1st Source Posts Record Profit as Credit Costs Retreat
1st Source Corporation (SRCE) earned $47.54 million in the second quarter, up 27.40% from a year earlier, as loan growth held and provisions for credit losses fell to $1.54 million.
1st Source Corporation (SRCE), the South Bend, Indiana-based bank holding company, reported record net income of $47.54 million for the second quarter, up 18.99% from $39.96 million in the first quarter and up 27.40% from $37.32 million a year earlier. Diluted earnings per share rose to $1.95, up 19.63% from $1.63 in the prior quarter and up 29.14% from $1.51 a year ago.
The results were driven less by a change in strategy than by a sharp pullback in credit costs. The company set aside $1.54 million for credit losses, down from $7.27 million in the first quarter and $7.69 million a year earlier, as net charge-offs fell to $0.52 million from $3.96 million in the prior quarter. The improvement was due to fewer special-attention loans and lower net charge-offs. Its nonperforming assets ratio improved to 1.01% from 1.03% in the prior quarter, even as repossessed assets rose.
Return on average assets climbed to 2.06% from 1.80% in the prior quarter and 1.67% a year earlier, while return on average equity rose to 14.66% from 12.53% and 12.61%, respectively. Average loans and leases grew to $7.14 billion, up 1.71% from the prior quarter and 2.50% from a year earlier, led by the company's Commercial and Agricultural, Renewable Energy, Construction Equipment, and Commercial Real Estate portfolios. Average deposits rose to $7.43 billion, up 3.28% quarter over quarter, with deposits excluding brokered funding up 2.80%. Average brokered deposits rose 16.12% from the prior quarter to $301.08 million after a steep year-earlier pullback, though they remained down 37.59% from a year ago.
Tax-equivalent net interest income rose to $93.30 million, up 3.33% quarter over quarter and 9.32% year over year, while the tax-equivalent net interest margin held at 4.24%, down 1 basis point from the prior quarter but up 23 basis points from 4.01% a year earlier. Noninterest income rose to $25.02 million, up 8.77% quarter over quarter and 8.51% year over year, lifted by unusually large one-account estate administration fees in trust and wealth advisory along with seasonal tax preparation fees, higher debit card income and brokerage fees, partly offset by lower insurance contingent commissions and mortgage banking income. Noninterest expense rose 0.93% quarter over quarter to $55.03 million on higher salaries and incentive compensation, group insurance claims, occupancy costs, and professional and consulting fees.
1st Source's capital position continued to build. Its common equity-to-assets ratio rose to 14.15% from 14.02% in the prior quarter and 13.19% a year earlier, while its CET1 ratio rose to 15.49% from 15.30% and 14.60%, respectively. Book value per common share rose to $54.41 from $53.10 in the prior quarter and $48.86 a year earlier, and tangible book value per share rose to $50.93 from $49.61 and $45.44.
The company raised its quarterly cash dividend two cents to $0.45 a share, up 18.42% from the year-earlier declared dividend. It did not repurchase any shares during the quarter, after buying back 338,356 shares year-to-date for $23.35 million, a pause that coincided with the buildup in capital ratios.