Program but did so to ensure that we could meet the needs of our customers in any future economic scenario. We believed it important to support the government’s program to reliquify the capital markets. Having done that, we are very disappointed in the high costs of the program, the negative changes in the program and the negative characterizations of those who participated even though many of us had nothing to do with causing the serious losses in the financial services industry or the present negative economy.”
Continued Mr. Murphy, “Even with the growth, it was still a tough quarter. We, like a lot of our customers, are frustrated that we are all paying for the excesses of the investment banking industry and some of the larger commercial banks as well as some other overly aggressive financial institutions. Their actions have led to a melt down of our national economy and adversely affected jobs and businesses across the markets we serve. Needless to say, even though we have not participated in the subprime lending business nor the real estate development business, credit challenges increased in the region with our markets having some of the highest unemployment rates in the country. During the quarter, our loan portfolio shrank 1.88 percent. Net of recoveries, we charged off $9.72 million in problem loans, and provided $8.49 million for the loan and lease loss reserve, giving us a net charge off ratio of 1.23 percent and a quarter ending reserve to loans and leases ratio of 2.64 percent. These ratios compare very favorably to the majority of the banking industry. Finally, the impact of changes in FDIC insurance, brought on primarily by some major bank failures and the inclusion of troubled investment banking firms brought under FDIC protection, added new insurance costs of $3.38 million this quarter over a year ago, including the special assessment by the FDIC of $2.03 million.”
“In these difficult times, we continue to look at our cost structure with an eye to making sure we are delivering on our commitment of exceptional customer service in an efficient and effective manner. During the quarter, we closed 3 banking centers that either overlapped with other locations or were underperforming. We have frozen salaries for officers for the year, and all expenditures are examined to insure they lead to long-term growth of the company. During the quarter, we rolled out e-student checking and savings accounts; e-statements for clients – hoping to save paper, trees and postage; and upgraded our ATM system. With all the challenges occurring in the quarter, we were able to reduce expenses yet remain focused on providing first-rate service and excellent products for our clients.” Mr. Murphy concluded.
As of June 30, 2009, the 1st Source common equity-to-assets ratio was 10.22 percent compared to 9.82 percent a year ago and its tangible equity to assets ratio was 8.39 percent compared to 7.92 percent a year earlier. Total assets at June 30, 2009, were $4.54 billion, up 1.49 percent over a year ago. Total loans and leases were $3.15 billion, down 4.81 percent from June 30, 2008. Total deposits were $3.62 billion, up 7.43 percent from the comparable figures at June 30, 2008.
The 1st Source reserve for loan and lease losses as of June 30, 2009, was 2.64 percent of total loans and leases compared to 2.16 percent at June 30, 2008. Net charge-offs were $9.72 million in the second quarter 2009, compared with net charge-offs of only $0.22 million in the same quarter a year ago. Year-to-date, net charge-offs of $12.92 million have been recorded in 2009, compared to net charge-offs of $0.94 million for the first half of 2008. The ratio of nonperforming assets to net loans and leases was 2.48 percent on June 30, 2009, compared to 2.09 percent on March 31, 2009 and 0.83 percent on June 30, 2008.
The net interest margin was 3.11 percent for the second quarter of 2009 versus 3.38 percent for the same period in 2008. The net interest margin was 3.07 percent for the six months ending June 30, 2009, versus 3.35 percent for the same period in 2008. Tax-equivalent net interest income was $32.84 million for the second quarter of 2009, compared to $34.03 million for 2008’s second quarter. For the first six months of 2009, tax-equivalent net interest income was $64.48 million, compared to $67.25 million for the first six months of 2008.
Noninterest income for the second quarter of 2009 was $22.71 million, up 11.48 percent from the same period in 2008. For the first six months, noninterest income was $43.25 million, up 4.49 percent from 2008. Noninterest income increased in mortgage banking, equipment rental and investment securities and other investment (losses) gains for the second quarter and year-to-date 2009 as compared to the same periods in 2008. Mortgage banking income increased as a result of recoveries on mortgage servicing rights impairment, equipment rental income was higher due to an increase in the operating lease portfolio and investment securities and other investment (losses) gains were improved due to a reduction in other than temporary impairments and partnership gains.
Noninterest expense was $37.35 million for the second quarter of 2009, down 2.72 percent from the second quarter of 2008. For the first six months, noninterest expense was $75.99 million, compared with $76.30 million for the same period in 2008. The leading factors in the change were reduced salaries and benefits and professional fees offset by higher FDIC insurance costs. Salaries and employees benefits were lower due to a reversal of post retirement benefit obligations and decreased executive incentive provisions. Professional fees decreased as a result of lower system security consultant costs. FDIC insurance costs increased $3.38 million due largely to a special assessment imposed by the FDIC in the second quarter.
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 76 community banking centers in 17 counties, 23 specialty finance locations nationwide, 7 trust and wealth management locations, and 7 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.
