855 18,533 20,466
Investment securities, tax-exempt 889 1,315 4,013 5,573
Other   284       318     991     1,061  
Total interest income   45,854       50,923     187,523     200,626  
 
Interest expense:
Deposits 6,489 9,837 30,762 44,605
Short-term borrowings 60 187 300 800
Subordinated notes 1,647 1,647 6,589 6,589

Long-term debt and mandatorily redeemable securities

  328       90     1,472     1,135  
Total interest expense   8,524       11,761     39,123     53,129  
 
Net interest income 37,330 39,162 148,400 147,497
(Recovery of) provision for loan and lease losses   (396 )     3,443     3,129     19,207  
Net interest income after (recovery of)
provision for loan and lease losses 37,726 35,719 145,271 128,290
 
Noninterest income:
Trust fees 4,022 4,161 16,327 15,838
Service charges on deposit accounts 4,866 4,510 18,488 19,323
Mortgage banking income 1,504 2,467 3,839 6,218
Insurance commissions 1,377 1,368 4,793 5,074
Equipment rental income 5,500 6,124 23,361 26,036
Other income 3,283 3,552 12,665 11,909

Investment securities and other investment (losses) gains

  (287 )     234     1,399     2,293  
Total noninterest income   20,265       22,416     80,872     86,691  
 
Noninterest expense:
Salaries and employee benefits 20,012 19,177 77,261 75,815
Net occupancy expense 2,106 2,162 8,714 8,788
Furniture and equipment expense 3,701 3,320 14,130 12,543
Depreciation - leased equipment 4,400 4,874 18,650 20,715
Professional fees 2,006 1,858 5,508 6,353
Supplies and communication 1,431 1,405 5,453 5,499
FDIC and other insurance 913 1,495 4,421 6,256
Business development and marketing expense 1,578 1,482 4,032 3,774
Loan and lease collection and repossession expense 2,513 405 6,724 6,227
Other expense   2,127       3,758     7,461     8,535  
Total noninterest expense   40,787       39,936     152,354     154,505  
 
Income before income taxes 17,204 18,199 73,789 60,476
Income tax expense   6,022       5,632     25,594     19,232  
 
Net income 11,182 12,567 48,195 41,244
Preferred stock dividends and discount accretion   -       (6,440 )   -     (11,589 )
Net income available to common shareholders $ 11,182     $ 6,127   $ 48,195   $ 29,655  
 
 
The NASDAQ Global Select National Market Symbol: "SRCE" (CUSIP #336901 10 3)

Please contact us at shareholder@1stsource.com

1st Source Corporation
Larry Lentych, 574-235-2000
or
Andrea Short, 574-235-2000

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