FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
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 0-5907
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 North Michigan Street South Bend, Indiana 46601
(Address of principal executive offices) (Zip Code)
(219) 235-2702
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of common stock outstanding as of June 30, 1997 -
15,654,024 shares.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Page
Consolidated statements of financial condition -- 3
June 30, 1997, and December 31, 1996
Consolidated statements of income -- 4
three months and six months ended June 30, 1997 and 1996
Consolidated statements of cash flows -- 5
six months ended June 30, 1997 and 1996
Notes to the Consolidated Financial Statements 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
1st Source Corporation and Subsidiaries
(Dollars in thousands)
June 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 97,334 $ 137,588
Interest bearing deposits with other banks 882 600
Investment securities:
Securities available-for-sale, at fair value
(amortized cost of $312,988 and $303,177
at June 30, 1997 and December 31, 1996) 312,209 302,602
Securities held-to-maturity, at amortized cost
(fair value of $120,553 and $125,218 at
June 30, 1997 and December 31, 1996) 116,669 120,494
Total Investment Securities 428,878 423,096
Loans - net of unearned discount 1,622,448 1,455,563
Reserve for loan losses (31,889) (29,516)
Net Loans 1,590,559 1,426,047
Premises and equipment 29,264 27,780
Other assets 77,338 64,656
Total Assets $2,224,255 $2,079,767
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 230,250 $ 207,280
Interest bearing 1,482,037 1,426,698
Total Deposits 1,712,287 1,633,978
Federal funds purchased and securities
sold under agreements to repurchase 167,207 112,580
Other short-term borrowings 67,511 112,283
Other liabilities 34,322 30,497
Long-term debt 15,505 18,596
Total Liabilities 1,996,832 1,907,934
Guaranteed Preferred Beneficial Interests
in the Company's Subordinated Debentures 44,750 --
Shareholders' equity:
Common stock-no par value 5,700 5,700
Capital surplus 69,947 69,947
Retained earnings 113,163 102,399
Less cost of common stock in treasury (6,569) (6,670)
Unrealized appreciation of
investment securities, net 432 457
Total Shareholders' Equity 182,673 171,833
Total Liabilities and Shareholders' Equity $2,224,255 $2,079,767
The accompanying notes are a part of the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
1st Source Corporation and Subsidiaries
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $36,414 $30,751 $69,424 $60,246
Investment securities:
Taxable 4,223 3,851 8,245 7,568
Tax-exempt 2,056 2,051 4,090 4,024
Other 65 228 145 274
Total Interest Income 42,758 36,881 81,904 72,112
Interest Expense:
Deposits 17,648 15,779 34,136 31,025
Short-term borrowings 3,154 1,975 5,824 3,778
Long-term debt 281 339 598 685
Total Interest Expense 21,083 18,093 40,558 35,488
Net Interest Income 21,675 18,788 41,346 36,624
Provision for Loan Losses 479 1,193 1,708 2,402
Net Interest Income After
Provision for Loan Losses 21,196 17,595 39,638 34,222
Other Income:
Trust fees 1,723 1,833 3,492 3,456
Service charges on deposit accounts 1,287 1,178 2,536 2,354
Mortgage servicing fees,
and mortgage loan sale income 1,216 954 2,335 1,933
Equipment rental income 1,506 408 2,662 609
Commission, securitization
and other income 1,786 1,447 3,473 2,876
Investment securities and
other gains (losses) (484) 89 (303) 127
Total Other Income 7,034 5,909 14,195 11,355
Other Expense:
Salaries and employee benefits 10,051 8,911 19,742 17,563
Net occupancy expense 1,022 1,162 2,194 2,316
Furniture and equipment expense 1,732 1,362 3,276 2,657
Depreciation - leased equipment 1,825 203 2,009 429
Business development and marketing expense 1,389 714 1,882 1,185
Other 1,987 2,299 5,146 4,369
Total Other Expense 18,006 14,651 34,249 28,519
Income Before Income Taxes and
Subsidiary Trust Distributions 10,224 8,853 19,584 17,058
Income taxes 3,222 3,072 6,457 5,911
Distribution on Preferred Securities of
Subsidiary Trusts, Net of Tax 561 -- 620 --
Net Income $ 6,441 $ 5,781 $12,507 $11,147
Per Common Share: <F1>
Net Income $ 0.40 $ 0.36 $ 0.78 $ 0.70
Dividends $0.075 $0.064 $0.147 $0.128
Weighted Average Common Shares
Outstanding 16,161,677 16,010,487 16,129,864 15,990,855
<FN>
<F1> The computation of per share data gives retroactive recognition to a 5:4 stock split
declared on January 21, 1997.
