| FOR: | Immediate Release | | CONTACT: | | Larry Lentych |
| | July 19, 2007 | | | | 574 235 2000 |
| | | | | | | | |
| | | | | | | Andrea Short |
| | | | | | | 574 235 2000 |
1ST SOURCE CORPORATION REPORTS 2ND QUARTER EARNINGS,
DIVIDEND ANNOUNCED
South Bend, IN -- 1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today reported net income of $8.06 million for the second quarter of 2007, a decrease of 21.57 percent compared to the $10.28 million reported in the second quarter of 2006. For the first six months of 2007, net income for 1st Source Corporation was $16.58 million, a 17.95 percent decrease from the $20.21 million reported for the same period in 2006. While 1st Source continued to have net loan loss recoveries, they were less than previous periods. Strong loan growth led the company to add to its provision for loan and lease losses for the first time in over two years. This contributed to the decline in earnings. Other factors that affected the outcome was a decrease in mortgage banking income from a year earlier and increased expenses associated with several new initiatives.
Diluted net income per common share for the second quarter of 2007 amounted to $0.34, down 24.44 percent compared with $0.45 reported in the second quarter of 2006. Diluted net income per share for the first two quarters of 2007 was $0.72 a decrease of 18.18 percent over the $0.88 reported in the same period a year ago.
Christopher J. Murphy III, Chairman and Chief Executive Officer, reported that at the July meeting, the Board of Directors approved a cash dividend of $0.14 per share. The cash dividend will be payable to shareholders of record on August 6, 2007 and paid on August 15, 2007.
Mr. Murphy commented, “The reduction in mortgage banking income coupled with an addition to the reserve and increased expenses from a number of new initiatives led to a disappointing quarter from an earnings standpoint. Having said that, the initiatives are part of our longer term strategy and are necessary for us to remain competitive and grow in the future.”
“In May, we completed the acquisition of First National Bank, Valparaiso, a $600 million 26 location bank in the fastest growing area of our market, and began the process of blending the new organization into the Corporation. We also opened in a new market in an historic building in downtown Lafayette, Indiana. This is a growing area for business banking in the state and is somewhat protected cyclically by the area’s largest employer, Purdue University.”
“In the same month, 1st Source completed the transfer and repositioning of the company’s mortgage business from its Trustcorp Mortgage subsidiary into 1st Source Bank. Our home mortgage efforts will now focus on our retail footprint and allow the broadening of our banking relationships with our mortgage clients. Neither Trustcorp nor 1st Source Bank were exposed to the subprime market or to the more exotic mortgage products.”
“Work is fast and furious on the installation of a new core computer system which upgrades our infrastructure for effectiveness and efficiency in the long term. This is a huge undertaking affecting all departments, literally replacing our entire system from the mainframe down to the software applications throughout the organization. The project should reach completion and taper off by the end of the fourth quarter. Credit quality remains strong with net recoveries during the quarter. Our net interest margin remains under pressure, and we are taking steps to help improve it. Although our financial performance isn’t the outcome we’d hoped, much is being done today that we believe will reap benefits in the long term,” Mr. Murphy concluded.
As of June 30, 2007, the 1st Source common equity-to-assets ratio was 9.45 percent compared to 9.76 percent a year ago. Total assets at June 30, 2007, were $4.50 billion, up 24.83 percent from June 30, 2006. The increase in assets was primarily due to the acquisition of First National Bank, Valparaiso (FNBV) which had assets, including goodwill, of $718.29 million at June 30, 2007. Total loans and leases were $3.13 billion, an increase of $519.02 million, or 19.85 percent from June 30, 2006. The acquisition of FNBV contributed $238.98 million toward the increase in total loans and leases for the quarter. Total deposits were $3.59 billion, up $770.83 million or 27.39 percent from the comparable figures at June 30, 2006. The increase in deposits was mainly due to the acquisition of FNBV which added $562.47 million to the total at June 30, 2007.
1st Source’s reserve for loan and lease losses as of June 30, 2007, was 2.00 percent of total loans and leases compared to 2.26 percent at June 30, 2006. During the second quarter the acquisition of FNBV added $2.21 million to the reserve for loan and lease losses. Net recoveries of $0.52 million were recorded for the second quarter 2007, compared to net recoveries of $1.77 million for the same quarter a year ago. Year-to-date net recoveries of $1.04 million have been recorded in 2007, compared to net recoveries of $2.47 million for the first half of 2006. The ratio of nonperforming assets to net loans and leases was 0.49 percent on June 30, 2007, compared to 0.57 percent on June 30, 2006.
