UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 0-6233
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 N. Michigan Street, South Bend, Indiana 46601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 219/235-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - without par value
(Title of Class)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 20, 1996.
Common Stock, without par value - $141,792,568.
The number of shares outstanding of each of the registrant's classes of
common stock as of February 20, 1996.
Common Stock, without par value - 12,569,998 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31,
1995 are incorporated by reference into Part II.
Portions of the annual proxy statement for the year ended December 31,
1995 are incorporated by reference into Parts II and III.
PART I
ITEM 1. BUSINESS
GENERAL
1st Source Corporation, an Indiana corporation, commenced operations as
a registered bank holding company in 1971. Unless the context otherwise
requires, the "Company" refers to 1st Source Corporation and its
subsidiaries. At December 31, 1995, the Company had $1.80 billion in
total assets, $1.44 billion in total deposits, and $152.6 million in total
shareholders' equity. See Item 8, FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
The Company's principal subsidiary, 1st Source Bank, has 33 branch
offices and is the largest bank in both assets and deposits, as of December
31, 1995, headquartered in its principal market area, which consists of
St. Joseph, Marshall, Elkhart, LaPorte, Porter, Kosciusko, and Starke
Counties of Indiana. 1st Source Bank of Starke County, another subsidiary
bank, was merged into 1st Source Bank in September 1995.
The bank offers a broad range of commercial banking, personal banking
and trust services. In addition, 1st Source Bank provides highly specialized
financing services for: automobile fleets in the rental and leasing
industries; privately-held used aircraft; heavy duty trucks and construction
equipment. These services are marketed nationwide.
The principal offices of the Company are located at 100 North Michigan
Street, South Bend, Indiana, 46601 (telephone (219) 235-2000).
1st SOURCE BANK
1st Source Bank, which is the Company's principal subsidiary, was
chartered as an Indiana state bank in 1922. It is a member of the Federal
Reserve System and its deposits are insured by the Federal Deposit
Insurance Corporation to the extent provided by law. The bank conducts a
full-service commercial banking business.
1st Source Bank is headquartered in South Bend, Indiana, which is in
northern Indiana, approximately 95 miles east of Chicago, and 140 miles
north of Indianapolis. Its principal market area consists of the northern
Indiana counties mentioned above.
South Bend, in St. Joseph County, is the largest city in a 55-mile radius,
and is a regional center for educational institutions, health care, financial,
accounting and legal services, and retailing.
CORPORATE BANKING
1st Source Bank's Corporate Banking Group ("CBG") provides a wide
range of services to business customers, including loans, investments,
international trade transactions and corporate cash management. CBG
focuses its efforts on privately-held or closely-controlled firms, which have
annual sales of between $2 million and $100 million and are located within
a 75-mile radius of South Bend. Loans of approximately $294 million and
deposits of $57 million were attributed to CBG at December 31, 1995.
PERSONAL AND SMALL BUSINESS BANKING
1st Source Bank's Personal and Small Business Banking Group's ("PSBB")
operations are conducted by the bank's central office, 32 other branch
banking offices, two free-standing drive-up facilities, and 39 automatic
teller machines. PSBB's services for individuals, executives and
professionals, and small businesses include direct lending, credit cards, auto
leasing, brokerage services, and a wide range of deposit products. Loans
of approximately $485 million and deposits of approximately $1.26 billion
were attributed to PSBB at December 31, 1995.
TRANSPORTATION AND EQUIPMENT FINANCING
1st Source Bank's Transportation and Equipment Financing Group ("T & E")
offers specialized financing services and programs to transportation
and equipment industries nationwide.
T & E's Truckers Bank Plan Division serves a limited number of high-quality
automobile leasing and rental companies, truck leasing companies
and manufacturers of specialized truck bodies. The Aircraft Division offers
specialized nationwide financing for used aircraft. The Construction
Equipment Division provides lending services and programs to dealers,
contractors and other end users of construction equipment.
Transportation and equipment loans outstanding were approximately $458 million,
or 36.4% of the Company's consolidated total loans at December 31, 1995.
T & E also services approximately $85 million in loans that were
previously securitized. The Company believes that T & E serves a national
market segment not being served adequately by either the credit
subsidiaries of manufacturers or by other financial institutions.
T & E is headquartered in South Bend and maintains field representatives
at various locations throughout the country who serve their customers on a
nationwide basis. The Company maintains offices in Farmington Hills and
Wyoming, Michigan; Atlanta, Georgia; Downingtown, Pennsylvania;
Vancouver, Washington; Waukesha, Wisconsin; and Wichita, Kansas.
TRUST AND INVESTMENT MANAGEMENT
1st Source Bank's Trust and Investment Management Group ("TIM")
manages approximately 1,401 personal trusts and agency accounts, and
525 retirement plans for corporations, partnerships and individuals. Assets
under management and fee income for TIM during each of the past three
years ended December 31 were as set forth in the following table:
Assets Under Management Trust Investment
Year ended: At Record Value Management Fee Income
December 31, 1995 $923,277,000 $6,639,000
December 31, 1994 898,009,000 6,125,000
December 31, 1993 857,712,000 5,803,000
SUBSIDIARIES
In addition to 1st Source Bank, the Company's subsidiaries include 1st
Source Insurance, Inc., which is licensed as an insurance agent and
operates a general insurance agency in South Bend; 1st Source Capital
Corporation, a licensed Small Business Investment Company; 1st Source
Leasing, Inc., which originates and services leases of tangible personal
property to businesses and other leasing firms located nationwide, which
are financed by 1st Source Bank; and Trustcorp Mortgage Company, a
mortgage banker with three offices in Indiana and one in Ohio. Inactive
subsidiaries include 1st Source Travel, Inc., 1st Source Auto Leasing, Inc.,
and FBT Capital Corporation.
COMPETITION
The business of the Company and its subsidiaries is highly competitive.
Competition comes from numerous commercial banks located in and near
its service area, as well as elsewhere in the Midwest, and from other
financial institutions such as savings and loan associations, insurance
companies, leasing companies, financial services companies and credit
unions. In addition, the Company and the bank compete for funds with
some of these institutions, as well as with other forms of investment for
individuals and businesses. The Company's principal market area has been
the site for expansion by several banking organizations domiciled outside of
the state of Indiana. This type of activity could further expand as new laws
go into effect in 1997 permitting bank holding companies to acquire a bank
anywhere in the nation as well as banking organizations to branch
nationwide by acquistion or consolidation of existing out-of-state banks.
EMPLOYEES
The Company employs approximately 811 persons on a full-time equivalent
basis. The Company provides a wide range of employee benefits and
considers employee relations to be good.
LEGISLATIVE DEVELOPMENTS
The insurance fund maintained by the Federal Deposit Insurance
Corporation (the "FDIC") to insure deposits at commercial banks has been
renamed the "Bank Insurance Fund" ("BIF") and is maintained and
administered by the FDIC separately from the new fund set up by that
agency to insure the deposits of savings associations. The Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") provides for
the assignment of financial institutions into nine different risk
classifications for the purpose of determining the annual deposit insurance
assessment rate. The deposit insurance assessment rate for each risk
classification is based on a percentage per each $100 of deposits. During
1995, the FDIC relaxed the premium assessment for 1st Source Bank to 4 cents
from 23 cents per $100 of assessable deposits.
Federal legislation effective in 1995 permits the acquisition of an Indiana
bank or Indiana bank holding company by a bank holding company with its
principal place of business in any other state in the United States. Unless a
state opts in earlier, effective June 1997 a bank holding company has the
option of consolidating its existing bank subsidiaries into a single bank with
interstate branches. The states of Indiana and Michigan have opted in early
and also permitted interstate branching through the establishment of de novo
branches.
REGULATION
The Company, as a bank holding company, is subject to regulation under
the Bank Holding Company Act ("BHC Act") by the Federal Reserve
Board of Governors (the "Board"). The Company is required to file
reports with the Board and to provide such additional information as the
Board may require. Under the BHC Act, the Company is required to
obtain the prior approval of the Board before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank.
The Company may engage in, and may own shares of companies engaged
in, certain activities found by the Board to be closely related to banking.
Some of the activities that the Board has determined by regulation to be
closely related to banking are the making or servicing of loans, discount
brokerage, performing certain data processing services, acting as fiduciary,
investment or financial advisors, and the making of investments in
corporations or projects designed primarily to promote community welfare.
The Company, the bank and the other nonbank subsidiaries are "affiliates"
within the meaning of the Federal Reserve Act. The Federal Reserve Act
and the Federal Deposit Insurance Act limit a bank's loans or extensions of
credit to the Company or any of its subsidiaries, its investments in the stock
or other securities thereof, and its taking of such stocks or securities as
collateral for loans to any borrower.
The bank, as an Indiana state bank, is supervised by the Indiana
Department of Financial Institutions (the "DFI"). As such, the bank is
regularly examined by and subject to regulations promulgated by the DFI.
Federal and Indiana laws limit dividends the bank may pay.
GOVERNMENT POLICIES AND LEGISLATION
The policies of regulatory authorities, including the board, the FDIC and
DFI, have a significant effect on the operating results of commercial banks.
An important function of the Federal Reserve system is to regulate
aggregate national credit and money supply through such means as open-market
dealings in securities, establishment of the discount rate of member
bank borrowings and changes in reserve requirements against member bank
deposits. Policies at these agencies may be influenced by many factors,
including inflation, unemployment, short-term and long-term changes in the
international trade balance and fiscal policies of the United States
Government.
FDICIA was enacted on December 19, 1991. It protects deposit insurance
funds, improves regulation of federally insured deposit institutions, and
improves reporting requirements relating to financial institutions. Within
FDICIA are contained separate legal requirements such as the Truth in
Savings Act which gives the Federal Reserve Board authority to
promulgate regulations implementing the provisions of this Act. In
addition, many studies and reports are required by FDICIA. The various
federal supervisory agencies are directed to develop uniform procedures of
regulation of financial institutions. Generally, FDICIA requires regulations
covering annual reports, audited financial statements, a management
statement, annual assessment of the institution's internal controls and
compliances, annual audit, independent audit committee reports,
responsibilities and qualifications of the independent auditors, and reports
to banking agencies as well as other related matters. Much of the
Company's presently constituted business is affected by FDICIA; although
in many areas the Company is currently in compliance with standards made
formal and/or extended to smaller size financial institutions under the Act.
The regulations under FDICIA rewards those financial institutions
maintaining high standards of capital requirements. Additionally, the
Company expects to see increased efficiency and consistency with respect
to the regulatory agencies. At this time, however, the Company and other
financial institutions are experiencing a massive increase in paperwork and
time expenditure of personnel in order to keep current with the new
regulations.
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
Distribution of Assets, Liabilities and Shareholders' Equity
Interest Rates and Interest Differential
(Dollars in Thousands)
Year ended December 31, 1995
Interest
Average Income/ Yield/
Balance Expense Rate
<S> <C> <C> <C>
ASSETS:
Interest bearing deposits $1,062 $30 2.79%
Investment securities:
Taxable 244,567 15,184 6.21%
Tax-exempt <F1> 129,409 11,285 8.72%
Net loans <F2><F3> 1,172,438 111,115 9.48%
Other investments 22,227 1,307 5.88%
Total Earning Assets 1,569,703 138,921 8.85%
Cash and due from banks 72,647
Reserve for loan losses (26,081)
Other assets 70,291
Total $1,686,560
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $1,181,219 56,185 4.76%
Short-term borrowings 135,373 6,938 5.13%
Long-term debt 23,302 1,823 7.82%
Total Interest Bearing Liabilities 1,339,894 64,946 4.85%
Noninterest bearing deposits 173,234
Other liabilities 30,765
Shareholders' equity 142,667
Total $1,686,560
Net Interest Income $73,975
Net Yield on Earning Assets on a Taxable
Equivalent Basis 4.71%
Year ended December 31, 1994
Interest
Average Income/ Yield/
Balance Expense Rate
ASSETS:
Interest bearing deposits $971 $14 1.42%
Investment securities:
Taxable 256,404 14,667 5.72%
Tax-exempt <F1> 103,872 10,077 9.70%
Net loans <F2><F3> 1,066,752 91,523 8.58%
Other investments 7,893 399 5.05%
Total Earning Assets 1,435,892 116,680 8.13%
Cash and due from banks 74,240
Reserve for loan losses (23,685)
Other assets 60,518
Total $1,546,965
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $1,094,197 42,012 3.84%
Short-term borrowings 109,944 3,788 3.45%
Long-term debt 27,248 1,909 7.01%
Total Interest Bearing Liabilities 1,231,389 47,709 3.87%
Noninterest bearing deposits 162,233
Other liabilities 25,892
Shareholders' equity 127,451
Total $1,546,965
Net Interest Income $68,971
Net Yield on Earning Assets on a Taxable
Equivalent Basis 4.80%
Year ended December 31, 1993
Interest
Average Income/ Yield/
Balance Expense Rate
ASSETS:
Interest bearing deposits $148 $4 2.70%
Investment securities:
Taxable 252,644 14,593 5.78%
Tax-exempt <F1> 91,447 9,603 10.50%
Net loans <F2><F3> 986,958 83,275 8.44%
Other investments 9,160 277 3.02%
Total Earning Assets 1,340,357 107,752 8.04%
Cash and due from banks 70,137
Reserve for loan losses (20,859)
Other assets 50,383
Total $1,440,018
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $1,020,205 39,753 3.90%
Short-term borrowings 110,598 3,251 2.94%
Long-term debt 20,865 1,574 7.54%
Total Interest Bearing Liabilities 1,151,668 44,578 3.87%
Noninterest bearing deposits 149,268
Other liabilities 23,896
Shareholders' equity 115,186
Total $1,440,018
Net Interest Income $63,174
Net Yield on Earning Assets on a Taxable
Equivalent Basis 4.71%
<FN>
<F1> Interest income includes the effects of taxable equivalent adjustments,
using a 40.525% rate. Tax equivalent adjustments were $3,635 in 1995,
$3,512 in 1994 and $3,372 in 1993.
<F2> Loan income includes fees on loans of $2,739 in 1995, $3,111 in 1994 and
and $3,415 in 1993. Loan income also includes the effects of taxable
equivalent adjustments, using a 40.525% rate. Tax equivalent
adjustments were $171 in 1995, $226 in 1994 and $276 in 1993.
<F3> For purposes of this computation, nonaccruing loans are included in the
daily average loan amounts outstanding.