</FN>
The accompanying notes are a part of the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
1st Source Corporation and Subsidiaries
(Dollars in thousands)
Six Months Ended June 30
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 12,507 $ 11,147
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,708 2,402
Depreciation of premises and equipment 3,662 1,587
Amortization of investment security premiums
and accretion of discounts, net 428 328
Deferred income taxes (659) 118
Realized investment securities (gains) 303 (127)
Increase in interest receivable (1,266) (560)
Increase in interest payable 4,980 3,243
Other (9,982) (4,691)
Net Cash Provided by Operating Activities 11,681 13,447
Investing Activities:
Proceeds from sales and maturities
of investment securities 55,260 58,328
Purchases of investment securities (61,976) (56,100)
Net decrease in short-term investments (282) (5,345)
Loans sold or participated to others 84,349 76,646
Net increase in loans made to customers
and principal collections on loans (243,660) (186,565)
Net increase in leased assets (6,748) (5,117)
Purchases of premises and equipment (2,285) (3,278)
Other (2,862) 1,389
Net Cash Used in Investing Activities (178,204) (120,042)
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (2,927) 9,765
Net increase in certificates of deposit 81,237 96,886
Net increase in short-term borrowings 9,855 17,469
Payments on long-term debt (3,091) (2,242)
New issuance of trust preferred securities 44,750 0
Acquisition of treasury stock (1,247) (891)
Cash dividends (2,300) (2,001)
Other (8) (11)
Net Cash Provided by Financing Activities 126,269 118,975
(Increase) Decrease in Cash and Cash Equivalents (40,254) 12,380
Cash and Cash Equivalents, Beginning of Year 137,588 94,517
Cash and Cash Equivalents, End of Period $ 97,334 $106,897
The accompanying notes are a part of the consolidated financial statements.
</TABLE>
Notes to the Consolidated Financial Statements
1. The unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q and
therefore do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. The information furnished herein reflects all
adjustments (all which are normal and recurring in nature) which
are, in the opinion of management, necessary for a fair presentation
of the results for the interim periods for which this report is
submitted. The 1996 1st Source Corporation Annual Report on Form 10-K
and quarterly report on Form 10-Q for the quarter ended March 31,
1997, should be read in conjunction with these statements.
2. 1st Source has adopted Financial Accounting Standard No. 125 (SFAS
125), "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," as of January 1, 1997. SFAS 125
requires that after a transfer of financial assets, an entity must
recognize the financial and servicing assets controlled and
liabilities incurred and derecognize financial assets and
liabilities in which control is surrendered or when debt is
extinguished. The impact on 1st Source's financial position and
results of operations has not been material.
3. In February 1997, Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings Per Share," was issued by the
Financial Accounting Standards Board. 1st Source is required to
adopt this pronouncement as of December 31, 1997. SFAS No. 128 will
require 1st Source to make a dual presentation of basic and fully
diluted earnings per share on the face of its consolidated
statements of income. The Company does not presently anticipate
that SFAS No. 128 will have a significant impact on the Company's
historically reported earnings per share.
4. During 1997, 1st Source raised $44.75 million through the issuance
of Cumulative Trust Preferred Securities. 1st Source Capital Trust
I issued $27.5 million of 9.00% Cumulative Trust Preferred
Securities. 1st Source Capital Trust II issued $17.25 million of
floating rate Cumulative Trust Preferred Securities. 1st Source
Capital Trust I and 1st Source Capital Trust II are wholly-owned
consolidated subsidiaries of the Company.