The net interest margin was 3.16 percent for the second quarter of 2007 versus 3.44 percent for the same period in 2006. The net interest margin was 3.17 percent for the six months ending June 30, 2007, versus 3.36 percent for the same period in 2006. Tax-equivalent net interest income was $29.61 million for the second quarter of 2007, up 6.49 percent from 2006’s second quarter. For the first six months of 2007, tax-equivalent net interest income was $56.58 million compared to $53.53 million for the first six months of 2006, an increase of 5.69 percent.
Noninterest income for the second quarter 2007 was relatively unchanged from that of the second quarter 2006 at $19.07 million. For the first six months of 2007, noninterest income was $36.56 million down 3.98 percent from 2006. Mortgage banking income declined $3.23 million as compared to the first six months of 2006. Gains on venture partnership investment totaled $0.17 million for the first six months of 2007 compared to gains of $2.07 million for the first six months of 2006. Other noninterest income increased from the three- and six- month periods ended June 30, 2007 as compared to the prior year, primarily due to income from interest rate swaps, increased equipment rental income from growth in the portfolio, and increased trust fees and service charges on deposit accounts, which include overdraft and NSF fees, as we added new customers.
Noninterest expense was $34.45 million for the second quarter of 2007, compared with $32.39 million for the second quarter of 2006. For the first six months, noninterest expense was $66.25 million, compared with $61.79 million for the same period in 2006. The leading factor in the change was in salaries and employee benefits. For the second quarter of 2007 salaries and employee benefits expense was $18.15 million compared to $16.87 million for the quarter a year earlier, and $35.72 million compared to $32.39 million for the first six months of each year, mainly due to a one-time expense reversal related to the adoption of SFAS No. 123(R).
Leased equipment depreciation expense increased in conjunction with the increase in equipment rental income from second quarter and year-to-date of 2006 to second quarter and year-to-date of 2007. Furniture and equipment expense increased for the second quarter of 2007 compared to the second quarter of 2006 and on a year-over-year basis due to increased software costs, expenses related to the core system conversion project, and other processing charges. Additionally, increases were experienced in business development and marketing expense, net occupancy expense, professional fees, and supplies and communication in the second quarter and first half of 2007, as compared to the second quarter and first half of 2006.
1st Source is the largest locally controlled financial institution serving the northern Indiana-southwestern Michigan area. The Corporation has two main subsidiaries, 1st Source Bank and First National Bank, Valparaiso, which offer a full range of consumer and business banking products 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 over 80 banking centers in 17 counties plus 24 locations nationwide for the 1st Source Bank Specialty Finance Group. 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 in which it serves.
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." Marketmakers in 1st Source common shares are Citigroup Global Markets, Incorporated; FTN Midwest Securities Corp.; Goldman, Sachs & Company; Howe Barnes Investments; Keefe, Bruyette & Woods, Incorporated; Lehman Brothers, Incorporated; Morgan Stanley & Company, Incorporated; Sandler O’Neill & Partners; Stifel, Nicolaus & Company; Susquehanna Capital Group; and UBS Securities LLC.
Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “should,” 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.
