FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ------------------ 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 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 March 31, 2000 - 20,786,912 shares.
INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Page Consolidated statements of financial condition -- 3 March 31, 2001, and December 31, 2000 Consolidated statements of income -- 4 three months ended March 31, 2001 and 2000 Consolidated statements of cash flows -- 5 three months ended March 31, 2001 and 2000 Notes to the Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II.OTHER INFORMATION 14 SIGNATURES 15 - 2 -
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1st Source Corporation and Subsidiaries (Unaudited - Dollars in thousands) March 31, December 31, 2001 2000 ----------- ----------- ASSETS Cash and due from banks .......................... $ 113,823 $ 118,123 Federal funds sold and interest bearing deposits with other banks ..... 843 901 Investment securities: Securities available-for-sale, at fair value (amortized cost of $524,893 and $503,238 at March 31, 2001 and December 31, 2000)...... 530,108 503,910 Securities held-to-maturity, at amortized cost (fair value of $0 and $60,332 at March 31, 2001 and December 31, 2000) ........ -- 59,212 ----------- ----------- Total investment securities ...................... 530,108 563,122 Loans - net of unearned discount ................. 2,413,433 2,309,062 Reserve for loan losses ........................ (48,189) (44,644) ----------- ----------- Net loans ........................................ 2,365,244 2,264,418 Equipment owned under operating leases, net of accumulated depreciation 87,199 84,892 Premises and equipment, net of accumulated depreciation ............... 34,636 33,583 Other assets ..................................... 122,726 117,142 ----------- ----------- Total assets ..................................... $ 3,254,579 $ 3,182,181 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing ............................ $ 321,022 $ 293,564 Interest bearing ............................... 2,198,718 2,169,160 ----------- ----------- Total deposits ................................... 2,519,740 2,462,724 Federal funds purchased and securities sold under agreements to repurchase ............ 203,448 192,307 Other short-term borrowings ...................... 124,745 141,083 Long-term debt ................................... 12,166 12,060 Other liabilities ................................ 62,481 58,685 ----------- ----------- Total liabilities ................................ 2,922,580 2,866,859 Guaranteed preferred beneficial interests in 1st Source's subordinated debentures ........ 44,750 44,750 Shareholders' equity: Common stock-no par value ...................... 7,227 7,227 Capital surplus ................................ 195,197 195,197 Retained earnings .............................. 92,059 80,881 Less cost of common stock in treasury .......... (12,895) (14,954) Accumulated other comprehensive income ......... 5,661 2,221 ----------- ----------- Total shareholders' equity ....................... 287,249 270,572 ----------- ----------- Total liabilities and shareholders' equity ....... $ 3,254,579 $ 3,182,181 =========== =========== The accompanying notes are a part of the consolidated financial statements. - 3 -
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME 1st Source Corporation and Subsidiaries (Unaudited - Dollars in thousands, except per share amounts) Three Months Ended March 31 ------------------ 2001 2000 ------------ ------------ <S> <C> <C> Interest and fee income: Loans ...................................................... $ 53,839 $ 45,958 Investment securities: Taxable ................................................ 5,842 5,061 Tax-exempt ............................................. 1,753 1,941 Other .................................................. 163 89 ------------ ------------ Total interest income ....................................... 61,597 53,049 Interest expense: Deposits ................................................. 28,959 23,165 Short-term borrowings .................................... 5,250 4,464 Long-term debt ........................................... 218 221 ------------ ------------ Total interest expense ...................................... 34,427 27,850 ------------ ------------ Net interest income ......................................... 27,170 25,199 Provision for loan losses ................................... 7,295 3,918 ------------ ------------ Net interest income after provision for loan losses ................................ 19,875 21,281 Noninterest income: Trust fees ............................................... 2,468 2,321 Service charges on deposit accounts ...................... 2,439 1,809 Loan servicing and sale income ........................... 15,072 5,578 Equipment rental income .................................. 