</FN>
</TABLE>
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid, resulting from changes in
volume and changes in rates:
Increase (Decrease) Due To <F1>
Volume Rate Net
(In Thousands)
<S> <C> <C> <C>
1995 compared to 1994
Interest earned on:
Loans $9,501 $10,091 $19,592
Investment securities:
Taxable (612) 1,129 517
Tax-exempt 2,051 (843) 1,208
Interest-bearing deposits with
other banks 2 14 16
Federal funds sold and other
money market investments 833 75 908
Total Earning Assets 11,775 10,466 22,241
Interest paid on:
Savings deposits (1,015) 381 (634)
Other time deposits 6,556 8,251 14,807
Short-term borrowings 1,013 2,137 3,150
Long-term debt (438) 352 (86)
Total Interest-Bearing
Liabilities 6,116 11,121 17,237
Net Interest Income $5,659 ($655) $5,004
1994 compared to 1993
Interest earned on:
Loans $6,847 $1,401 $8,248
Investment securities:
Taxable 222 (148) 74
Tax-exempt 1,080 (606) 474
Interest-bearing deposits with
other banks 11 (1) 10
Federal funds sold and other
money market investments (32) 154 122
Total Earning Assets 8,128 800 8,928
Interest paid on:
Savings deposits 1,410 (1,902) (492)
Other time deposits 1,777 974 2,751
Short-term borrowings (24) 561 537
Long-term debt 436 (101) 335
Total Interest-Bearing
Liabilities 3,599 (468) 3,131
Net Interest Income $4,529 $1,268 $5,797
<FN>
<F1> The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
</FN>
</TABLE>
ITEM 1. BUSINESS (Continued)
INVESTMENT PORTFOLIO
The carrying amounts of investment securities at the dates indicated are
summarized as follows:
December 31
1995 1994 1993
(In Thousands)
U.S. Treasury and government
agencies and corporations $239,658 $223,115 $240,759
States and political subdivisions 140,319 108,468 97,585
Other 16,398 18,302 21,810
Total $396,375 $349,885 $360,154
The following table shows the maturities of investment securities at
December 31, 1995, at the carrying amounts and the weighted average
yields (for tax-exempt obligations on a fully taxable basis assuming a
40.525% tax rate) of such securities.
The weighted average yields are calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security. The
taxable equivalent adjustment represents the annual amounts of income
from tax-exempt obligations divided by .59475 (which includes the effect
of state income taxes), less the amount of such tax-exempt income.
<TABLE>
<CAPTION>
Maturing
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
government agencies
and corporations $35,041 5.75% $84,336 5.83% $31,750 6.18% $88,531 6.19%
States and
political subdivisions 5,915 6.71% 44,333 7.68% 66,281 8.61% 23,790 8.47%
Other 353 5.79% 833 7.13% 1,086 8.49% 14,126 7.21%
Total $41,309 5.89% $129,502 6.47% $99,117 7.83% $126,447 6.73%
</TABLE>
At December 31, 1995, there were $53,043 of securities in the portfolio which
were issued by the state of Indiana, or political subdivisions thereof, whose
aggregate carrying value was 34.76% of shareholders' equity.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
The following table shows the Company's loan distribution at the end of each of
the last five years:
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
(Dollars in Thousands)
Domestic Loans:
Transportation and
equipment $457,930 $358,128 $382,483 $346,513 $279,082
Commercial, financial
and agricultural 314,421 293,171 256,467 238,445 193,610
Real estate 408,028 377,532 316,758 298,151 267,207
Installment 79,036 71,882 64,105 73,307 86,285
Total Domestic Loans $1,259,415 $1,100,713 $1,019,813 $956,416 $826,184
</TABLE>
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
LOAN PORTFOLIO (Continued)
The following table shows the rate sensitivity of loans (excluding residential
mortgages for 1-4 family residences, installment loans and lease financing)
outstanding as of December 31, 1995. The amounts due after one year are
also classified according to the sensitivity to changes in interest rates.
Rate Sensitivity
Within After One But After
One Year Within Five Years Five Years Total
(In Thousands)
<S> <C> <C> <C> <C>
Transportation and
equipment $294,030 $136,198 $4,131 $434,359
Commercial, financial
and agricultural 217,480 33,493 12,266 263,239
Real estate 69,875 41,217 52,647 163,739
Total $581,385 $210,908 $69,044 $861,337
Rate Sensitivity
Fixed Variable
Rate Rate
Due after one year but within five years $172,533 $38,375
Due after five years 11,002 58,042
Total $183,535 $96,417
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes the nonaccrual, past due and restructured loans:
December 31
1995 1994 1993 1992 1991
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,893 $3,314 $3,175 $4,024 $4,530
Accruing loans past
due 90 days or more 274 477 494 354 657
Restructured loans - 133 667 3,185 425
</TABLE>
ITEM 1. BUSINESS (Continued)
LOAN PORTFOLIO (Continued)
Information with respect to nonaccrual and restructured loans at December
31, 1995 and 1994 is as follows:
December 31
1995 1994
(In Thousands)
Nonaccrual loans $4,893 $3,314
Restructured loans --- 133
Interest income which would have been
recorded under original terms 612 432
Interest income recorded during the period 229 181
Commitments to lend additional funds --- ---
At December 31, 1995, $4,891,000 of the nonaccrual loans are
collateralized.
Potential Problem Loans
At December 31, 1995, management was not aware of any potential
problem loans that would have a material affect on loan delinquency or
loan charge-offs. Loans are subject to constant review and are given
management's attention whenever a problem situation appears to be
developing.
Loan Concentrations
At December 31, 1995, 15.1% of total business loans were concentrated
with borrowers in air transportation and aircraft dealers. Loans to truck
and automobile leasing companies accounted for 12.1% of all business
loans at December 31, 1995.
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Company's loan loss experience for each of
the last five years:
December 31
1995 1994 1993 1992 1991
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at end of period $1,259,415 $1,100,713 $1,019,813 $956,416 $826,184
Average amount of net loans
outstanding during period $1,172,438 $1,066,752 $986,958 $894,163 $791,028
Balance of reserve for loan
losses at beginning of
period $23,868 $22,350 $19,141 $16,417 $12,891
Charge-offs:
Transportation and
equipment 36 29 560 1,017 1,084
Commercial, financial
and agricultural 985 1,007 809 783 571
Real estate 597 816 92 565 476
Installment 372 205 560 708 1,483
Total charge-offs 1,990 2,057 2,021 3,073 3,614
Recoveries:
Transportation and
equipment 2,224 225 699 202 35
Commercial, financial
and agricultural 287 166 359 889 1,599
Real estate 122 215 362 120 119
Installment 202 214 277 68 290
Total recoveries 2,835 820 1,697 1,279 2,043
Net charge-offs (recoveries) (845) 1,237 324 1,794 1,571
Additions charged to
operating expense 2,757 4,197 3,533 3,724 5,006
Recaptured reserve due
to loan securitization - (1,442) - - -
Increase resulting from
acquisitions - - 794 91
Balance at end of period $27,470 $23,868 $22,350 $19,141 $16,417
Ratio of net charge-offs (recoveries)
to average net loans
outstanding (0.07%) 0.12% 0.03% 0.20% 0.20%
</TABLE>
The Company's reserve for loan losses is provided for by direct charges to
operations. Losses on loans are charged against the reserve and likewise,
recoveries during the period for prior losses are credited to the reserve.
The loss reserve is maintained at a level considered by management to be
adequate to absorb possible losses from loans presently outstanding. The
provision made to this reserve is determined by management based on
assessment of the risk factors affecting the loan portfolio, including general
economic conditions, changes in the portfolio mix, past loan loss
experience and the financial condition of the borrower. Management of the
Company is constantly reviewing the status of the loan portfolio to identify
borrowers that might develop financial problems, in order to aid borrowers
in the handling of their accounts and to prevent sizable unexpected losses.
In 1995, after management's assessment of loan quality, the Company made
a charge of $2,757,000 to operations as a provision for loan losses. At
December 31, 1995, the reserve for loan losses was $27,470,000, or 2.18%
of loans outstanding net of unearned discount. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, effective January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if it is
probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of SFAS No. 114 had no impact on the 1995
provision for loan losses as reported.
As of December 31, 1995, impaired loans totaled $6,381,000, of which
$5,253,000 had corresponding specific reserves for loan losses totaling
$1,240,000. The remaining $1,128,000 of impaired loans had no specific
reserves for loan losses associated with them. The vast majority of the
impaired loans are nonaccrual loans; interest is not recognized on
nonaccrual loans subsequent to the date the loan is placed in nonaccrual
status. Interest on the remainder of the impaired loans is recognized on an
accrual basis. For 1995, the average recorded investment in impaired loans
was $6,515,000 and interest income recognized on impaired loans totaled
$284,000.
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
The reserve for loan losses has been allocated according to the amount deemed
necessary to provide for the possibility of losses being incurred within the
categories of loans set forth in the table below. The amount of such
components of the reserve at December 31, and the ratio of such loan categories
to total outstanding loan balances, are as follows:
(Dollars in Thousands)
1995 1994 1993 1992 1991
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
Reserve to Total Reserve to Total Reserve to Total Reserve to Total Reserve to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation and
equipment 3,608 36.4 2,917 32.5 2,864 37.5 3,032 36.2 2,764 33.7
Commercial, financial
and agricultural 3,396 25.0 2,565 26.6 3,011 25.1 3,141 24.9 2,156 23.4
Real estate 1,868 32.4 2,060 34.3 2,119 31.1 904 31.2 810 32.3
Installment 1,147 6.2 1,166 6.5 920 6.3 917 7.7 1,100 10.6
Unallocated 17,451 - 15,160 - 13,436 - 11,147 - 9,587 -
Total $27,470 100% $23,868 100% $22,350 100% $19,141 100% $16,417 100%
</TABLE>
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
DEPOSITS
The average daily amounts of deposits and rates paid on such deposits are
summarized as follows:
Year Ended December 31
1995 1994 1993
Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $173,234 - $162,233 - $149,268 -
Interest bearing demand
deposits 174,059 2.22% 177,232 2.15% 167,727 2.51%
Savings deposits 242,504 2.85% 277,021 2.75% 249,702 3.08%
Other time deposits 764,656 5.94% 639,944 4.78% 602,776 4.62%
Total $1,354,453 $1,256,430 $1,169,473
</TABLE>
The amount of time certificates of deposit of $100,000 or more and other
time deposits of $100,000 or more outstanding at December 31, 1995,
by time remaining until maturity is as follows (in thousands):
Under 3 months $109,807
3 to 6 months 23,594
6 to 12 months 18,517
Over 12 months 17,611
Total $169,529
ITEM 1. BUSINESS (Continued)
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and average total
assets, and certain other ratios, are presented below:
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Percentage of net income to:
Average shareholders' equity 14.75 % 14.49 % 14.52 %
Average total assets 1.25 1.19 1.16
Percentage of dividends declared
per common share to net income
per common share 17.43 17.54 16.48
Percentage of average shareholders'
equity to average total assets 8.46 8.24 8.00
</TABLE>
ITEM 1. BUSINESS (Concluded)
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS
The following table shows the distribution of the Company's short-term
borrowings and the weighted average interest rates thereon at the end of each
of the last three years. Also provided are the maximum amount of borrowings
and the average amount of borrowings, as well as weighted average interest
rates for the last three years.
(Dollars in Thousands)
Federal Funds
Purchased and
Security Other
Repurchase Commercial Short-Term Total
Agreements<F1> Paper<F2> Borrowings Borrowings
<S> <C> <C> <C> <C>
1995
Balance at December 31, 1995 $101,166 $4,515 $47,298 $152,979
Maximum amount outstanding
at any month-end 123,393 5,318 52,835 180,616
Average amount outstanding 96,091 4,369 34,913 135,373
Weighted average interest
rate during the year 5.16% 5.61% 4.97% 5.13%
Weighted average interest rate
for outstanding amounts at
December 31, 1995 5.13% 5.54% 6.84% 5.67%
1994
Balance at December 31, 1994 $76,403 $844 $23,318 $100,565
Maximum amount outstanding
at any month-end 127,854 2,131 31,149 148,261
Average amount outstanding 94,935 1,100 13,909 109,944
Weighted average interest
rate during the year 3.44% 3.84% 3.46% 3.45%
Weighted average interest rate
for outstanding amounts at
December 31, 1994 4.31% 4.79% 6.12% 4.74%
1993
Balance at December 31, 1993 $112,221 $2,097 $20,000 $134,318
Maximum amount outstanding
at any month-end 130,791 3,706 24,505 156,432
Average amount outstanding 96,305 2,241 12,052 110,598
Weighted average interest
rate during the year 2.93% 3.44% 2.89% 2.94%
Weighted average interest rate
for outstanding amounts at
December 31, 1993 2.81% 3.06% 2.99% 2.84%
<FN>
<F1> Federal funds purchased and securities sold under agreements to
repurchase generally mature within 1 to 30 days of the transaction date.
<F2> Commercial paper and other short-term borrowings generally mature
within 30 days.
</FN>
</TABLE>
ITEM 2. PROPERTIES
1st Source's headquarters building is located in downtown South Bend. In
1982, the land was leased from the City of South Bend on a 49-year lease,
with a 50-year renewal option. The building is part of a larger complex,
including a 300-room hotel and a 500-car parking garage. 1st Source sold
the building and entered into a leaseback agreement with the purchaser for
a term of 30 years. The bank building is a structure of approximately
160,000 square feet, with 1st Source and its subsidiaries occupying
approximately 50% of the available office space, and approximately 25%
presently subleased to an unrelated tenant.
The Company also owns property and buildings on which 25 of the bank
subsidiary's 33 banking offices are located, including the facilities in
Marshall, Elkhart, LaPorte, Porter, and Starke Counties as well as a
parking facility, two buildings housing drive-in banking plazas and a
computer operations center. In 1995, the Company reacquired its former
headquarters building through foreclosure. It is being refurbished for
additional tenants. The remaining properties utilized by the banking
subsidiary are leased from unrelated parties.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock Prices and Dividends on pages 19 and 44 of the annual
shareholders report for the year ended December 31, 1995, are
incorporated herein by reference. There were 1,116 shareholders of 1st
Source Common Stock as of February 20, 1996.
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Selected Financial Data on page 9 of the annual shareholders
report for the year ended December 31, 1995, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 8 through 19 of the annual shareholders report for
the year ended December 31, 1995, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent accountants and the consolidated financial
statements of the registrant and its subsidiaries are included on pages 20
through 41 in the annual shareholders report for the year ended December
31, 1995, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The relationship with independent public accountants on page 16 of the
proxy statement dated March 15, 1996, is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers on pages 3 through 6 of the proxy
statement dated March 15, 1996, are incorporated herein by reference with
respect to Directors.