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1st SOURCE CORPORATION | | | | | | | | | | | | | | Page 5 | |
2nd QUARTER 2007 FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
(Unaudited - Dollars in thousands, except for per share data) | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | Six Months Ended | |
| | | June 30 | | | | June 30 | |
| | | 2007 | | | | 2006 | | | | 2007 | | | | 2006 | |
END OF PERIOD BALANCES | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | $ | 4,504,650 | | | | $ | 3,608,526 | |
| Loans and leases | | | | | | | | | | | 3,134,170 | | | | | 2,615,152 | |
| Deposits | | | | | | | | | | | 3,585,441 | | | | | 2,814,609 | |
| Reserve for loan and lease losses | | | | | | | | | | | 62,682 | | | | | 59,197 | |
| Intangible assets | | | | | | | | | | | 91,196 | | | | | 20,056 | |
| Common shareholders' equity | | | | | | | | | | | 425,526 | | | | | 352,312 | |
| | | | | | | | | | | | | | | | | | |
AVERAGE BALANCES | | | | | | | | | | | | | | | | | |
| Assets | | $ | 4,024,910 | | | | $ | 3,482,532 | | | | $ | 3,854,301 | | | | $ | 3,444,006 | |
| Earning assets | | | 3,752,861 | | | | | 3,246,329 | | | | | 3,603,070 | | | | | 3,209,319 | |
| Investments | | | 704,204 | | | | | 627,317 | | | | | 684,884 | | | | | 630,560 | |
| Loans and leases | | | 2,899,340 | | | | | 2,542,118 | | | | | 2,803,434 | | | | | 2,499,834 | |
| Deposits | | | 3,192,247 | | | | | 2,706,707 | | | | | 3,042,150 | | | | | 2,660,751 | |
| Interest bearing liabilities | | | 3,195,122 | | | | | 2,698,097 | | | | | 3,062,164 | | | | | 2,665,772 | |
| Common shareholders' equity | | | 396,173 | | | | | 352,149 | | | | | 385,244 | | | | | 350,734 | |
| | | | | | | | | | | | | | | | | | | | |
INCOME STATEMENT DATA | | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 28,871 | | | | $ | 27,145 | | | | $ | 55,143 | | | | $ | 52,244 | |
| Net interest income - FTE | | | 29,611 | | | | | 27,807 | | | | | 56,576 | | | | | 53,530 | |
| Provision for (recovery of) loan and lease losses | | | 1,247 | | | | | (1,671 | ) | | | | 624 | | | | | (1,971 | ) |
| Noninterest income | | | 19,070 | | | | | 19,067 | | | | | 36,556 | | | | | 38,072 | |
| Noninterest expense | | | 34,446 | | | | | 32,386 | | | | | 66,246 | | | | | 61,792 | |
| Net income | | | 8,060 | | | | | 10,277 | | | | | 16,583 | | | | | 20,210 | |
| | | | | | | | | | | | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | | | | | | | | | | |
| Basic net income per common share | | $ | 0.35 | | | | $ | 0.46 | | | | $ | 0.73 | | | | $ | 0.90 | |
| Diluted net income per common share | | | 0.34 | | | | | 0.45 | | | | | 0.72 | | | | | 0.88 | |
| Cash dividends paid per common share | | | 0.140 | | | | | 0.127 | | | | | 0.280 | | | | | 0.255 | |
| Book value per common share | | | 17.43 | | | | | 15.67 | | | | | 17.43 | | | | | 15.67 | |
| Market value - High | | | 27.920 | | | | | 30.809 | | | | | 32.620 | | | | | 30.809 | |
| Market value - Low | | | 23.320 | | | | | 24.682 | | | | | 23.320 | | | | | 22.636 | |
| Basic weighted average common shares outstanding | | | 23,127,790 | | | | | 22,505,875 | | | | | 22,818,015 | | | | | 22,576,338 | |
| Diluted weighted average common shares outstanding | | | 23,423,121 | | | | | 22,810,923 | | | | | 23,113,159 | | | | | 22,876,839 | |
| | | | | | | | | | | | | | | | | | | | |
KEY RATIOS | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | 0.80 | | % | | | 1.18 | | % | | | 0.87 | | % | | | 1.18 | % |
| Return on average common shareholders' equity | | | 8.16 | | | | | 11.71 | | | | | 8.68 | | | | | 11.62 | |
| Average common shareholders' equity to average assets | | | 9.84 | | | | | 10.11 | | | | | 10.00 | | | | | 10.18 | |
| End of period tangible common equity to tangible assets | | | 7.58 | | | | | 9.26 | | | | | 7.58 | | | | | 9.26 | |
| Net interest margin | | | 3.16 | | | | | 3.44 | | | | | 3.17 | | | | | 3.36 | |