5,791 4,578 Other income ............................................. 3,402 2,331 Investment securities and other investment gains ......... 1,032 497 ------------ ------------ Total noninterest income .................................... 30,204 17,114 ------------ ------------ Noninterest expense: Salaries and employee benefits ........................... 15,061 13,261 Net occupancy expense .................................... 1,561 1,382 Furniture and equipment expense .......................... 2,252 2,122 Depreciation - leased equipment .......................... 4,664 3,642 Supplies and communications .............................. 1,341 1,288 Business development and marketing expense ............... 843 743 Other expense ............................................ 2,295 1,848 ------------ ------------ Total noninterest expense ................................... 28,017 24,286 ------------ ------------ Income before income taxes and subsidiary trust distributions 22,062 14,109 Income taxes ................................................ 7,818 4,845 Distribution on preferred securities of subsidiary trusts, net of income tax benefit .............. 601 579 ------------ ------------ Net income .................................................. $ 13,643 $ 8,685 ============ ============ Other comprehensive income, net of tax: Change in unrealized appreciation (depreciation) of available-for-sale securities ........................... 3,440 474 ------------ ------------ Total comprehensive income .................................. $ 17,083 $ 9,159 ============ ============ Per common share: (1) Basic net income per common share ......................... $ 0.66 $ 0.42 ============ ============ Diluted net income per common share ....................... $ 0.65 $ 0.41 ============ ============ Dividends ................................................. $ 0.086 $ 0.081 ============ ============ Basic weighted average common shares outstanding ............ 20,721,957 20,831,266 ============ ============ Diluted weighted average common shares outstanding .......... 21,099,979 21,081,675 ============ ============ (1) The computation of per share data gives retroactive recognition to a 5% stock dividend declared on April 24, 2001 and a 5% stock dividend declared on July 18, 2000. The accompanying notes are a part of the consolidated financial statements. </TABLE> - 4 -
CONSOLIDATED STATEMENTS OF CASH FLOWS 1st Source Corporation and Subsidiaries (Unaudited - Dollars in thousands) Three Months Ended March 31 2001 2000 --------- --------- Operating activities: Net income .................................... $ 13,643 $ 8,685 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ..................... 7,295 3,918 Depreciation of premises and equipment ........ 5,813 4,730 Amortization of investment security premiums and accretion of discounts, net ............. 225 379 Amortization of mortgage servicing rights ..... 1,131 1,464 Deferred income taxes ......................... 2,106 539 Realized investment securities gains .......... (1,032) (497) Realized gains on securitized loans ........... (2,214) (2,597) Decrease (increase) in interest receivable .... 1,208 (451) (Decrease) increase in interest payable ....... (2,207) 2,493 Other ......................................... (15,793) (4,826) --------- --------- Net cash provided by operating activities ....... 10,175 13,837 Investing activities: Proceeds from sales and maturities of investment securities .................... 52,622 67,148 Purchases of investment securities ............ (14,408) (55,848) Net decrease in short-term investments ........ 58 292 Loans sold or participated to others .......... 62,355 83,531 Increase in loans net of principal collections. (170,503) (170,732) Net increase (decrease) in equipment owned under operating leases ...................... 1,204 (5,936) Purchases of premises and equipment ........... (1,477) (575) Increase in other assets ...................... 6,834 661 Other ......................................... (768) (437) --------- --------- Net cash used in investing activities ........... (64,083) (81,896) Financing activities: Net (decrease) increase in demand deposits, NOW accounts and savings accounts ............... (78,113) 6,950 Net increase in certificates of deposit ....... 135,129 130,434 Net decrease in short-term borrowings ......... (5,197) (80,590) Proceeds from issuance of long-term debt ...... 158 250 Payments on long-term debt .................... (52) (72) Acquisition of treasury stock ................. (544) (2,349) Cash dividends ................................ (1,773) (1,702) --------- --------- Net cash provided by financing activities ....... 49,608 52,921 Decrease in cash and cash equivalents ........... (4,300) (15,138) Cash and cash equivalents, beginning of period .. 118,123 101,911 --------- --------- Cash and cash equivalents, end of period ........ $ 113,823 $ 86,773 ========= ========= The accompanying notes are a part of the consolidated financial statements. - 5 -