ITEM 11. EXECUTIVE COMPENSATION
Renumeration of Executive Officers on pages 7 through 13 of the proxy
statement dated March 15, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Holders Thereof on page 2 of the proxy
statement dated March 15, 1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with management and others which have a direct or indirect
material interest on page 6 of the proxy statement dated March 15, 1996,
are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) -- The response to this portion of Item 14 is submitted
as a separate section of this report.
(b) Reports on Form 8-K -- None filed during the fourth quarter of 1995.
(c) Exhibits -- The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules -- None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Registrant
By: /s/ CHRISTOPHER J. MURPHY III
Christopher J. Murphy III
President and a Director
Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ ERNESTINE M. RACLIN
Ernestine M. Raclin, Chairman of the Board and a Director
(Principal Executive Officer)
Date: March 19, 1996
/s/ CHRISTOPHER J. MURPHY III
Christopher J. Murphy III, President and a Director
Date: March 19, 1996
/s/ VINCENT A. TAMBURO
Vincent A. Tamburo, Secretary and General Counsel
Date: March 19, 1996
/s/ LARRY E. LENTYCH
Larry E. Lentych, Treasurer (Chief Financial Officer)
Date: March 19, 1996
/s/ E. WILLIAM BEAUCHAMP, c.s.c.
Reverend E. William Beauchamp, Director
Date: March 19, 1996
/s/ VINCENT A. TAMBURO, P/A
Paul R. Bowles, Director
Date: March 20, 1996
/s/ VINCENT A. TAMBURO, P/A
Philip J. Faccenda, Director
Date: March 21, 1996
/s/ DANIEL B. FITZPATRICK
Daniel B. Fitzpatrick, Director
Date: March 19, 1996
/s/ LAWRENCE E. HILER
Lawrence E. Hiler, Director
Date: March 19, 1996
/s/ VINCENT A. TAMBURO, P/A
Leo J. McKernan, Director
Date: March 21, 1996
/s/ VINCENT A. TAMBURO, P/A
Jo Ann R. Meehan, Director
Date: March 21, 1996
/s/ VINCENT A. TAMBURO, P/A
Dane A. Miller, Director
Date: March 21, 1996
/s/ RICHARD J. PFEIL
Richard J. Pfeil, Director
Date: March 19, 1996
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
1st SOURCE CORPORATION
SOUTH BEND, INDIANA
FORM 10-K -- ITEM 14(a) (1) and (2)
1st SOURCE CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following report of independent accountants and consolidated financial
statements of 1st Source Corporation and subsidiaries, included in the
annual report of the registrant to its shareholders for the year ended
December 31, 1995, are incorporated in Item 8:
Report of independent accountants
Consolidated statements of financial condition --
December 31, 1995 and 1994
Consolidated statements of income --
Years ended December 31, 1995, 1994 and 1993
Consolidated statements of shareholders' equity --
Years ended December 31, 1995, 1994 and 1993
Consolidated statements of cash flows --
Years ended December 31, 1995, 1994 and 1993
Notes to consolidated financial statements --
December 31, 1995, 1994 and 1993
Financial statement schedules required by Article 9 of Regulation S-X are
not required under the related instructions, or are inapplicable and,
therefore, have been omitted.
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (3) and 14(c)
LIST OF EXHIBITS
YEAR ENDED DECEMBER 31, 1995
1st SOURCE CORPORATION
SOUTH BEND, INDIANA
FORM 10-K -- Item 14(a) (3) and 14(c)
1st SOURCE CORPORATION AND SUBSIDIARIES
LIST OF EXHIBITS
3(a) -- Articles of Incorporation of Registrant, as amended May 5, 1992,
and filed as exhibit to Form 10-K, dated December 31, 1992,
and incorporated herein by reference.
3(b) -- By-Laws of Registrant, as amended April 19, 1993, and
incorporated herein by reference.
4(a) -- Form of Common Stock Certificates of Registrant. Filed as
exhibit to Registration Statement 2-40481 and incorporated
herein by reference.
10(a) -- Employment Agreement of Christopher J. Murphy III, dated
January 1, 1992, filed as exhibit to Form 10-K, dated December
31, 1991, and incorporated herein by reference.
10(b) -- Form of Company's Employees' Money Purchase Pension Plan
and Trust Agreement dated January 1, 1989, and amendment to
the Company's Employees' Money Purchase Pension Plan and
Trust dated April 1, 1994. Filed as exhibit to Form 10-K dated
December 31, 1994, and incorporated herein by reference.
10(c) -- Form of Company's Employees' Profit Sharing Plan and Trust
Agreement dated January 1, 1989, and amendment to the
Company's Profit Sharing Plan and Trust Agreement dated
April 1, 1994. Filed as exhibit to Form 10-K dated December
31, 1994, and incorporated herein by reference.
10(d) -- 1st Source Corporation Employee Stock Purchase Plan dated
April 23, 1992, filed as exhibit to Form 10-K, dated December
31, 1992, and incorporated herein by reference.
10(e) -- 1st Source Corporation 1982 Executive Incentive Plan.
Amended April 19, 1988, and filed as exhibit to Form 10-K,
dated December 31, 1988, and incorporated herein by reference.
10(f) -- 1st Source Corporation 1982 Restricted Stock Award Plan.
Filed as exhibit to Form 10-K, dated December 31, 1982, and
incorporated herein by reference.
10(g) -- 1st Source Corporation Non-Qualified Stock Option Agreements
with Christopher J. Murphy III, and Wellington D. Jones III,
dated March 1, 1988, and filed as exhibit to Form 10-K, dated
December 31, 1988, and incorporated herein by reference.
10(h) -- 1st Source Corporation Non-Qualified Stock Option Agreement
with Christopher J. Murphy III, dated December 31, 1991, and
filed as exhibit to Form 10-K, dated December 31, 1991, and
incorporated herein by reference.
10(i) -- 1st Source Corporation 1992 Stock Option Plan, dated April
23, 1992, and filed as exhibit to Form 10-K, dated December
31, 1992, and incorporated herein by reference.
10(j) -- 1st Source Corporation Non-Qualified Stock Option Agreement
with Richard Q. Stifel, dated January 1, 1992, and
filed as exhibit to Form 10-K, dated December 31, 1992, and
incorporated herein by reference.
11 -- Computation of Earnings Per Share, attached hereto.
13(a) -- Proxy Statement, previously submitted via EDGAR on March
15, 1996.
13(b) -- Annual Report to Security Holders for the year ended
December 31, 1995, attached hereto.
21 -- Subsidiaries of Registrant, attached hereto.
23 -- Consent of Independent Accountants, attached hereto.
24 -- Power of Attorneys for signatures to report pursuant to Power
of Attorneys, previously submitted to the SEC.
27 -- Financial Data Schedule, attached hereto.
<TABLE>
<CAPTION>
1st SOURCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Net Income $21,041,832 $18,464,689 $16,721,626
Average shares outstanding <F1> 12,826,863 12,780,588 12,741,493
Net Income (Loss) per share: $1.64 $1.44 $1.31
<FN>
<F1> The computation of average shares outstanding gives retroactive
recognition to a 5% stock dividend declared January 22, 1996, a
3:2 stock split declared July 18, 1995, a 5% stock dividend declared
January 23, 1995 and a 5% stock dividend declared January 24, 1994.
</FN>
</TABLE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
About Our Business
1st Source Corporation (1st Source) is an Indiana-based, bank holding
company with $1.80 billion in total assets, $1.44 billion in total deposits
and $152.6 million in total shareholders' equity. 1st Source's principal
subsidiary is 1st Source Bank with its main office in South Bend, Indiana.
The assets of the bank account for 97 percent of the total consolidated
assets of 1st Source. 1st Source Bank has 33 banking centers in St. Joseph,
Marshall, Elkhart, Kosciusko, LaPorte, Starke and Porter counties and is
the largest independent bank in both assets and deposits headquartered in
its principal market area.
The bank offers a broad range of commercial banking, personal banking
and trust services. In addition, 1st Source Bank also provides highly
specialized financing services for: automobile fleets in the rental and
leasing industries; privately-held used aircraft; heavy duty trucks and
construction equipment. These services are marketed nationwide.
1st Source opened a new full-service banking center in Portage, Indiana
during the fourth quarter of 1995. This facility enables 1st Source to
expand its services into Porter County, a growing suburban Chicago
market. 1st Source also opened a Porter County banking center in
Valparaiso in January, 1996, and plans on opening a banking center in
Chesterton in early 1996.
This section of the Annual Report provides a narrative discussion and
analysis of 1st Source's financial condition and results of operations for the
last three years. All tables, graphs, financial statements and notes to the
consolidated financial statements should be considered an integral part of
this analysis.
Average Loans Average Assets
(In Millions) (In Millions)
1991 791 1,215
1992 894 1,330
1993 987 1,440
1994 1,067 1,547
1995 1,172 1,687
Average Deposits Average Common Equity
(In Millions) (In Millions)
1991 1,012 91
1992 1,091 101
1993 1,169 115
1994 1,256 127
1995 1,354 143
<TABLE>
<CAPTION>
Consolidated Selected Financial Data
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Interest income $135,115 $112,942 $104,104 $106,319 $110,780
Interest expense 64,946 47,709 44,578 50,227 60,547
Net interest income 70,169 65,233 59,526 56,092 50,233
Provision for loan losses 2,757 4,197 3,533 3,724 5,006
Net interest income after
provision for loan losses 67,412 61,036 55,993 52,368 45,227
Other income 19,492 14,874 14,301 12,216 11,571
Other expense 54,861 49,577 46,428 43,674 39,010
Income before income taxes 32,043 26,333 23,866 20,910 17,788
Income taxes 11,001 7,868 7,144 6,296 5,172
Income before cumulative
effect of accounting change 21,042 18,465 16,722 14,614 12,616
Cumulative effect of
accounting change <F1> - - - (696) -
Net income $ 21,042 $ 18,465 $ 16,722 $ 13,918 $ 12,616
Average assets $1,686,560 $1,546,965 $1,440,018 $1,329,980 $1,215,362
Average long-term debt 23,302 27,248 20,865 14,188 13,187
Average common equity 142,667 127,451 115,186 101,143 91,359
Net income per
common share <F2> 1.64 1.44 1.31 1.10 1.00
Cash dividends per
common share <F2> .286 .254 .219 .185 .164
Return on average
common equity 14.44% 14.21% 14.52% 13.76% 13.81%
Return on average
total assets 1.25% 1.19% 1.16% 1.05% 1.04%
<FN>
<F1> Amount represents an after-tax charge for the cumulative effect
of a change in the method of accounting for employee postretirement
benefits as required by SFAS 106. Without the charge, net income for
1992 would have been $14.6 million, or $1.16 per share.
<F2> The computation of per share data gives retroactive recognition
to a 5% stock dividend declared January 22, 1996; a three-for-two
stock split declared July 18, 1995; a 5% stock dividend declared
January 23, 1995; a 5% stock dividend declared January 24, 1994; a
three-for-two stock split declared January 25, 1993; and a five-for-four
stock split declared January 28, 1992.
</FN>
</TABLE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Net income in 1995 was $21,042,000, up from $18,465,000 in 1994 and
$16,722,000 in 1993. Net income per share was $1.64 in 1995, $1.44 in
1994 and $1.31 in 1993 after giving retroactive recognition to a 5% stock
dividend declared January 22, 1996 and a three-for-two stock split declared
July 18, 1995.
Return on average total assets was 1.25% in 1995, compared to 1.19%
in 1994 and 1.16% in 1993. Return on average common equity was
14.44% in 1995 versus 14.21% in 1994 and 14.52% in 1993.
Net income in 1995 was favorably affected by strong increases in net
interest income and other income, a lower provision for loan losses due to
net loan recoveries, and reduced FDIC insurance premiums. These were
partially offset by increases in salaries, employee benefits and other
expenses. The full-year inclusion of Trustcorp Mortgage Company in the
1995 operating results was the major reason for the significant increases in
other income, salaries and other expenses.
Dividends declared on common stock in 1995 amounted to $.29 per
share, compared to $.25 in 1994 and $.22 in 1993. The level of earnings
reinvested and dividend payouts are based on management's assessment of
future growth opportunities and the level of capital necessary to support
them.
The quarterly results of operations for the years ended December 31,
1995 and 1994 are summarized below.
<TABLE>
<CAPTION>
Quarterly Results of Operations
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1995
Interest income $31,362 $33,860 $34,771 $35,122
Net interest income 17,054 17,569 17,763 17,783
Provision for loan losses 960 181 1,059 557
Investment securities and other
investment gains (losses) (153) 8 (15) 330
Income before income taxes 7,386 7,653 8,362 8,642
Net income 4,854 5,112 5,433 5,643
Net income per common share <F1> .38 .40 .42 .44
1994
Interest income $25,698 $27,870 $29,230 $30,144
Net interest income 15,291 16,454 16,724 16,764
Provision for loan losses 897 1,746 1,259 295
Investment securities and other
investment gains (losses) 33 187 55 (392)
Income before income taxes 6,284 6,550 7,046 6,453
Net income 4,336 4,524 4,811 4,794
Net income per common share <F1> .34 .35 .37 .38
<FN>
<F1> The computation of per share data gives retroactive recognition to
a 5% stock dividend declared January 22, 1996; a three-for-two stock
split declared July 18, 1995; and a 5% stock dividend declared
January 23, 1995.
</FN>
</TABLE>
Balance Sheet Composition and Management
Changes in interest income and interest expense are affected by the
allocation of funds throughout the Statement of Financial Condition. The
following sections discuss the sources from which 1st Source obtains funds
and the manner in which management has chosen to invest these funds.
Source of Funds
Core Deposits - 1st Source's major source of investable funds is
provided by stable core consumer deposits. These core deposits consist of
all interest bearing and noninterest bearing deposits, excluding certificates
of deposit of $100,000 and over. In 1995, average core deposits equaled
71.59% of average total assets, compared to 73.00% in 1994 and 72.58%
in 1993. The effective cost rate of core deposits in 1995 was 3.91%,
compared to 3.22% in 1994 and 3.37% in 1993.
Average demand deposits (noninterest bearing core deposits) increased
6.78% in 1995, compared to an increase of 8.69% in 1994. They
represented 14.35% of total core deposits in 1995 compared to 14.37% in
1994 and 14.28% in 1993.