The Holders of the Fixed Rate Preferred Securities are entitled to
receive preferential cumulative cash distributions from 1st Source
Capital Trust I, at the annual rate of 9.00% of the liquidation
amount of $25 per Preferred Security, accruing from the date of
original issuance and payable quarterly in arrears on the last day
of March, June, September and December of each year. Holders of the
Floating Rate Preferred Securities are entitled to receive
preferential cumulative cash distributions from 1st Source
Capital Trust II, at the annual rate equal to the sum of the 3-Month
Treasury plus 2.25% of the liquidation amount of $25 per Floating
Rate Preferred Security accruing from the date of original issuance
and payable quarterly in arrears on the last day of March, June,
September and December of each year.
<PAGE>
The Company, 1st Source Capital Trust I and 1st Source Capital Trust
II have executed a guarantee with regard to the trust preferred
securities. The guarantee, when taken together with the company's
obligations under the trust debentures, the indenture pursuant to
which the trust debentures were issued, and the applicable trust
document, provides a full and unconditional guarantee of the trusts'
obligations under the trust preferred securities.
5. During the second quarter of 1997, the Governor signed a bill passed
by the Indiana Legislature that permits state-chartered banks to
sell life insurance products to consumers in Indiana under the same
statutory and regulatory conditions that apply to traditional
insurance brokerage activities. This brings Indiana into alignment
with more than 30 other states which allow their consumers the
benefits of additional competition in the insurance marketplace.
During the same session, the Governor signed into law two additional
bills passed by the legislature that permit powers of national banks
for state banks. It authorizes a state-chartered bank or trust
company to exercise rights and privileges that are granted to
national banks domiciled in Indiana if it requests permission from
the Department of Financial Institutions. The other significant
bill permits Indiana state-chartered banks to own subsidiaries in
states other than Indiana. Previously, only subsidiaries located
in the State of Indiana could be owned by Indiana state banks.
PART I.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis should be read in conjunction with the
Company's consolidated condensed financial statements and the financial and
statistical data appearing elsewhere in this report and the 1996 1st Source
Corporation Annual Report on Form 10-K and the quarterly report on Form 10-Q
for the quarter ended March 31, 1997. The amounts shown in this analysis
have been adjusted to reflect tax-exempt income on a tax equivalent basis
using a 40.525% rate.
Management's discussion and analysis contains forward-looking statements
that are provided to assist in the understanding of anticipated future
financial performance. However, such performance involves risks and
uncertainties which may cause actual results to differ materially from those
in such statements. For a discussion of certain factors that may cause such
forward-looking statements to differ materially from actual results, see the
1996 Form 10-K.
COMPARISON OF THREE-MONTH AND SIX-MONTH PERIODS
ENDED JUNE 30, 1997 AND 1996
Net income for the three-month and six-month periods ended June 30, 1997,
was $6,441,000 and $12,507,000 respectively, compared to $5,781,000 and
$11,147,000 for the equivalent periods in 1996. The primary reasons for the
increase were an increase in net interest income and a strong increase in
other income offset by an increase in other expense.
Net income per share increased to $0.40 and $0.78, respectively, for the
three-month and six-month periods ended June 30, 1997, from $0.36 and $0.70
in 1996. Return on average common shareholders' equity was 14.26% for the
six months ended June 30, 1997, compared to 14.30% in 1996. The return on
total average assets was 1.21% for the six months ended June 30, 1997,
compared to 1.22% in 1996.
NET INTEREST INCOME
The taxable equivalent net interest income for the three-month period
ended June 30, 1997, was $22,602,000, an increase of 14.50% over the same
period in 1996, resulting in a net yield of 4.50% compared to 4.53% in 1996.
The fully taxable equivalent net interest income for the six-month period
ended June 30, 1997, was $43,225,000, an increase of 12.21% over 1996,
resulting in a net yield of 4.47% compared to 4.52% in 1996.