| Efficiency: expense to revenue | | | 68.28 | | | | | 66.79 | | | | | 68.67 | | | | | 66.55 | |
| Net charge-offs to average loans and leases | | | (0.07 | ) | | | | (0.28 | ) | | | | (0.07 | ) | | | | (0.20 | ) |
| Loan and lease loss reserve to loans and leases | | | 2.00 | | | | | 2.26 | | | | | 2.00 | | | | | 2.26 | |
| Nonperforming assets to loans and leases | | | 0.49 | | | | | 0.57 | | | | | 0.49 | | | | | 0.57 | |
| | | | | | | | | | | | | | | | | | | | |
ASSET QUALITY | | | | | | | | | | | | | | | | | | | |
| Loans and leases past due 90 days or more | | | | | | | | | | | | $ | 205 | | | | $ | 278 | |
| Nonaccrual and restructured loans and leases | | | | | | | | | | | | | 10,274 | | | | | 13,252 | |
| Other real estate | | | | | | | | | | | | | 2,856 | | | | | 819 | |
| Repossessions | | | | | | | | | | | | | 2,183 | | | | | 1,082 | |
| Equipment owned under operating leases | | | | | | | | | | | | | 170 | | | | | - | |
| Total nonperforming assets | | | | | | | | | | | | | 15,688 | | | | | 15,431 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Page 6 | |
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | | | | | | |
(Unaudited - Dollars in thousands) | | | | | | |
| | | June 30, 2007 | | | June 30, 2006 | |
ASSETS | | | | | | |
| Cash and due from banks | | $ | 97,691 | | | $ | 118,884 | |
| Federal funds sold and | | | | | | | | |
| interest bearing deposits with other banks | | | 196,232 | | | | 2,320 | |
| Investment securities available-for-sale | | | | | | | | |
| (amortized cost of $797,840 and $635,176 at | | | | | | | | |
| June 30, 2007 and 2006, respectively) | | | 794,604 | | | | 628,366 | |
| | | | | | | | | |
| Trading account securities | | | - | | | | 300 | |
| | | | | | | | | |
| Mortgages held for sale | | | 25,599 | | | | 82,018 | |
| | | | | | | | | |
| Loans and leases, net of unearned discount: | | | | | | | | |
| Commercial and agricultural loans | | | 567,932 | | | | 491,334 | |
| Auto, light truck and environmental equipment | | | 350,254 | | | | 337,497 | |
| Medium and heavy duty truck | | | 329,103 | | | | 319,845 | |
| Aircraft financing | | | 535,362 | | | | 453,470 | |
| Construction equipment financing | | | 362,654 | | | | 273,621 | |
| Loans secured by real estate | | | 834,153 | | | | 618,204 | |
| Consumer loans | | | 154,712 | | | | 121,181 | |
Total loans and leases | | | 3,134,170 | | | | 2,615,152 | |
| Reserve for loan and lease losses | | | (62,682 | ) | | | (59,197 | ) |
Net loans and leases | | | 3,071,488 | | | | 2,555,955 | |
| | | | | | | | | |
| Equipment owned under operating leases, net | | | 79,082 | | | | 67,647 | |
| Net Premises and equipment | | | 50,847 | | | | 37,414 | |
| Accrued income and other assets | | | 189,107 | | | | 115,622 | |
| | | | | | | | | |
Total assets | | $ | 4,504,650 | | | $ | 3,608,526 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | |
| Deposits: | | | | | | | | |
| Noninterest bearing | | $ | 380,681 | | | $ | 379,230 | |
| Interest bearing | | | 3,204,760 | | | | 2,435,379 | |
Total deposits | | | 3,585,441 | | | | 2,814,609 | |
| | | | | | | | | |
| Federal funds purchased and securities | | | | | | | | |
| sold under agreements to repurchase | | | 241,578 | | | | 217,923 | |
| Other short-term borrowings | | | 22,874 | | | | 67,799 | |
| Long-term debt and mandatorily redeemable securities | | | 44,199 | | | | 33,554 | |
| Subordinated notes | | | 100,260 | | | | 59,022 | |
| Accrued expenses and other liabilities | | | 84,772 | | | | 63,307 | |
Total liabilities | | | 4,079,124 | | | | 3,256,214 | |
| | | | | | | | | |
SHAREHOLDERS' EQUITY | | | | | | | | |
| Preferred stock; no par value | | | - | | | | - | |
| Common stock; no par value | | | 342,840 | | | | 221,579 | |
| Retained earnings | | | 110,220 | | | | 154,339 | |
| Cost of common stock in treasury | | | (25,524 | ) | | | (19,405 | ) |