Purchased Funds - 1st Source's purchased funds are used to
supplement core deposits in providing the necessary funding for
investments and loans. Purchased funds include certificates of deposit of
$100,000 and over, federal funds, securities sold under agreements to
repurchase, commercial paper and other short-term borrowings. Purchased
funds are market-driven, as these funds are raised from local customers
seeking short-term investments. Purchased funds are also used to balance
rate sensitivity. During 1995, 1st Source's reliance on purchased funds
increased to 16.74% of average total assets from 15.32% in 1994.
Loan Securitization - During 1994, 1st Source securitized $60,000,000
of aircraft loans. Loan securitizations, as an alternative source of funds,
will better enable 1st Source to meet our customers' credit needs. Loan growth,
therefore, particularly in our Transportation and Equipment Financing
Group, will not necessarily be constrained by deposit growth.
Shareholders' Equity - Management continues to emphasize profitable
asset growth and retention of equity in the business. Average shareholders'
equity increased to 8.46% of average total assets compared to 8.24% in
1994. Shareholders' equity was 8.48% of total assets at year-end 1995,
compared to 8.15% at year-end 1994. The increase in this year-end ratio
reflects the market value appreciation, net of tax, of securities
available-for-sale in accordance with SFAS 115 (See Notes A and D to the
consolidated financial statements). Excluding the market value adjustment,
shareholders' equity as a percentage of total assets decreased to 8.46% at
year-end 1995 from 8.60% at year-end 1994.
Investment of Funds
Investment Securities - Investment securities increased 13.29% in
1995, following a 2.85% decrease in 1994. Investments in municipal
securities increased and the market value of the available-for-sale securities
increased significantly due to the general decline in interest rates (see
Note D).
Loans and Leases - Average loans, net of unearned discount, increased
9.91% in 1995, following an 8.08% increase in 1994. Loans, net of
unearned discount, at December 31, 1995, were $1,259,415,000 and were
70.00% of total assets, compared to $1,100,713,000 or 69.53% of total
assets at December 31, 1994.
Transportation and equipment loans at year-end 1995 increased 27.87%
from year-end 1994. The higher outstandings reflect considerable growth in
aircraft and construction equipment financing.
The 8.08% increase in real estate loans at year-end 1995 over year-end
1994 was the result of consistent growth in commercial real estate lending.
Commercial loans and installment loans reflected good market penetration
during 1995, by attaining growth of 7.25% and 9.95%, respectively.
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 interest rate
sensitivity management is to stabilize net interest income during periods of
changing interest rates. The purpose of liquidity management is to match
the sources and uses of funds to anticipated customers' deposits,
withdrawals and borrowing requirements and to provide for the cash flow
needs of 1st Source.
1st Source's principal source of liquidity is its investment portfolio. At
December 31, 1995, securities maturing within one year amounted to
$41.3 million. This represents 10.42% of the investment portfolio,
compared to 6.34% at year-end 1994. Other potential sources of funds are
loan repayments and securitizations. The liquidity of 1st Source is also
enhanced by a significant concentration of core deposits and locally
purchased $100,000 and over certificates of deposit which provide a
relatively stable funding base.
<TABLE>
<CAPTION>
Maturities of Investment Securities at December 31, 1995
(Dollars in thousands)
U.S. Treasury States and Political Other
and Agencies Subdivisions Securities Total
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 1 Year $ 35,041 5.75% $ 5,915 6.71% $ 353 5.79% $ 41,309 5.89%
1 - 5 Years 84,336 5.83 44,333 7.68 833 7.13 129,502 6.47
5 - 10 Years 31,750 6.18 66,281 8.61 1,086 8.49 99,117 7.83
Over 10 Years 88,531 6.19 23,790 8.47 14,126 7.21 126,447 6.73
Total $239,658 6.00% $140,319 8.21% $ 16,398 7.26% $396,375 6.83%
</TABLE>
Weighted average yields on tax-exempt obligations have been computed by
adjusting tax-exempt income to a fully taxable equivalent basis, excluding
the effect of the tax preference interest expense adjustment.
Composition of Average Assets
(In Millions)
1991 1992 1993 1994 1995
Loans (Net of
Unearned Discount
and Loss Reserve) 777.0 876.3 966.1 1,043.1 1,146.4
Investments 343.9 350.5 353.2 368.1 396.2
Other Earning
Assets 2.3 0.4 0.2 1.0 1.1
Other Assets 92.2 102.8 120.5 134.8 142.9
Total Average
Assets 1,215.4 1,330.0 1,440.0 1,547.0 1,686.6
Composition of Average Liabilities
and Shareholders' Equity
(In Millions)
1991 1992 1993 1994 1995
Noninterest
Bearing Deposits 108.7 125.2 149.3 162.2 173.2
Interest Bearing
Core Deposits 765.8 847.8 895.8 967.1 1,034.3
Purchased Funds
& Long-Term Debt 226.4 231.5 255.8 264.3 305.6
Other Liabilities 23.1 23.7 23.9 25.9 30.8
Shareholder Equity 91.4 101.8 115.2 127.5 142.7
Total Liabilities
& Shareholders'
Equity 1,215.4 1,330.0 1,440.0 1,547.0 1,686.6
Interest rate sensitivity analysis measures the responsiveness of net
interest income to changes in the level of market interest rates. The
Asset/Liability Management Committee of 1st Source monitors and
manages the relationship of earning assets to interest bearing liabilities and
interest rate forecasts.
1st Source has set an acceptable gap range for one year of 95% to 115%
depending on the direction and velocity of anticipated interest rate changes.
At December 31, 1995, the balance sheet was rate sensitive by $26.0 million
more assets than liabilities scheduled to reprice within one year or 103%.
<TABLE>
<CAPTION>
Rate Sensitivity Analysis at December 31, 1995
(Dollars in thousands)
Total
0 - 3 3 - 6 6 - 12 Within Beyond
Months Months Months 1 Year 1 Year Total
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Net loans $558,393 $ 88,274 $135,462 $782,129 $477,286 $1,259,415
Investment securities 38,246 33,948 43,220 115,414 280,961 396,375
Interest bearing deposits
with other banks 2,946 - - 2,946 - 2,946
Total Earning Assets $599,585 $122,222 $178,682 $900,489 $758,247 $1,658,736
Interest Bearing Liabilities:
Interest bearing deposits $469,523 $118,031 $159,694 $747,248 $504,456 $1,251,704
Short-term borrowings 114,269 1,746 - 116,015 36,964 152,979
Long-term debt 11,195 - - 11,195 10,624 21,819
Total Interest Bearing
Liabilities $594,987 $119,777 $159,694 $874,458 $552,044 $1,426,502
Rate Sensitivity Gap $ 4,598 $ 2,445 $ 18,988 $ 26,031 $206,203 $ 232,234
</TABLE>
Earning Results
Net interest income, the difference between income from earning assets
and the interest cost of funding those assets, is 1st Source's primary source
of earnings. Net interest income, on a fully taxable equivalent basis,
increased 7.26% in 1995, following a 9.18% increase in 1994.
Net interest margin, the ratio of net interest income to average earning
assets, is affected by movements in interest rates and changes in the mix of
earning assets and the liabilities that fund those assets. Net interest margin
on a fully taxable equivalent basis was 4.71% in 1995 compared to 4.80%
in 1994 and 4.71% in 1993.
The yield on earning assets in 1995 was 8.85%, compared to 8.13% in
1994 and 8.04% in 1993. Average earning assets in 1995 increased 9.32%,
following a 7.13% increase in 1994. The effective rate on interest bearing
liabilities was 4.85% for 1995, compared to 3.87% for 1994 and 1993.
Other Income - Supplementing the growth in net interest income was
an increase in other income of 31.05% over 1994. This was due primarily
to a full year of operating results of Trustcorp Mortgage Company
compared to only the fourth quarter in 1994. In addition, 1st Source
experienced growth in trust fees, service charges on deposit accounts,
income derived from the aircraft loan securitization and revenues generated
from operating leases. Other income in 1994 increased 4.01% over 1993
for the same reasons as in 1995, offset by a reduction in income attributed
to mortgage loan sales and servicing and investment securities losses taken
during 1994.
Trust fees in 1995 were $6,639,000, compared to $6,125,000 in 1994
and $5,803,000 in 1993. Trust fees increased 8.39% in 1995, following a
5.55% increase in 1994.
<TABLE>
<CAPTION>
Selected Statistical Information
Distribution of Assets, Liabilities and Shareholders' Equity
Interest Rates and Interest Differential
(Dollars in thousands)
Year ended December 31, 1995
Interest
Average Income/ Yield/
ASSETS Balance Expense Rate
<S> <C> <C> <C>
Interest bearing deposits $ 1,062 $ 30 2.79%
Investment securities:
Taxable 244,567 15,184 6.21
Tax exempt <F1> 129,409 11,285 8.72
Net loans <F2><F3> 1,172,438 111,115 9.48
Other investments 22,227 1,307 5.88
Total earning assets 1,569,703 138,921 8.85
Cash and due from banks 72,647
Reserve for loan losses (26,081)
Other assets 70,291
Total $1,686,560
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits $1,181,219 56,185 4.76
Short-term borrowings 135,373 6,938 5.13
Long-term debt 23,302 1,823 7.82
Total interest bearing liabilities 1,339,894 64,946 4.85
Noninterest bearing deposits 173,234
Other liabilities 30,765
Shareholders' equity 142,667
Total $1,686,560
Net interest income $ 73,975
Net yield on earning assets on a
taxable equivalent basis 4.71%
<C> <C> <C> <C> <C> <C>
1994 1993
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
$ 971 $ 14 1.42% $ 148 $ 4 2.70%
256,404 14,667 5.72 252,644 14,593 5.78
103,872 10,077 9.70 91,447 9,603 0.50
1,066,752 91,523 8.58 986,958 83,275 8.44
7,893 399 5.05 9,160 277 3.02
1,435,892 116,680 8.13 1,340,357 107,752 8.04
74,240 70,137
(23,685) (20,859)
60,518 50,383
$1,546,965 $1,440,018
$1,094,197 42,012 3.84 $1,020,205 39,753 3.90
109,944 3,788 3.45 110,598 3,251 2.94
27,248 1,909 7.01 20,865 1,574 7.54
1,231,389 47,709 3.87 1,151,668 44,578 3.87
162,233 149,268
25,892 23,896
127,451 115,186
$1,546,965 $1,440,018
$ 68,971 $ 63,174
4.80% 4.71%
<FN>
<F1> Interest income includes the effects of taxable equivalent adjustments,
using a 40.525% rate. Tax equivalent adjustments were $3,635 in 1995,
$3,512 in 1994 and $3,372 in 1993.
<F2> Loan income includes fees on loans of $2,739 in 1995, $3,111 in 1994 and
$3,415 in 1993. Loan income also includes the effects of taxable
equivalent adjustments, using a 40.525% rate. Tax equivalent adjustments
were $171 in 1995, $226 in 1994 and $276 in 1993.
<F3> For purposes of this computation, nonaccruing loans are included in the
daily average loan balance outstanding.
</FN>
</TABLE>
Service charges on deposit accounts increased by 5.99% resulting in
$4,934,000 of income for 1995. The $4,655,000 recorded in 1994 was an
increase of 6.79% over the $4,359,000 of service charges on deposit
accounts generated in 1993.
1st Source recognized income from aircraft loan servicing of $628,000
in 1995, compared to $159,000 in 1994, resulting from the $60 million
securitization in the fourth quarter of 1994. Revenues generated from
operating leases increased to $574,000 in 1995, a 24.78% increase over
1994. The $460,000 recorded in 1994 was a twelve-fold increase over the
$39,000 generated during 1993.
1st Source had gains on the sale of mortgage loans of $783,000 in 1995
compared to losses of $178,000 in 1994. The losses in 1994 were a result
of rising interest rates, coupled with the keen competitiveness of the
mortgage banking industry. In addition, fees for servicing mortgages grew
from $735,000 in 1994 to $1,380,000 in 1995. As of year end 1995,
Trustcorp Mortgage Company's mortgage servicing portfolio stands at
$1.23 billion, up from $1.18 billion one year ago.
Other Expense - Cost control and better utilization of resources
continues to be the focus at 1st Source. Other expense increased 10.66%
during 1995. This compares to an increase of 6.78% in 1994.
The increase in other expense during 1995 is primarily due to the full-year
inclusion of Trustcorp Mortgage Company, compared to only the
fourth quarter in 1994. Excluding the effect of Trustcorp Mortgage
Company on other expense for 1995 and 1994, total other expense
increased only 4.30% in 1995 and 4.40% in 1994.
Salaries and employee benefits comprised approximately 59% of total
other expense in 1995, compared to 57% in 1994. Salaries and employee
benefits increased 14.89% in 1995, following a 3.20% increase in 1994.
Salaries and wages increased 12.10% in 1995 and 6.25% in 1994.
Excluding the effect of Trustcorp Mortgage Company, salaries and wages
increased only 4.22% during 1995. The number of full-time equivalent
employees stood at 811, 805 and 732 at the end of 1995, 1994 and 1993,
respectively. Employee benefits increased 25.50% in 1995 following a
6.95% decrease in 1994. The dramatic increase in employee benefits had
primarily two causes, in addition to the impact of Trustcorp Mortgage
Company. Additional provisions were made to fund our stock incentive
reserves during 1995 due to the significant 40% increase in the market
price of 1st Source common stock during 1995. Also, group insurance
expense increased 24.50% in 1995, following a 3.20% decrease in 1994.
Occupancy expense in 1995 increased 8.41% from 1994, following a
.61% increase in 1994. Excluding Trustcorp Mortgage Company,
occupancy expenses increased only 1.02% during 1995.
Furniture and equipment expense increased in 1995 by 7.62%, following
a 17.65% increase in 1994. Besides Trustcorp Mortgage Company,
increases in 1995 occurred in depreciation, repair and corporate aircraft
expenses.
Insurance expense fell dramatically from 1994 as the FDIC reduced the
premium assessment to .04 cents from .23 cents per $100 of assessable deposits.
This action resulted in a decrease in insurance expense of 36.48% for 1995,
following an increase of 5.05% in 1994. An increase in FDIC insurance
premiums, correlating to deposit growth, was the primary reason for the
increase in 1994.
Business development and marketing expense declined 22.94% in 1995
following an increase of 46.64% in 1994. The decline in 1995 and increase
in 1994 were the result of appreciated stock valued at $2.3 million, with a
cost basis of $1 million, being donated to the 1st Source Foundation in
1994. This action enabled 1st Source to capitalize on a tax deduction based
on the appreciated value of the donated stock, which expired December 31,
1994. Furthermore, current and future earnings will be enhanced since the
donation prefunded several years of future Foundation contributions.