Total average earning assets increased 14.78% and 13.86%, respectively,
for the three-month and six-month periods ended June 30, 1997, over the
comparative periods in 1996. Total average investment securities increased
7.07% and 7.01%, respectively for the three-month and six-month periods, due
to an increase in municipal and agency securities, while a 18.10% and 16.34%
increase for the three-month and six-month periods for average loans
occurred primarily in commercial mortgage, transportation and equipment
loans. The taxable equivalent yields on total average earning assets were
8.70% and 8.67% for the three-month period ended June 30, 1997, and 1996,
and 8.66% and 8.68% for the six-month period ended June 30, 1997, and 1996.
Average deposits increased 9.72% and 9.79%, respectively, for the three-
month and six-month periods over the same periods from 1996. The cost rate
on average interest-bearing funds was 5.02% and 4.86% for the three-months
ended June 30, 1997, and 1996, and 4.95% and 4.88% for the six-month periods
ended June 30, 1997 and 1996. The majority of the growth in deposits from
last year has occurred in time deposits of $100 thousand and over and time
deposits greater than one year.
The following table sets forth consolidated information regarding average
balances and rates.
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Dollars in thousands)
Three Months Ended June 30
1997 1996
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities:
Taxable $ 271,198 $ 4,224 6.25% $ 248,880 $ 3,851 6.22%
Tax exempt <F1> 151,999 2,951 7.79% 146,382 2,967 8.15%
Net loans <F2><F3> 1,584,549 36,444 9.23% 1,341,731 30,789 9.23%
Other investments 5,983 66 4.42% 17,359 227 5.04%
Total Earning Assets 2,013,729 43,685 8.70% 1,754,352 37,834 8.67%
Cash and due from banks 70,953 73,521
Reserve for loan losses (31,191) (28,072)
Other assets 101,330 76,409
Total $2,154,821 $1,876,210
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $1,450,089 $17,648 4.88% $1,323,958 $15,780 4.79%
Short-term borrowings 218,310 3,154 5.79% 152,049 1,974 5.22%
Long-term debt 16,195 281 6.95% 20,012 340 6.84%
Total Interest Bearing
Liabilities 1,684,594 21,083 5.02% 1,496,019 18,094 4.86%
Noninterest bearing deposits 211,168 190,102
Other liabilities 79,629 31,524
Shareholders' equity 179,430 158,565
Total $2,154,821 $1,876,210
Net Interest Income $22,602 $19,740
Net Yield on Earning Assets on a Taxable
Equivalent Basis 4.50% 4.53%
Six Months Ended June 30
1997 1996
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS:
Investment securities:
Taxable $ 269,673 $ 8,245 6.17% $ 249,129 $ 7,568 6.11%
Tax exempt <F1> 151,172 5,900 7.87% 144,132 5,846 8.16%
Net loans <F2><F3> 1,524,335 69,491 9.19% 1,310,208 60,322 9.26%
Other investments 6,370 146 4.63% 10,473 273 5.24%
Total Earning Assets 1,951,550 83,782 8.66% 1,713,942 74,009 8.68%
Cash and due from banks 70,556 72,886
Reserve for loan losses (30,516) (27,819)
Other assets 97,483 74,901
Total $2,089,073 $1,833,910
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $1,420,196 34,136 4.85% $1,295,154 31,025 4.82%
Short-term borrowings 214,578 5,824 5.47% 148,307 3,778 5.12%
Long-term debt 17,383 598 6.91% 20,426 686 6.76%
Total Interest Bearing
Liabilities 1,652,157 40,558 4.95% 1,463,887 35,489 4.88%
Noninterest bearing deposits 200,835 181,326
Other liabilities 59,147 31,932
Shareholders' equity 176,934 156,765
Total $2,089,073 $1,833,910
Net Interest Income $43,224 $38,520
Net Yield on Earning Assets on a Taxable
Equivalent Basis 4.47% 4.52%
<FN>
<F1>Interest income includes the effects of taxable equivalent adjustments, using a 40.525%
rate for 1997 and 1996. Tax equivalent adjustments for the three-month periods were $895
in 1997 and $916 in 1996 and for the six-month periods were $1,811 in 1997 and $1,822 in
1996.