| Accumulated other comprehensive loss | | | (2,010 | ) | | | (4,201 | ) |
Total shareholders' equity | | | 425,526 | | | | 352,312 | |
| | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 4,504,650 | | | $ | 3,608,526 | |
| | | | | | | | | |
| | | | | | | | | | | Page 7 | |
CONSOLIDATED STATEMENTS OF INCOME | | | | | | | | | | | | |
(Unaudited - Dollars in thousands) | | | | | | | | | | | | |
| | | Three Months Ended June 30 | | | Six Months Ended June 30 | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| Interest income: | | | | | | | | | | | | |
| Loans and leases | | $ | 53,078 | | | $ | 44,421 | | | $ | 101,352 | | | $ | 85,309 | |
| Investment securities, taxable | | | 5,991 | | | | 4,797 | | | | 11,721 | | | | 8,722 | |
| Investment securities, tax-exempt | | | 1,721 | | | | 1,292 | | | | 3,138 | | | | 2,559 | |
| Other | | | 1,542 | | | | 271 | | | | 2,074 | | | | 587 | |
| | | | | | | | | | | | | | | | | |
Total interest income | | | 62,332 | | | | 50,781 | | | | 118,285 | | | | 97,177 | |
| | | | | | | | | | | | | | | | | |
| Interest expense: | | | | | | | | | | | | | | | | |
| Deposits | | | 28,795 | | | | 19,283 | | | | 54,065 | | | | 36,316 | |
| Short-term borrowings | | | 2,572 | | | | 2,822 | | | | 5,262 | | | | 5,582 | |
| Subordinated notes | | | 1,296 | | | | 1,080 | | | | 2,390 | | | | 2,130 | |
| Long-term debt and mandatorily redeemable securities | | | 798 | | | | 451 | | | | 1,425 | | | | 905 | |
| | | | | | | | | | | | | | | | | |
Total interest expense | | | 33,461 | | | | 23,636 | | | | 63,142 | | | | 44,933 | |
| | | | | | | | | | | | | | | | | |
| Net interest income | | | 28,871 | | | | 27,145 | | | | 55,143 | | | | 52,244 | |
| Provision for (recovery of) loan and lease losses | | | 1,247 | | | | (1,671 | ) | | | 624 | | | | (1,971 | ) |
| | | | | | | | | | | | | | | | | |
Net interest income after provision for (recovery of) loan and lease losses | | | 27,624 | | | | 28,816 | | | | 54,519 | | | | 54,215 | |
| | | | | | | | | | | | | | | | | |
| Noninterest income: | | | | | | | | | | | | | | | | |
| Trust fees | | | 3,871 | | | | 3,658 | | | | 7,514 | | | | 7,049 | |
| Service charges on deposit accounts | | | 5,226 | | | | 4,917 | | | | 9,796 | | | | 9,303 | |
| Mortgage banking income | | | 1,059 | | | | 3,105 | | | | 1,630 | | | | 4,862 | |
| Insurance commissions | | | 938 | | | | 932 | | | | 2,576 | | | | 2,614 | |
| Equipment rental income | | | 5,287 | | | | 4,658 | | | | 10,385 | | | | 8,878 | |
| Other income | | | 2,482 | | | | 1,647 | | | | 4,201 | | | | 3,133 | |
| Investment securities and other investment gains | | | 207 | | | | 150 | | | | 454 | | | | 2,233 | |
| | | | | | | | | | | | | | | | | |
Total noninterest income | | | 19,070 | | | | 19,067 | | | | 36,556 | | | | 38,072 | |
| | | | | | | | | | | | | | | | | |
| Noninterest expense: | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | | 18,153 | | | | 16,873 | | | | 35,719 | | | | 32,387 | |
| Net occupancy expense | | | 2,149 | | | | 1,860 | | | | 4,085 | | | | 3,727 | |
| Furniture and equipment expense | | | 3,748 | | | | 2,959 | | | | 6,842 | | | | 6,093 | |
| Depreciation - leased equipment | | | 4,243 | | | | 3,547 | | | | 8,319 | | | | 6,929 | |
| Supplies and communication | | | 1,512 | | | | 1,307 | | | | 2,784 | | | | 2,670 | |
| Other expense | | | 4,641 | | | | 5,840 | | | | 8,497 | | | | 9,986 | |
| | | | | | | | | | | | | | | | | |
Total noninterest expense | | | 34,446 | | | | 32,386 | | | | 66,246 | | | | 61,792 | |
| | | | | | | | | | | | | | | | | |
| Income before income taxes | | | 12,248 | | | | 15,497 | | | | 24,829 | | | | 30,495 | |
| Income tax expense | | | 4,188 | | | | 5,220 | | | | 8,246 | | | | 10,285 | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 8,060 | | | $ | 10,277 | | | $ | 16,583 | | | $ | 20,210 | |
| | | | | | | | | | | | | | | | | |
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