A significant increase of 33.57% occurred in other expenses during
1995, compared to a 6.55% increase in 1994. Costs of $423,000 were
expensed relating to the refinancing of holding company debt (Note G).
This action will benefit future earnings through lower interest expense. In
1995 1st Source also experienced increases in other real estate expenses,
professional fees and communications expense.
Finally, other expense increased in 1995 due to the full-year inclusion of
Trustcorp Mortgage Company's other expenses, including the full-year
amortization of goodwill relating to the Trustcorp acquisition.
Income Taxes - Federal income taxes were $8,068,000 in 1995, or
27.72% of income after state taxes, compared to $5,442,000 or 22.76% in
1994 and $5,030,000 or 23.12% in 1993. The increased percentage of
federal income taxes in 1995 was the result of an increase in taxable income
and a 1994 contribution of appreciated stock which resulted in favorable
tax treatment for that year. State income taxes were $2,933,000 in 1995,
compared to $2,426,000 in 1994 and $2,114,000 in 1993.
Credit Experience
Provision for Loan Losses - The ability of a bank to identify and assess
the risk factors affecting its loan portfolio is crucial for profitability.
Management follows a credit policy that balances the risk and return on
loans and monitors potential credit problems to ensure that they are
adequately managed and reserved.
The reserve for loan losses is maintained to cover losses that may be
incurred in the normal course of lending. The provision made to this
reserve is determined by management based on the risk factors affecting the
loan portfolio, including general economic conditions, changes to the
portfolio mix, and past loan loss experience.
The provision for loan losses for 1995 was $2,757,000, compared to
$4,197,000 in 1994 and $3,533,000 in 1993. Net recoveries of $845,000
were recorded in 1995, compared to net charge-offs of $1,237,000 and
$324,000 in 1994 and 1993, respectively.
The reserve for loan losses at December 31, 1995, totaled $27,470,000
and was 2.18% of loans, compared to $23,868,000 or 2.17% of loans at
December 31, 1994, and $22,350,000 or 2.19% of loans at December 31,
1993. It is management's opinion that the reserve for loan losses is
adequate to absorb anticipated losses in the loan portfolio as of
December 31, 1995.
Nonperforming Assets - 1st Source's policy is to discontinue the
accrual of interest on loans on which principal or interest is past due and
remains unpaid for 90 days or more, unless the loan is well collateralized
and in the process of collection. When a loan is placed on nonaccrual
status, any current year accrued interest is reversed and prior year accruals
are charged to the reserve for loan losses. Nonperforming assets amounted
to $6,584,000 at December 31, 1995, compared to $4,700,000 at
December 31, 1994 and $5,288,000 at December 31, 1993.
<TABLE>
<CAPTION>
Nonperforming Assets at December 31
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Loans past due over 90 days $ 274 $ 477 $ 494 $ 354 $ 657
Nonaccrual loans 4,893 3,314 3,175 4,024 4,530
Restructured loans - 133 667 3,185 425
Total Nonperforming Loans 5,167 3,924 4,336 7,563 5,612
Other real estate 1,359 763 794 950 1,015
Other assets 58 13 158 1,079 1,659
Total Nonperforming Assets $6,584 $4,700 $5,288 $9,592 $8,286
Nonperforming assets to loans,
net of unearned discount .52% .43% .52% 1.00% 1.00%
</TABLE>
Leverage Capital Ratio
(As a percent)
1991 7.67
1992 7.43
1993 8.09
1994 8.33
1995 8.44
Book Value Per Common Share
1991 7.70
1992 8.62
1993 9.75
1994 10.94
1995 12.22
Book value is not necessarily indicative of the value of 1st Source
common stock.
Common Stock Price Range
(In Dollars)
1994
1st 2nd 3rd 4th
High 15.00 15.75 16.00 16.00
Low 13.50 13.50 15.00 14.00
Quarter
ending 13.75 15.50 15.75 16.00
Common Stock Price Range
(In Dollars)
1995
1st 2nd 3rd 4th
High 17.50 19.25 22.50 22.75
Low 15.50 17.25 18.00 20.75
Quarter
ending 17.25 18.50 21.50 22.50
Cash Dividends Per Common Share
1991 0.164
1992 0.185
1993 0.219
1994 0.254
1995 0.286
Capital Resources
1st Source manages its capital resources to serve its customers, protect
its depositors, support growth and provide a fair return to shareholders. As
of December 31, 1995, there were 1,104 holders of record of 1st Source
common stock. At December 31, 1995, 1st Source Bank was "well
capitalized" under the capital definitions prescribed in the FDIC
Improvement Act of 1991.
The following table reflects 1st Source's various capital ratios at year-end:
<TABLE>
<CAPTION>
1st Source Ratio Minimum Requirements
Well Adequately
1995 1994 Capitalized Capitalized
<S> <C> <C> <C> <C>
Tier 1 Capital Ratio <F1> 11.43% 11.69% 6.00% 4.00%
Total Risk-Based Capital Ratio <F2> 13.03% 14.07% 10.00% 8.00%
Leverage Capital Ratio <F3> 8.44% 8.33% 5.00% 4.00%
<FN>
<F1> Shareholders' equity less certain intangibles before the net
unrealized appreciation or depreciation of securities available-for-sale;
computed as a percentage of risk-adjusted assets.
<F2> Tier 1 capital plus qualifying loan loss reserve and subordinated
debt; computed as a percentage of risk-adjusted assets.
<F3> Tier 1 capital; computed as a percentage of fourth quarter average
total assets less certain intangibles.
</FN>
</TABLE>
1st Source's common stock is traded on the Nasdaq Stock Market under
the National Market symbol "SRCE." High and low stock prices and cash
dividends paid for the last two years by quarter were:
<TABLE>
<CAPTION>
1995 Sales Price Cash 1994 Sales Price Cash
Dividends Dividends
Common Stock Prices High Low Paid High Low Paid
Quarter Ended:
<S> <C> <C> <C> <C> <C> <C>
March 31 $17.50 $15.50 $.070 $15.00 $13.50 $.060
June 30 19.25 17.25 .070 15.75 13.50 .060
September 30 22.50 18.00 .070 16.00 15.00 .067
December 31 22.75 20.75 .076 16.00 14.00 .067
</TABLE>
The above information gives retroactive recognition to a 5% stock
dividend declared January 22, 1996, and a three-for-two stock split
declared July 18, 1995. At December 31, 1995, the total market
capitalization of 1st Source was approximately $280.4 million.
Effects of Inflation - The results of operations can also be affected by
inflation, although it is difficult to measure the precise impact on the
various types of income and expense. Interest rates, in particular, are
significantly affected by inflation, but neither the timing nor the magnitude
of the changes coincide with changes in the consumer price index nor other
measures of inflation. Additionally, increases in interest rates, such as those
on consumer deposits, lag behind increases in overall rates. This, in turn,
affects the composition of sources of funds by reducing core deposit
growth and increasing the need for purchased funds. Another significant
effect of inflation is on other expenses, which tend to rise during periods of
general inflation.
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition
December 31
1995 1994
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks (Note C) $ 94,517 $ 79,226
Interest bearing deposits with other banks 2,946 3,494
Federal funds sold - 2,800
Investment securities, available-for-sale
(amortized cost of $270,621 and
$260,246 at December 31, 1995 and
1994, respectively) (Note D) 270,290 245,753
Investment securities, held-to-maturity
(fair value of $132,383 and $105,263
at December 31, 1995 and 1994,
respectively) (Note D) 126,085 104,132
Loans, net of unearned discount (Notes E, F and N):
Transportation and equipment 457,930 358,128
Commercial, financial and agricultural 314,421 293,171
Real estate 408,028 377,532
Installment 79,036 71,882
Total Loans 1,259,415 1,100,713
Less, Reserve for loan losses (27,470) (23,868)
Net Loans 1,231,945 1,076,845
Premises and equipment (Note L):
Land 4,132 3,421
Buildings and improvements 19,808 18,737
Furniture and equipment 16,872 15,080
Construction in progress 1,029 634
Total Premises and Equipment 41,841 37,872
Less, Accumulated depreciation (18,458) (16,566)
Net Premises and Equipment 23,383 21,306
Other assets (Notes K and P) 50,091 49,471
Total Assets $1,799,257 $1,583,027
December 31
1995 1994
(Dollars in thousands)
LIABILITIES
Deposits:
Noninterest bearing $ 190,045 $ 187,003
Interest bearing 1,251,704 1,114,334
Total Deposits 1,441,749 1,301,337
Short-term borrowings (Note C):
Federal funds purchased and securities
sold under agreements to repurchase 101,166 76,403
Other 51,813 24,162
Total Short-Term Borrowings 152,979 100,565
Other liabilities 30,109 23,959
Long-term debt (Note G) 21,819 28,084
Total Liabilities 1,646,656 1,453,945
Commitments and contingencies (Notes L, M and O)
SHAREHOLDERS' EQUITY (Notes D, H and I):
Common stock; no par value:
Authorized 15,000,000 shares; issued
12,319,238 shares in 1995 and 7,824,738 shares
in 1994, less unearned shares 5,429 5,170
Capital surplus 56,337 45,788
Retained earnings 96,952 90,444
Cost of common stock in treasury (1995 - 345,984
shares and 1994 - 160,831 shares) (6,497) (4,036)
Net unrealized appreciation (depreciation)
of securities available-for-sale 380 (8,284)
Total Shareholders' Equity 152,601 129,082
Total Liabilities and Shareholders' Equity $1,799,257 $1,583,027
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Income
Year Ended December 31
1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Loans $ 110,944 $ 91,297 $ 82,999
Investment securities:
Taxable 15,184 14,667 14,593
Tax-exempt 7,650 6,565 6,231
Total Investment Securities 22,834 21,232 20,824
Other 1,337 413 281
Total Interest Income 135,115 112,942 104,104
Interest expense:
Deposits 56,185 42,012 39,753
Short-term borrowings 6,938 3,788 3,251
Long-term debt 1,823 1,909 1,574
Total Interest Expense 64,946 47,709 44,578
Net Interest Income 70,169 65,233 59,526
Provision for loan losses (Note F) 2,757 4,197 3,533
Net Interest Income After
Provision for Loan Losses 67,412 61,036 55,993
Other income:
Trust fees 6,639 6,125 5,803
Service charges on deposit accounts 4,934 4,655 4,359
Mortgage servicing fees and
mortgage loan sale income 2,163 557 862
Commission, securitization,
rental and other income 5,586 3,654 2,837
Investment securities and other
investment gains (losses) 170 (117) 440
Total Other Income 19,492 14,874 14,301
Other expense:
Salaries and employee benefits 32,567 28,346 27,466
Net occupancy expense 3,765 3,473 3,452
Furniture and equipment expense 5,114 4,752 4,039
Insurance expense 2,034 3,202 3,048
Business development and marketing expense 2,338 3,034 2,069
Other expense 9,043 6,770 6,354
Total Other Expense 54,861 49,577 46,428
Income Before Income Taxes 32,043 26,333 23,866
Income taxes (Note K) 11,001 7,868 7,144
Net Income $ 21,042 $ 18,465 $ 16,722
Net Income Per Common Share (Note A) $ 1.64 $ 1.44 $ 1.31
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
<S> <C> <C> <C> <C> <C> <C>
Net Unrealized
Appreciation
Cost of (Depreciation)
Common of Securities
Common Capital Retained Stock Available-
Total Stock Surplus Earnings in Treasury For-Sale
(Dollars in thousands, except per share data)
Balance at January 1, 1993 $107,797 $4,924 $36,986 $68,324 $(2,437) $ -
Net income 16,722 - - 16,722 - -
Cost of 3,269 shares of common
stock acquired for treasury (81) - - - (81) -
Cash dividends ($.22 per share) (2,755) - - (2,755) - -
Three-for-two common stock
split ($10 paid in cash in lieu
of fractional shares) (Note H) (10) - - (10) - -
Contribution of common stock
to employee benefit plan 706 - - 442 264 -
Net unrealized appreciation of
securities available-for-sale (Note D) 2,515 - - - - 2,515
Other 645 - - 219 426 -
Balance at December 31, 1993 125,539 4,924 36,986 82,942 (1,828) 2,515
Net income 18,465 - - 18,465 - -
Cost of 179,452 shares of common
stock acquired for treasury (4,479) - - - (4,479) -
Cash dividends ($.25 per share) (3,204) - - (3,204) - -
5% common stock dividend ($12
paid in cash in lieu of fractional
shares) (Note H) (12) 246 8,802 (9,060) - -
Acquisition of Trustcorp
Mortgage Company (Note P) 2,352 - - 760 1,592 -
Contribution of common stock
to employee benefit plan 767 - - 406 361 -
Net unrealized depreciation of
securities available-for-sale (Note D)(10,799) - - - - (10,799)
Other 453 - - 135 318 -
Balance at December 31, 1994 129,082 5,170 45,788 90,444 (4,036) (8,284)
Net income 21,042 - - 21,042 - -
Cost of 146,575 shares of common
stock acquired for treasury (3,363) - - - (3,363) -
Cash dividends ($.29 per share) (3,594) - - (3,594) - -
5% common stock dividend ($13
paid in cash in lieu of fractional
shares) (Note H) (13) 259 10,549 (10,821) - -
Three-for-two common stock
split ($5 paid in cash in lieu
of fractional shares) (Note H) (5) - - (5) - -
Net unrealized appreciation of
securities available-for-sale (Note D) 8,664 - - - - 8,664
Other 788 - - (114) 902 -
Balance at December 31, 1995 $152,601 $5,429 $56,337 $96,952 $(6,497) $ 380
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended December 31
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income $ 21,042 $ 18,465 $ 16,722
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,757 4,197 3,533
Depreciation of premises and equipment 2,617 2,070 1,775
Amortization of investment security pre-
miums and accretion of discounts, net 957 1,219 1,136
Deferred income taxes (2,661) (616) (1,414)
Realized and unrealized investment
securities (gains) losses (170) 117 (440)
(Increase) decrease in interest receivable (2,120) (1,585) 1,180
Increase (decrease) in interest payable 3,946 1,831 (366)
Other 1,250 559 864
Net Cash Provided by Operating Activities 27,618 26,257 22,990
Investing Activities:
Proceeds from sales and maturities
of investment securities 111,307 47,482 126,134
Purchase of investment securities (144,422) (56,076) (140,563)
Net (increase) decrease in
short-term investments 3,348 (4,004) (5)
Loans sold or participated to others 49,560 146,243 91,159
Net increase in loans made to customers
and principal collections on loans (202,620) (211,532) (153,032)
Principal payments received under leases 5,014 3,980 982
Purchase of assets to be leased (9,406) (6,473) (1,066)
Purchase of premises and equipment (5,271) (4,007) (1,547)
Cash paid in acquisitions - (2,516) -
Other 577 404 985
Net Cash Used in Investing Activities (191,913) (86,499) (76,953)
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (23,310) 5,624 73,961
Net increase (decrease) in
certificates of deposit 163,722 116,350 (49,485)
Net increase (decrease) in
short-term borrowings 52,414 (54,377) 33,827
Proceeds from long-term debt 10,000 7,200 10,267
Payments on long-term debt (16,265) (5,009) (1,162)
Acquisition of treasury stock (3,363) (4,479) (81)
Cash dividends (3,594) (3,204) (2,755)
Other (18) (12) (10)
Net Cash Provided by Financing Activities 179,586 62,093 64,562
Increase in Cash and Cash Equivalents 15,291 1,851 10,599
Cash and cash equivalents, beginning of year 79,226 77,375 66,776
Cash and Cash Equivalents, End of Year $ 94,517 $ 79,226 $ 77,375
</TABLE>
The accompanying notes are a part of the consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note A - Accounting Policies
The principal line of business of 1st Source Corporation ("1st Source")
and subsidiaries is banking and closely related activities.