<F2>Loan income includes fees on loans for the three-month periods of $964 in 1997 and $718
in 1996 and for the six-month periods of $1,761 in 1997 and $1,474 in 1996. Loan income
also includes the effects of taxable equivalent adjustments, using a 40.525% rate for 1997
and 1996. The tax equivalent adjustments for the three-month periods were $31 in 1997
and $37 in 1996 and for the six-month periods were $67 in 1997 and $75 in 1996.
<F3>For purposes of this computation, non-accruing loans are included in the daily average
loan amounts outstanding.
</FN>
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three-month period ended June 30,
1997, and 1996, was $479,000 and $1,193,000, respectively, and was
$1,708,000 and $2,402,000 for the six-month periods ended June 30, 1997 and
1996. Net Recoveries of $406,000 have been recorded for the three-month
period ended June 30, 1997, compared to $223,000 of Net Charge-offs for the
same period in 1996. Year-to-date Net Recoveries of $665,000 have been
recorded in 1997, compared to Net Charge-Offs of $1,332,000 through June
1996. The reserve for loan losses was $31,889,000 or 1.97% of net loans at
June 30, 1997, compared to $29,516,000 or 2.03% of net loans at December 31,
1996.
Non-performing assets at June 30, 1997, were $7,991,000 compared to
$7,773,000 at December 31, 1996, an increase of 2.8%. At June 30, 1997,
non-performing assets were .49% of net loans compared to .53% at
December 31, 1996. It is management's opinion that the reserve for loan
losses is adequate to absorb anticipated losses in the loan portfolio as of
June 30, 1997.
OTHER INCOME
Other income for the three-month periods ended June 30, 1997, and 1996
was $7,034,000 and $5,909,000, respectively, and for the six-month periods
was $14,195,000 in 1997 and $11,355,000 in 1996. For the six-month period,
trust fees increased 1.04%, service charges on deposit accounts increased
7.73%, mortgage servicing fees and mortgage loan sale income increased
20.80%, equipment rental income increased 437.11% and commission,
securitization and other income increased 20.76%. The significant increase
in equipment rental income was primarily due to substantial growth in
operating leases. Investment Security losses and other losses for the six-
month period ended June 30, 1997, were $303,000 compared to net gains of
$127,000 in 1996. The net losses in 1997 were primarily due to a write-down
pertaining to a venture capital investment. The net gains in 1996 were
primarily due to adjustments made to the carrying value of certain
partnership investments.
OTHER EXPENSE
Other expense for the three-month period ended June 30, 1997, was
$18,006,000, an increase of 22.90% over the same period in 1996 and was
$34,249,000 for the six-month period ended June 30, 1997, an increase of
20.1% over 1996. For the six-month period ended June 30, 1997, salaries and
employee benefits increased 12.41%, net occupancy expense decreased 5.27%,
furniture and equipment expense increased 23.30%, depreciation on leased
equipment increased 468.30%, business development and marketing expense
increased 58.82%, and miscellaneous other expenses increased 17.78% over the
same period in 1996. The increase in salaries and furniture and equipment
expense is primarily due to ten new branches being opened in 1996. Business
development and marketing expense increased due to appreciated stock donated
to the 1st Source Foundation. This action enabled 1st Source to capitalize
on a tax deduction based on the appreciated value of the donated stock. The
increase in miscellaneous expense is due to an increase in supplies and
communications expense. The increase in depreciation of leased equipment
is due to a significant volume increase of operating leases from the prior
year.
INCOME TAXES
The provision for income taxes for the three-month and six-month
periods ended June 30, 1997, was $3,222,000 and $6,457,000, respectively,
compared to $3,072,000 and $5,911,000 for the comparable periods in 1996.
The provision for income taxes for the six months ended June 30, 1997, and
1996, is at a rate which management believes approximates the effective rate
for the year. The increase was due to increased taxable income in 1997.
The decrease in the effective tax rate was due to the donation of
appreciated stock, previously mentioned in other expense.