Principles of Consolidation - The financial statements consolidate
1st Source and its subsidiaries (principally 1st Source Bank). Included in
the consolidated financial statements, effective September 30, 1994, is
Trustcorp Mortgage Company (see Note P). All significant intercompany
balances and transactions have been eliminated. For purposes of the parent
company only financial information presented in Note Q, investments in
subsidiaries are carried at 1st Source's equity in the underlying net assets.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities - Securities that may be sold as part of
1st Source's asset/liability or liquidity management or in response to or in
anticipation of changes in interest rates and resulting prepayment risk, or
for other similar factors, are classified as available-for-sale and carried at
fair market value. Unrealized holding gains and losses on securities
available-for-sale are reported net of related deferred income taxes as a
separate component of shareholders' equity. Securities that 1st Source has
the ability and positive intent to hold to maturity are classified as
held-to-maturity and carried at amortized cost. Trading securities are carried
at fair market value with unrealized holding gains and losses included in
earnings. Realized gains and losses on the sales of all securities are
reported in earnings and computed using the specific identification cost basis.
Revenue Recognition - Interest on loans is included in interest income
on the accrual method over the terms of the loans based upon principal
balances outstanding.
The accrual of interest on loans is discontinued when an impaired loan,
as defined by 1st Source, becomes contractually delinquent for 90 days.
When interest accruals are discontinued, interest credited to income in the
current year is reversed, and interest accrued in the prior year is charged to
the reserve for loan losses. Management may elect to continue the accrual
of interest when the net realizable value of collateral is sufficient to cover
the principal and accrued interest.
Certain loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized to interest
income generally over the contractual life of the related loan or
commitment.
Reserve for Loan Losses - 1st Source adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, effective January 1,
1995. Under the new standard, a loan is considered impaired, based on
current information and events, if it is probable that 1st Source will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of SFAS No. 114
had no impact on the provision for loan losses as reported.
The provision for loan losses charged to expense is based upon the
actual net loan losses incurred as determined on a basis consistent with
SFAS No. 114, plus an amount for such other factors which, in
management's judgment, deserve recognition in estimating possible loan
losses. Loans are charged against the reserve for loan losses when deemed
uncollectible.
Premises and Equipment - Premises and equipment are stated at cost,
less accumulated depreciation. The provision for depreciation is computed
generally by the straight-line method.
Trust Fees - Trust fees are recognized on the accrual basis.
Servicing Rights - The costs of purchasing the rights to service
mortgage loans originated by others are deferred and amortized as
reductions of mortgage servicing fee income over the estimated servicing
period in proportion to the estimated servicing income to be received.
Gains and losses on the sale of mortgage servicing rights are recognized as
noninterest income in the period in which such rights are sold on a
servicing released basis.
In May 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 122,
"Accounting for Mortgage Servicing Rights." SFAS 122 amends Statement
of Financial Accounting Standards No. 65, "Accounting for Certain
Mortgage Banking Activities," to require that mortgage banking
enterprises recognize as separate assets the rights to service mortgage
loans for others, however those mortgage servicing rights are acquired.
SFAS 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights
on a disaggregated basis. SFAS 122 applies to fiscal years beginning after
December 15, 1995. 1st Source has yet to determine the impact of
adopting this pronouncement effective January 1, 1996.
Income Taxes - Deferred income taxes are determined under the liability
method of Statement of Financial Accounting Standards No. 109 for
differences between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements. The net deferred tax assets
are comprised of the tax effect of net temporary differences related princi-
pally to differing methods of accounting for loan losses.
1st Source and its subsidiaries file consolidated federal and state income
tax returns. Each subsidiary provides for income taxes on a separate return
basis at the consolidated statutory income tax rate, and remits to
1st Source amounts determined to be currently payable.
Net Income Per Common Share - Net income per common share is
based on the weighted average number of common and common equivalent
shares outstanding. The average number of common shares used in the
computation were 12,826,863 shares, 12,780,588 shares and 12,741,493
shares for the years ended December 31, 1995, 1994 and 1993, respec-
tively.
The computation of the average number of common shares and all per
share data give retroactive recognition to a three-for-two stock split
declared July 18, 1995 and a 5% common stock dividend declared on
January 22, 1996 payable to shareholders of record on February 5, 1996.
Funds Held in Trust for Investors and Mortgagors - As of December 31, 1995
and 1994, serviced loans which were owned by investors or held for sale
aggregated $1.23 billion and $1.18 billion, respectively. Funds held in trust
for the payment of principal, interest, taxes and insurance premiums applicable
to mortgage loans being serviced are not included in the consolidated
statements of financial condition and aggregated approximately $13.3 million
at December 31, 1995 and $12.8 million at December 31, 1994.
Cash Flow Information - For purposes of the consolidated and parent
company only statements of cash flows, 1st Source considers cash and due
from banks as cash and cash equivalents. Cash paid during the years ended
December 31, 1995, 1994 and 1993, for interest and for income taxes was
$61,000,000 and $12,881,000, $45,878,000 and $9,555,000 and
$44,944,000 and $8,831,000, respectively.
1st Source assumed approximately $22 million of short-term borrowings
and other liabilities in connection with the acquisition of Trustcorp
Mortgage Company in 1994 (see Note P), which are non-cash financing
activities.
Reclassifications - Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform with the 1995
presentation. These reclassifications had no effect on total assets,
shareholders' equity or net income as previously reported.
Note B - Fair Values of Financial Instruments
Fair value disclosures of financial instruments are made to comply with
the requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments." Below is a
summary of the fair values of 1st Source's financial instruments as of
December 31, 1995 and 1994.
The following methods and assumptions were used by 1st Source in esti-
mating the fair value of its financial instruments:
Cash and Cash Equivalents - The carrying values reported in the
consolidated statements of financial condition for cash and due from banks,
interest bearing deposits with other banks and federal funds sold
approximate their fair values.
Investment Securities - Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are estimated based on quoted market prices of
comparable investments.
Loans - For variable rate loans that reprice frequently and with no
significant change in credit risk and for loans held for sale, fair values are
based on carrying values. The fair values for certain real estate loans (e.g.
one-to-four single family residential mortgage loans) are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
of all other loans (e.g. commercial loans, transportation and equipment
loans, and installment loans) are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Deposits - The fair values for all deposits other than time deposits are
equal to the amounts payable on demand (the carrying value). Fair values
of variable rate time deposits are equal to their carrying values. Fair values
for fixed rate time deposits are estimated using discounted cash flow analy-
ses using interest rates currently being offered for deposits with similar
remaining maturities.
Short-Term Borrowings - The carrying values of federal funds
purchased, securities sold under repurchase agreements and other short-term
borrowings approximate their fair values.
Long-Term Debt - The fair values of 1st Source's long-term debt are
estimated using discounted cash flow analyses, based on 1st Source's
current estimated incremental borrowing rates for similar types of
borrowing arrangements.
Guarantees and Loan Commitments - Contract and fair values for
certain of 1st Source's off-balance-sheet financial instruments (guarantees
and loan commitments) are estimated based on fees currently charged to
enter into similar agreements, taking into account the remaining terms of
the agreements and the counterparties' credit standing.
Limitations - Fair value estimates are made at a discrete point in time
based on relevant market information and information about the financial
instruments. Because no market exists for a significant portion of
1st Source's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
such factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates. In addition, the fair value estimates are based on existing on and
off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, 1st Source has a
substantial annual trust department net fee income. The trust department is
not considered a financial instrument and its value has not been incorporated
into the fair value estimates.
<TABLE>
<CAPTION>
Note B - Fair Values of Financial Instruments
Carrying Carrying
or Contract Fair or Contract Fair
Value Value Value Value
1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 94,517 $ 94,517 $ 79,226 $ 79,226
Interest bearing deposits
with other banks 2,946 2,946 3,494 3,494
Federal funds sold - - 2,800 2,800
Investment securities,
available-for-sale 270,290 270,290 245,753 245,753
Investment securities,
held-to-maturity 126,085 132,383 104,132 105,263
Loans, net of reserve
for loan losses 1,231,945 1,250,437 1,076,845 1,073,309
Liabilities:
Deposits 1,441,749 1,452,153 1,301,337 1,301,114
Short-term borrowings 152,979 152,979 100,565 100,565
Long-term debt 21,819 21,920 28,084 28,096
Off-Balance-Sheet
Instruments<F1> (193) (193) (133) (133)
<FN>
<F1> Represents estimated cash outflows required to currently settle the
obligations at current market rates.
</FN>
</TABLE>
Other significant assets and liabilities that are not considered financial
instruments include the mortgage banking operation, premises and
equipment and other assets. In addition, for investment and mortgage-backed
securities, the income tax ramifications related to the realization of
unrealized gains and losses can have a significant effect on fair value esti-
mates and have not been considered in many of the estimates. Also, the fair
value estimates for deposits do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
Note C - Restrictions on Cash and Due from Banks
1st Source Bank is required to maintain reserve balances with the
Federal Reserve Bank. The average amount of those reserve balances for
the year ended December 31, 1995, was approximately $12,911,000.
Under available line of credit arrangements, 1st Source may borrow up
to $3,000,000. At December 31, 1995, there were no outstanding
borrowings under these lines, which were assigned to support commercial
paper borrowings.
Note D - Investment Securities
The amortized cost and estimated aggregate fair value of securities
classified as available-for-sale and held-to-maturity at December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Available-For-Sale
Gross Gross Estimated
Unrealized Unrealized Aggregate
Amortized Holding Holding Fair
Cost Gains Losses Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Equity Securities:
Marketable securities $ 806 $ 192 $ (21) $ 977
Other equity securities 1,383 - - 1,383
Total equity securities 2,189 192 (21) 2,360
Debt Securities:
United States Treasury and
agency securities 120,459 544 (122) 120,881
Obligations of states and
political subdivisions 20,262 139 (20) 20,381
Debt securities issued
by foreign governments 2,060 970 - 3,030
Mortgage-backed securities 125,510 701 (1,848) 124,363
Other debt securities 1,731 104 - 1,835
Total debt securities 270,022 2,458 (1,990) 270,490
Total Investment Securities $272,211 $2,650 $(2,011) $272,850
Held-To-Maturity
Gross Gross Estimated
Unrealized Unrealized Aggregate
Amortized Holding Holding Fair
Cost Gains Losses Value
(Dollars in thousands)
Equity Securities:
Other equity securities $ 6,147 $ 107 $ (40) $ 6,214
Debt Securities:
Obligations of states and
political subdivisions 119,938 6,283 (52) 126,169
Total Investment Securities $126,085 $6,390 $ (92) $132,383
</TABLE>
Note D - Investment Securities - Continued
The amortized cost and estimated aggregate fair value of debt securities
classified as available-for-sale and held-to-maturity at December 31, 1995,
by contractual maturity (except for mortgage-backed securities), are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Available-For-Sale Held-To-Maturity
Estimated Estimated
Aggregate Aggregate
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 38,178 $ 38,243 $ 3,065 $ 3,050
Due after one year through five years 93,867 94,268 34,736 35,901
Due after five years through ten years 9,157 9,306 59,961 63,770
Due after ten years 3,310 4,310 22,176 23,448
144,512 146,127 119,938 126,169
Mortgage-backed securities 125,510 124,363 - -
Total $270,022 $270,490 $119,938 $126,169
</TABLE>
Note D - Investment Securities - Continued
The amortized cost and estimated aggregate fair value of securities
classified as available-for-sale and held-to-maturity at December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
Available-For-Sale
Gross Gross Estimated
Unrealized Unrealized Aggregate
Amortized Holding Holding Fair
Cost Gains Losses Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Equity Securities:
Marketable securities $ 469 $ 46 $ (144) $ 371
Other equity securities 1,518 - - 1,518
Total equity securities 1,987 46 (144) 1,889
Debt Securities:
United States Treasury and
agency securities 74,765 - (2,771) 71,994
Obligations of states and
political subdivisions 10,577 74 (247) 10,404
Debt securities issued
by foreign governments 2,020 565 - 2,585
Corporate securities 52 - - 52
Mortgage-backed securities 170,374 113 (11,526) 158,961
Other debt securities 2,061 - (38) 2,023
Total debt securities 259,849 752 (14,582) 246,019
Total Investment Securities $ 261,836 $ 798 $(14,726) $ 247,908
Held-To-Maturity
Gross Gross Estimated
Unrealized Unrealized Aggregate
Amortized Holding Holding Fair
Cost Gain Gain Value
(Dollars in thousands)
Equity Securities:
Other equity securities $ 6,068 $ 49 $ (22) $ 6,095
Debt Securities:
Obligations of states and
political subdivisions 98,064 2,873 (1,769) 99,168
Commercial paper 4,997 - - 4,997
Total debt securities 103,061 2,873 (1,769) 104,165
Total Investment Securities $ 109,129 $2,922 $(1,791) $ 110,260
</TABLE>
Note D - Investment Securities - Concluded
Other equity securities classified as held-to-maturity at December 31,
1995 and 1994, include securities, such as Federal Reserve Bank and
Federal Home Loan Bank stock, which are not traded on established
exchanges and have only redemption capabilities. Fair values for such
equity securities are considered to approximate cost.
Debt securities issued by foreign governments (classified as available-for-
sale) with an amortized cost of $1,590,000 and estimated aggregate fair
values of $2,560,000 and $2,155,000 at December 31, 1995 and 1994,
respectively, and commercial paper (classified as held-to-maturity) with an
amortized cost and estimated aggregate fair value of $4,997,000 at
December 31, 1994, are included in the above debt securities, but are
classified as loans in the accompanying 1995 and 1994 consolidated state-
ments of financial condition. 1st Source had no trading securities as of
December 31, 1995 and 1994.
The following represents the segregation of cash flows between
securities available-for-sale and held-to-maturity:
<TABLE>
<CAPTION>
1995 1994
Available- Held-To- Available- Held-To-
For-Sale Maturity Total For-Sale Maturity Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Purchase of securities $105,175 $39,247 $144,422 $33,936 $22,140 $56,076
Proceeds from sales
of securities 33,491 591 34,082 19,143 - 19,143
Proceeds from ma-
turities and prepay-
ments of securities 60,879 16,346 77,225 21,935 6,404 28,339
</TABLE>
Gross gains of $514,367 and $187,859 and gross losses of $396,500 and
$574,454, were realized during 1995 and 1994, respectively, on the sales
of securities available-for-sale. Gross gains of $23,800 and gross losses of
$166 were realized during 1995 on the sales of securities held-to-maturity.
These securities were sold due to a downgrade in their respective ratings.
Proceeds from sales of investments in debt securities during 1993 were
$3,696,000 and gross gains of $369,000 were realized on those sales.
At December 31, 1995 and 1994, investment securities with carrying
values of $173,379,000 and $139,955,000, respectively, were pledged as
collateral to secure government, public and trust deposits and for other
purposes.
The mortgage-backed securities held by 1st Source consist primarily of
FNMA, GNMA and FHLMC pass-through certificates which are
guaranteed by those respective agencies of the United States government.
Note E - Loans to Related Parties
1st Source and its subsidiaries have extended loans to officers and
directors of 1st Source and its subsidiaries and to their associates. The
aggregate dollar amount of these loans was $16,078,000 and $12,598,000
at December 31, 1995 and 1994, respectively. During 1995, $9,717,000 of
new loans were made and repayments and other reductions totaled
$6,237,000.
Note F - Reserve for Loan Losses
Changes in the reserve for loan losses for each of the three years ended
December 31 were as follows:
1995 1994 1993
(Dollars in thousands)
Balance, beginning
of year $ 23,868 $ 22,350 $ 19,141
Provision for loan
losses 2,757 4,197 3,533
Net recoveries (charge-
offs), net of charge-offs
of $1,990 in 1995, and
recoveries of $820 in
1994 and $1,697 in 1993 845 (1,237) (324)
Recaptured reserve
due to loan
securitization - (1,442) -
Balance, end of year $ 27,470 $ 23,868 $ 22,350
At December 31, 1995 and 1994, loans amounting to $4,893,000 and $3,447,000,
respectively, substantially all of which are collateralized, are considered to
be non-accrual or restructured loans. Interest income for the years ended
December 31, 1995, 1994 and 1993, would have increased by apporoximately
$383,000, $251,000 and $237,000, respectively, if these loans earned interest
at their full contract rate.
As of December 31, 1995, impaired loans totaled $6,381,000, of which
$5,253,000 had corresponding specific reserves for loan losses totaling
$1,240,000. The remaining $1,128,000 of impaired loans had no specific
reserves for loan losses associated with them. The vast majority of the
impaired loans are non-accrual loans; interest is not recognized on non-accrual
loans subsequent to the date the loan is placed in non-accrual status.
Interest on the remainder of the impaired loans is recognized on an accrual
basis. For 1995, the average recorded investment in impaired loans was
$6,515,000 and interest income recognized on impiared loans totaled $284,000.
Note G - Long-Term Debt
Details of long-term debt are as follows:
December 31
1995 1994
(Dollars in thousands)
Term loan (7.4%) $ 10,000 $ -
Subordinated capital
notes (5.35% - 5.83%) 5,345 5,345
Term loan (6.69%) 5,700 7,200
Federal Home Loan Bank
borrowings 267 5,267
Other 507 441
Subordinated capital
debentures (9.0%) - 9,831
Total Long-Term Debt $ 21,819 $ 28,084
Maturities of long-term debt at December 31, 1995 are as follows (in
thousands):
1996 $ 2,946
1997 2,821
1998 691
1999 1,999
2000 102
Thereafter 13,260
Total $21,819
Note G - Long-Term Debt - Concluded
Proceeds from the $10.0 million term loan were used to redeem the
9.0% subordinated capital debentures, payable October 1, 1999, at a
redemption price percentage of 102% of the principal amount. Interest at a
fixed rate of 7.4%, is payable quarterly, with principal due at maturity,
October 1, 2002. The Term Loan Agreement dated October 2, 1995,
contains, among other provisions, a make-whole provision for early
extinguishment of debt, and certain covenants relating to existence and
mergers, capital structure and financial requirements.
The subordinated capital notes were issued in conjunction with a 1992
acquisition and include $1,980,000 due June 18, 1999, and $3,095,000 due
June 18, 2002. During 1995 these notes were refinanced at the Applicable
Federal Rate. The interest rate on these notes is adjusted monthly and was
5.83% at December 31, 1995. The balance of the subordinated capital
notes consists of a $270,000, 5.35% note due June 18, 1997. The notes are
callable in whole or in part by 1st Source at par value. The notes are
unsecured and are subordinated to the claims of depositors and other
creditors of 1st Source Bank.
Proceeds from the original $7.2 million term loan were used to finance
the acquisition of Trustcorp Mortgage Company (see Note P). The term
loan, with a balance of $5,700,000 at December 31, 1995, is payable in
periodic principal installments with final payment expected June 1, 1998.
The interest rate varies based on certain provisions contained in the
Standby Term Loan Agreement dated September 28, 1994. At December 31, 1995,
the interest rate was 6.6937% and interest is payable monthly.
The Federal Home Loan Bank borrowings represent a source of funding
for certain residential mortgage activities. Two fixed rate notes of
$165,000 with an interest rate of 5.54% due October 8, 2003, and
$102,000 with an interest rate of 5.24% due October 10, 2000, comprise
the balance at December 31, 1995. The notes are collateralized by various
federal agency securities.
Note H - Common Stock
1st Source and its subsidiaries have various key employee incentive
plans. The plans call for long-term awards payable in restricted forfeitable
common stock of 1st Source. The risk of forfeiture is removed over a
period of time subject to company performance. At December 31, 1995,
105,958 shares of restricted forfeitable common stock were issued and un-
earned.
1st Source's incentive stock option plans include the 1992 Stock Option
Plan (the "1992 Plan") and certain stock option agreements which became
effective March 1, 1988, and January 1, 1992. An aggregate of 1,590,964
shares of common stock have been reserved for issuance under the above
plans.
Options under these stock option plans may be granted at prices not less
than the fair market value of 1st Source common stock on the date of
grant. Options granted under the 1992 Plan are fully vested, are exercisable
beginning no earlier than twelve months from the date of grant and expire
ten years from the date of grant. Options granted under the stock option
agreements effective March 1, 1988, and January 1, 1992, vest in equal
annual installments of 20% beginning on the date of grant and are
exercisable for ten years after vesting. Under all of the plans above, if a
recipient's employment with 1st Source were to terminate for reasons other
than retirement, death or disability, unexercised options shall expire
immediately. In the event of a change in control, where 1st Source is not
the surviving entity, all outstanding options shall become fully vested and
exercisable.
The following is a summary of the activity with respect to 1st Source's
stock option plans for the years ended December 31, 1995 and 1994:
Number of Price
Shares Range
Options outstanding,
January 1, 1994 500,930 $4.25 - $15.12
Options granted 56,727 14.97
Options outstanding,
December 31, 1994 557,657 4.25 - 15.12
Options exercised (2,001) 13.68
Options outstanding,
December 31, 1995 555,656 4.25 - 15.12
Options exercisable,
December 31, 1995 493,840 4.25 - 15.12
As of December 31, 1995 and 1994, 1,033,307 shares were reserved for
the future granting of options under the 1992 Plan.
1st Source also maintains an Employee Stock Purchase Plan which
provides for the purchase, at fair market value, of 1st Source common
stock by eligible employees of 1st Source and its subsidiaries. 413,437
shares of 1st Source common stock have been reserved for issuance under
the Employee Stock Purchase Plan of which 34,346 shares have been
issued at December 31, 1995.
In October, 1995, Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-based Compensation," was issued. This Statement
requires the fair value of stock options and other stock-based compensation
issued to employees to either be included as compensation expense in the
statement of income, or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the footnotes to the
financial statements beginning in 1996. 1st Source expects to adopt SFAS 123
on a disclosure basis only. As such, implementation of SFAS 123 is not expected
to impact 1st Source's consolidated statement of financial condition or
statement of income.
Note I - Preferred Stock
As of December 31, 1995, 1st Source has 10,000,000 shares of
authorized but unissued preferred stock. The Board of Directors of
1st Source is authorized to determine the terms, preferences, limitations,
voting rights and number of shares of each series it elects to issue.
Note J - Employee Benefit Plans
1st Source maintains a defined contribution money purchase pension
plan covering the majority of its employees. Contributions to the plan are
based on 2% of participants' eligible compensation. For the years ended
December 31, 1995, 1994 and 1993, total pension expense for this plan
amounted to $359,000, $358,000, and $347,000, respectively.
1st Source also maintains a defined contribution profit sharing and
savings plan covering the majority of its employees. The plan allows
eligible employees to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code. 1st Source is required under
the plan to match 100% of participant contributions up to 4% of
compensation and one-half of any additional participant contributions up to
6% of compensation provided that 1st Source is profitable for the
respective plan year. 1st Source may also make discretionary contributions
to the plan, depending on its profitability. Contribution expense for this
plan for the years ended December 31, 1995, 1994 and 1993, amounted to
$1,066,000, $982,000, and $925,000, respectively.
Trustcorp Mortgage Company contributes to a defined contribution plan
for all of its employees who meet the general eligibility requirements of the
plan. The contributions, which in part are based on amounts of
compensation deferred by the participants in the plan, were $37,000 in
1995 and $47,000 in 1994. In addition, Trustcorp Mortgage Company
made discretionary contributions of $120,000 in 1995 and $75,000 in
1994.
In addition to the pension and profit sharing plans, 1st Source provides
certain health care and life insurance benefits for substantially all of their
retired employees. All of 1st Source's full-time employees become eligible
for these retiree benefits upon reaching age 55 with 20 years of credited
service. Generally, the medical plan pays a stated percentage of eligible
medical expenses reduced for any deductibles and payments made by government
programs and other group coverage. The lifetime maximum benefit payable under
the medical plan is $15,000 and $3,000 for life insurance.
The following table sets forth 1st Source's accumulated postretirement
benefit obligation, which is unfunded, reconciled to the accrued
postretirement benefit cost recognized in the consolidated statements of
financial condition at December 31, 1995 and 1994:
1995 1994
Accumulated postretirement
benefit obligation:
Retirees $ 534,100 $ 565,000
Fully eligible active
plan participants 183,600 153,700
Other active participants 507,100 357,400
1,224,800 1,076,100
Unrecognized net gain 18,900 110,100
Accrued postretirement
benefit cost $ 1,243,700 $ 1,186,200
The components of net periodic postretirement benefit cost for 1995, 1994
and 1993 were as follows:
1995 1994 1993
Service cost of
benefits earned $ 26,700 $ 29,500 $ 18,900
Interest cost on
accumulated post-
retirement benefit
obligation 86,800 82,400 73,900
Net periodic
postretirement
benefit cost $ 113,500 $ 111,900 $ 92,800
For measuring the expected postretirement benefit obligation, a 9.1%
annual rate of increase for participants under age 65 and a 7.6% annual rate
of increase for participants over age 65 in the per capita claims cost was
assumed for 1995 (9.8% and 7.8%, respectively, were assumed for 1994).
This rate was assumed to decrease each year to 5.6% for both participants
under age 65 and participants over age 65 in 2021 and remain at that level
thereafter. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.0% and 8.5% at
December 31, 1995 and 1994, respectively.
If the health care cost trend rate were increased 1%, the accumulated
postretirement benefit obligation as of December 31, 1995, would have
increased by 5.2%. The effect of this change on the aggregate of service
and interest cost for 1995 would be an increase of 5.7%.
Note K - Income Taxes
Income taxes are comprised of the following:
1995 1994 1993
(Dollars in thousands)
Current:
Federal $10,173 $ 5,927 $ 6,193
State 3,489 2,557 2,365
Total Current 13,662 8,484 8,558
Deferred:
Federal (2,105) (485) (1,163)
State (556) (131) (251)
Total Deferred (2,661) (616) (1,414)
Total Provision $11,001 $ 7,868 $ 7,144
1st Source adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1993. 1st Source had
previously accounted for income taxes under Statement of Financial
Accounting Standards No. 96. The adoption of this new statement had no
effect on 1st Source's 1993 financial condition or results of operations.
Deferred tax assets and liabilities as of December 31, 1995 and 1994
consisted of the following:
1995 1994
(Dollars in thousands)
Deferred tax assets:
Reserve for loan losses $ 11,763 $ 10,877
Net unrealized depreciation
of securities available-for-sale - 5,644
Accruals for employee benefits 2,350 2,126
Purchased and excess servicing 274 199
Deferred mortgage loan fees 288 321
Mortgage loans - Section 475 467 (1,085)
Asset securitization 1,394 721
Other 791 1,474
Total $ 17,327 $ 20,277
Deferred tax liabilities:
Differing bases in assets
related to acquisitions $ 2,062 $ 2,593
Net unrealized appre-
ciation of securities
available-for-sale 259 -
Discounts accreted on
investment securities 98 65
Other 1,141 610
Total $ 3,560 $ 3,268
The reasons for the difference between income tax expense and the
amount computed by applying the statutory federal income tax rate (35%)
to income before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
Percent of Percent of Percent of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax $11,215 35.0% $ 9,217 35.0% $ 8,353 35.0%
Increase (decrease) in income
taxes resulting from:
Tax-exempt interest income (2,790) (8.7) (2,427) (9.2) (2,338) (9.8)
State taxes, net of federal
income tax benefit 1,906 5.9 1,577 6.0 1,374 5.8
Interest expense incurred to
carry tax-exempt securities 325 1.0 205 .8 189 .8
Contribution of appreciated
investment securities - - (466) (1.8) (45) (.2)
Other 345 1.1 (238) (.9) (389) (1.7)
Total $11,001 34.3% $ 7,868 29.9% $ 7,144 29.9%
</TABLE>
Note L - Leases
1st Source and its subsidiaries lease certain office premises and
equipment under operating leases. The headquarters building is leased for a
remaining term of 16 years with options to renew for up to 15 additional
years. Approximately 25% of the facility is subleased to other tenants.