CAPITAL RESOURCES
The banking regulators have established guidelines for leverage capital
requirements, expressed in terms of Tier 1 or core capital as a percentage
of average assets, to measure the soundness of a financial institution.
These guidelines require all banks to maintain a minimum leverage capital
ratio of 4.00% for adequately capitalized banks and 5.00% for well-capitalized
banks. 1st Source's leverage capital ratio was 10.39% at June 30, 1997.
The Federal Reserve Board has established risk-based capital guidelines
for U.S. banking organizations. The guidelines established a conceptual
framework calling for risk weights to be assigned to on and off-balance
sheet items in arriving at risk-adjusted total assets, with the resulting
ratio compared to a minimum standard to determine whether a bank has
adequate capital. The minimum standard risk-based capital ratios effective
in 1997 are 4.00% for adequately capitalized banks and 6.00% for well-
capitalized banks for Tier 1 risk-based capital and 8.00% and 10.00%,
respectively, for total risk-based capital. 1st Source's Tier 1 risk-based
capital ratio on June 30, 1997, was 12.99% and the total risk-based capital
ratio was 14.42%.
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 liquidity management is to match the sources and uses of funds
to anticipated customers' deposits and withdrawals, to anticipate borrowing
requirements and to provide for the cash flow needs of 1st Source. The
purpose of interest rate sensitivity management is to stabilize net interest
income during periods of changing interest rates.
Close attention is given to various interest rate sensitivity gaps and
interest rate spreads. Maturities of rate sensitive assets are carefully
maintained relative to the maturities of rate sensitive liabilities and
interest rate forecasts. At June 30, 1997, the consolidated statement of
financial condition was rate sensitive by $11,232,000 more liabilities than
assets scheduled to reprice within one year or 98.99%.
Management adjusts the composition of its assets and liabilities to
manage the interest rate sensitivity gap based upon its expectations of
interest rate fluctuations.
1st Source has entered into two off-balance sheet interest rate swaps
as part of its interest rate risk management strategy. The swaps are being
used to hedge against the Company's Prime floating rate loans. The notional
amount of the first swap as of June 30, 1997, is $27 million. It has a
maturity date of January, 2002, and has a current fair value of $(556,000).
The second swap has a notional amount of $28 million as of June 30 1997.
It has a maturity date of March, 2001, and has a current fair value of
$(324,000).
The Company pays a variable interest rate (one-month LIBOR) on each
swap and receives a fixed rate. The interest rate swaps are the most
efficient means of protecting the bank's net interest rate margin in a
declining interest rate environment. Conversely, if interest rates
increase, the increased contribution to net interest income from on-balance
sheet assets will substantially offset any negative impact on net interest
income from these swap transactions.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders
During the second quarter of 1997, 1st Source Corporation's shareholders
re-elected Rev. E. William Beauchamp, Paul R. Bowles, William P. Johnson and
Richard J. Pfeil as directors at the April 17, 1997, annual meeting. They
were elected for terms ending in April, 2000. The election showed that
14,202,981 votes were cast (representing 90% of all eligible shares) with
all directors receiving a majority of the votes cast.
1st Source Corporation's shareholders also elected to approve the 1997
Employee Stock Purchase Plan and the offering of 200,000 shares of
1st Source Common Stock thereunder. The election tally showed that
14,108,612 votes were cast (representing 90% of all eligible shares) with
the proposal receiving a majority of the votes cast.
Also at the shareholder's meeting, 1st Source Corporation's shareholders
approved the amendments to the Stock Option Plan in order to exempt Plan
benefits from the $1 million deductibility limitation pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended. The election tally
showed that 14,099,177 votes were cast (representing 90% of all eligible
shares) with the proposed receiving a majority of the votes cast.
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements 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
DATE 8/14/97 /s/ Christopher J. Murphy III
(Signature)
Christopher J. Murphy III, President
DATE 8/14/97 /s/ Larry E. Lentych
(Signature)
Larry E. Lentych, Treasurer (Chief
Accounting and Financial Officer)
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0
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</TABLE>