At December 31, 1995, future minimum rental commitments for all
noncancellable operating leases, reduced by future minimum rentals from
subleases of $3,814,000, aggregate $18,185,000. Annual rental commitments
and sublease rentals for noncancellable operating leases for the five years
succeeding December 31, 1995, are as follows:
Rental Sublease
Commitments Rentals
(Dollars in thousands)
1996 $1,661 $410
1997 1,452 351
1998 1,187 314
1999 1,133 313
2000 1,103 311
Rental expense of office premises and equipment and related sublease
income were as follows:
Year Ended December 31
1995 1994 1993
(Dollars in thousands)
Gross rental expense $2,314 $2,276 $2,188
Sublease rental income (1,841) (1,840) (1,406)
Net Rental Expense $ 473 $ 436 $ 782
Note M - Financial Instruments with Off-Balance-Sheet Risk
1st Source and its subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These off-balance-sheet financial instru-
ments include standby letters of credit and loan commitments to originate,
purchase and sell. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition.
1st Source's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the dollar amount of those
instruments. 1st Source uses the same credit policies and collateral
requirements in making commitments and conditional obligations as it does
for on-balance-sheet instruments.
Loan commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
Trustcorp Mortgage Company grants mortgage loan commitments to
borrowers, subject to normal loan underwriting standards. The interest rate
risk associated with these loan commitments is managed by entering into
contracts for future deliveries of loans or other financial instruments.
Letters of credit are conditional commitments issued by 1st Source to
guarantee the performance of a customer to a third party. The credit risk
involved and collateral obtained in issuing letters of credit is essentially
the same as that involved in extending loan commitments to customers.
As of December 31, 1995 and 1994, 1st Source and its subsidiaries had
commitments outstanding to originate and purchase loans aggregating
$187 million and $122 million, respectively. Outstanding commitments to
sell loans aggregated $56 million at December 31, 1995 and $19 million at
December 31, 1994. Commercial and standby letters of credit totaled $15
million and $13 million at December 31, 1995 and 1994, respectively.
Trustcorp Mortgage Company is involved as a counterparty to interest rate
swap agreements which involve the exchange of fixed and variable rate
interest payments between Trustcorp and its warehouse lender
("counterparty") based on a common notional amount and maturity date.
The notional amount is the basis for calculating payment streams and is
never exchanged. The actual market or credit exposure of this type of
financial instrument is significantly less than the notional amount. The
primary risk associated with the swaps is the inability of the counterparty to
meet the terms of the contracts. Trustcorp does not expect the
counterparty to fail to meet its obligation. During 1995, Trustcorp was a
counterparty to swap agreements ranging in notional amounts from $20
million to $50 million, with average maturities of 8 to 17 days. There were
no interest rate swap agreements outstandings as of December 31, 1995
and 1994.
Note N - Concentrations of Credit Risk
Most of 1st Source's commercial, real estate and installment loan activity
is with customers located in north-central Indiana and southwest lower
Michigan. 1st Source's transportation and equipment loan activity is with
customers located throughout the United States. Included in loans as of
December 31, 1995 and 1994, are business loans to companies in the
following industries:
<TABLE>
<CAPTION>
Percentage
of Total
Amount Business Loans
1995 1994 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C>
Air transportation and aircraft dealers $137,664 $94,999 15.1% 12.0%
Truck and automobile leasing 109,939 91,611 12.1 11.6
Construction equipment and contractors 53,403 38,995 5.9 4.9
Real estate operators, managers and developers 46,993 40,655 5.2 5.1
Van conversion, manufactured housing
and recreational vehicle industries 37,197 41,179 4.1 5.2
</TABLE>
Generally, these loans are collateralized by assets of the borrower. The
loans are expected to be repaid from cash flow or proceeds from the sale of
selected assets of the borrower. 1st Source requires collateral on
substantially all borrowings in these categories, which is typically the item
being financed.
Note O - Commitments and Contingent Liabilities
1st Source and its subsidiaries are defendants in various legal proceedings
arising in the normal course of business. In the opinion of management,
based on the advice of legal counsel, the ultimate resolution of these
proceedings will not have a material effect on 1st Source's consolidated
financial position or results of operations.
The consolidated financial statements do not reflect various
commitments and contingent liabilities, such as guarantees and liability for
assets held in trust, which arise in the normal course of business.
Note P - Acquisitions
On September 30, 1994, 1st Source Corporation purchased the
remaining shares of the outstanding common stock of Mortgage
Acquisition Company, the parent company of Trustcorp Mortgage
Company, a South Bend based full service mortgage banker (collectively
"Trustcorp Mortgage Company" or "Trustcorp"). 1st Source Corporation
previously owned 30% of the outstanding common stock of Trustcorp.
Trustcorp maintains mortgage origination offices in South Bend, Elkhart
and Indianapolis, Indiana, and Columbus, Ohio, and at the date of
acquisition had a mortgage loan servicing portfolio in excess of $1 billion.
Trustcorp Mortgage Company became a wholly-owned subsidiary of
1st Source Corporation.
The total purchase price aggregated $5.5 million. The shareholders of
Trustcorp Mortgage Company received approximately $2.6 million in cash,
$500,000 in guaranteed notes maturing in one to two years and 91,504
shares of 1st Source Corporation common stock with a market value of
approximately $2.4 million.
The acquisition was accounted for as a purchase and, accordingly, the
net assets acquired and operations of Trustcorp are included in 1st Source's
consolidated financial statements since the date of acquisition. The
acquired net assets of Trustcorp Mortgage Company consisted of $17
million of mortgage loans held for sale, $5.2 million of mortgage servicing
rights and $1.9 million of other assets. Liabilities assumed consisted of
$20.5 million of borrowings and $1.1 million of other liabilities. A premium
in excess of book value of $3.6 million was paid in the transaction and
allocated to purchased mortgage servicing rights ($2.2 million) and goodwill
($1.4 million). The effect of this transaction was not material to
1st Source's 1994 consolidated financial position or results of operations.
Note Q - 1st Source Corporation (Parent Company Only) Financial Information
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
December 31
1995 1994
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash $ 1 $ 3
Short-term investments with bank subsidiary 5,255 5,080
Investment securities, available-for-sale
(amortized cost of $11,923 and $12,228
at December 31, 1995 and 1994, respectively) 12,152 11,941
Investments in:
Bank subsidiaries 142,168 117,271
Non-bank subsidiaries 8,488 5,333
Loan receivable, non-bank subsidiary 300 670
Premises and equipment, net 2,880 3,005
Other assets 4,796 6,117
Total Assets $176,040 $149,420
LIABILITIES
Commercial paper borrowings $ 4,850 $ 1,269
Other liabilities 2,382 1,597
Long-term debt 16,207 17,472
Total Liabilities 23,439 20,338
Shareholders' Equity 152,601 129,082
Total Liabilities and Shareholders' Equity $176,040 $149,420
</TABLE>
Note Q - 1st Source Corporation (Parent Company Only)
Financial Information - Continued
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Year Ended December 31
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Dividends from:
Bank subsidiaries $ 4,851 $ 4,948 $ 5,483
Non-bank subsidiary - - 870
Rental income from subsidiaries 2,199 2,140 2,040
Other 1,497 2,136 1,828
Total Income 8,547 9,224 10,221
Expenses:
Interest on long-term debt 1,379 1,044 942
Interest on commercial paper and
other short-term borrowings 261 52 91
Rent expense 1,076 1,109 1,214
Other 2,493 1,878 1,952
Total Expenses 5,209 4,083 4,199
Income Before Income Tax Credits and
Equity in Undistributed Income of Subsidiaries 3,338 5,141 6,022
Income tax credits 709 120 275
Income Before Equity in Undistributed
Income of Subsidiaries 4,047 5,261 6,297
Equity in undistributed income
(loss) of subsidiaries:
Bank subsidiaries 16,540 13,168 10,673
Non-bank subsidiaries 455 36 (248)
Net Income $21,042 $18,465 $16,722
</TABLE>
Note Q - 1st Source Corporation (Parent Company Only)
Financial Information - Concluded
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 21,042 $ 18,465 $ 16,722
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income
of subsidiaries (16,995) (13,204) (10,425)
Depreciation of premises and equipment 174 131 121
Realized and unrealized investment
securities (gains) losses (418) (180) 43
Other 2,737 (182) 888
Net Cash Provided by Operating Activities 6,540 5,030 7,349
INVESTING ACTIVITIES:
Proceeds from sales and maturities
of investment securities 3,601 1,935 400
Purchase of investment securities (2,930) (2,725) (9,099)
Decrease (increase) in loan to
non-bank subsidiary 370 (670) -
Purchase of preferred stock of
non-bank subsidiary (2,700) - -
Purchase of premises and equipment, net (49) 173 (492)
Cash paid in acquisition - (2,603) -
Decrease (increase) in short-term
investments with bank subsidiary (175) 724 4,220
Net Cash Used in Investing Activities (1,883) (3,166) (4,971)
FINANCING ACTIVITIES:
Net increase (decrease) in commercial
paper and other short-term borrowings 3,581 (1,360) 497
Issuance of long-term debt 10,000 7,200 -
Payments on long-term debt (11,265) (9) (28)
Acquisition of treasury stock (3,363) (4,479) (81)
Cash dividends (3,594) (3,204) (2,755)
Other (18) (12) (10)
Net Cash Used in Financing Activities (4,659) (1,864) (2,377)
Increase (Decrease) in Cash
and Cash Equivalents (2) - 1
Cash and cash equivalents, beginning of year 3 3 2
Cash and Cash Equivalents, End of Year $ 1 $ 3 $ 3
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
211 West Washington Street
South Bend, Indiana 46601
219/234-4021
To the Shareholders and Board of Directors of
1st Source Corporation:
We have audited the accompanying consolidated statements of financial
condition of 1st Source Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of 1st Source
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
South Bend, Indiana
January 22, 1996
SHAREHOLDERS' INFORMATION
1st Source Corporation common stock is traded on the Over-The-Counter market
and is listed on the Nasdaq Stock Market under the symbol "SRCE."
1st Source is also listed on the National Market System tables in many daily
papers under the symbol "1stSrc."
High and low common stock prices, cash dividends paid for 1995 and
book value were:
Cash
Dividends
Quarter Ended High* Low* Paid*
March 31 $17.50 $15.50 $.070
June 30 19.25 17.25 .070
September 31 22.50 18.00 .070
December 31 22.75 20.75 .076
Book value per common share at December 31, 1995: $12.22*
* Adjusted for a 3-for-2 stock split declared July 18, 1995, and a five
percent stock dividend declared January 22, 1996.
Annual Meeting of Shareholders
The Annual Meeting of Shareholders has been called for 9:00 a.m., EST,
Tuesday, April 23, 1996, at 1st Source Center, 100 N. Michigan Street,
South Bend, Indiana. All shareholders are invited to attend the meeting.
Common Stock Listing
The Nasdaq Stock Market National
Market Symbol: "SRCE"
CUSIP #336901 10 3
Transfer Agent, Registrar and Dividend Disbursing Agent
1st Source Bank
Post Office Box 1602
South Bend, IN 46634
Independent Auditors
Coopers & Lybrand L.L.P.
211 West Washington Street
South Bend, IN 46601
Sharholder Inquiries
1st Source Corporation
Larry E. Lentych
Chief Financial Officer
Post Office Box 1602
South Bend, IN 46634
(219) 235-2702
Form 10-K Inquiries
A copy of 1st Source Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, as required to be filed with the
Securities and Exchange Commission, is available upon request.
Market Makers (as of January 31, 1996)
The following firms make a market in the common shares of 1st Source
Corporation:
The Chicago Corporation
City Securities Corporation
Edward D. Jones & Company
Herzog, Heine, Geduld, Inc.
Howe, Barnes Investments, Inc.
Keefe, Bruyette & Woods, Inc.
NatCity Investments
Roney and Company
Stifel, Nicolaus & Company, Incorporated
SUBSIDIARIES OF THE REGISTRANT
The following is a listing of all subsidiaries of 1st Source Corporation.
Unless otherwise indicated, each subsidiary does business under its own name.
The activities of each is described in Part I, Item I, of Form 10-K.
DATE OF
NAME INCORPORATION JURISDICTION
1st Source Bank April 19, 1922 Indiana
1st Source Auto Leasing, Inc.* October 29, 1973 Indiana
(Inactive)
1st Source Insurance, Inc.* July 12, 1978 Indiana
1st Source Travel, Inc.* March 4, 1982 Indiana
(Inactive)
FBT Capital Corporation February 6, 1970 Indiana
(Inactive)
1st Source Leasing, Inc. November 29, 1979 Indiana
1st Source Capital Corporation* November 16, 1983 Indiana
Trustcorp Mortgage Company December 5, 1973 Indiana
* Wholly-owned subsidiaries of 1st Source Bank
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of 1st Source Corporation on Forms S-8 of our report dated
January 22, 1996, on our audits of the consolidated financial statements
of 1st Source Corporation and subsidiaries as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31,
1995, which report is incorporated by reference in this Annual Report on
Form 10-K of 1st Source Corporation for the year ended December 31, 1995.
/s/ COOPERS & LYBRAND LLP
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 94517
<INT-BEARING-DEPOSITS> 2946
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 270290
<INVESTMENTS-CARRYING> 126085
<INVESTMENTS-MARKET> 132383
<LOANS> 1259415
<ALLOWANCE> 27470
<TOTAL-ASSETS> 1799257
<DEPOSITS> 1441749
<SHORT-TERM> 152979
<LIABILITIES-OTHER> 30109
<LONG-TERM> 21819
0
0
<COMMON> 5429
<OTHER-SE> 147172
<TOTAL-LIABILITIES-AND-EQUITY> 1799257
<INTEREST-LOAN> 110944
<INTEREST-INVEST> 24171
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 135115
<INTEREST-DEPOSIT> 56185
<INTEREST-EXPENSE> 64946
<INTEREST-INCOME-NET> 70169
<LOAN-LOSSES> 2757
<SECURITIES-GAINS> 170
<EXPENSE-OTHER> 54861
<INCOME-PRETAX> 32043
<INCOME-PRE-EXTRAORDINARY> 21042
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21042
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 4.71
<LOANS-NON> 4893
<LOANS-PAST> 274
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23868
<CHARGE-OFFS> 1990
<RECOVERIES> 2835
<ALLOWANCE-CLOSE> 27470
<ALLOWANCE-DOMESTIC> 10019
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17451
</TABLE>