1ST SOURCE CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation 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 of 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 2000 1st Source Corporation Annual Report on Form 10-K should be read in conjunction with these statements. Note 2. New Accounting Pronouncements On January 1, 2001, 1st Source adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on the intended use of the derivative and its resulting designation. On adoption, it was permitted to transfer held-to-maturity debt securities to available-for-sale or trading securities without calling into question the intent of management to hold other debt securities to maturity in the future. In conjunction with the adoption of SFAS No. 133, 1st Source transferred the held-to-maturity portfolio with an amortized cost of $59.2 million and a gross unrealized gain of $1.1 million into the available-for-sale portfolio at January 1, 2001. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", which replaces SFAS No. 125. This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This statement is not expected to have a material effect on 1st Source's financial position or results of operations. - 6 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis is presented to provide information concerning the financial condition of 1st Source as of March 31, 2001, as compared to March 31, 2000 and December 31, 2000, and the results of operations for the three months ended March 31, 2001 and 2000. This discussion and analysis should be read in conjunction with 1st Source's consolidated condensed financial statements and the financial and statistical data appearing elsewhere in this report and the 2000 1st Source Corporation Annual Report on Form 10-K. Except for historical information contained herein, the matters discussed in this document, and other information contained in 1st Source's SEC filings, may express "forward-looking statements." Those statements may involve risk and uncertainties, including statements concerning future events, performance and assumptions and other statements that are other than statements of historical facts. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Readers are advised that various factors - including, but not limited to, changes in laws, regulations or generally accepted accounting principles; 1st Source's competitive position within the markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies - could cause 1st Source's actual results or circumstances for future periods to differ materially from those anticipated or projected. 1st Source does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements. - 7 -
FINANCIAL CONDITION 1st Source's assets at March 31, 2001 were $3.25 billion, up 10.7% from the same time last year. Total loans were up 12.4% and total deposits increased 11.3% over the comparable figures at the end of the first quarter of 2000. Shareholders' equity was $287.2 million, up 16.8% from the $245.9 million one year ago. As of March 31, 2001, the 1st Source equity-to-assets ratio was 8.8%, compared to 8.4% a year ago. Nonperforming assets at March 31, 2001, were $25,005,000 compared to $24,462,000 at December 31, 2000, an increase of 2.22%. At March 31, 2001, nonperforming assets were 1.04% of net loans compared to 1.06% at December 31, 2000. Loans are reported at the principal amount outstanding, net of unearned income. Loans identified as held-for- sale are carried at the lower of cost or market determined on an aggregate basis. Loans held-for-sale were $114.3 million and $54.4 million at March 31, 2001 and 2000, respectively. Included in Other Assets are capitalized mortgage 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. SFAS No. 140 allows companies that sell originated or purchased loans and retain the related servicing rights, to allocate a portion of the total costs of the loans to servicing rights, based on estimated fair value. Fair value is estimated based on market prices, when available, or the present value of future net servicing income, adjusted for such factors as discount and prepayment rates. In the first quarter of 2001, 1st Source completed the sale of $1.0 billion in principal value of its mortgage servicing rights held by its Trustcorp Mortgage Company subsidiary. This servicing sale was in addition to normal quarterly sales levels, and was made possible by favorable market conditions. Pre-tax income of $11.06 million ($6.87 million, net of tax) was recorded in the first quarter, 2001 on this transaction. As of March 31, 2001 and 2000, the carrying value of mortgage servicing rights was $12.3 million and $21.2 million, respectively. 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 10.17% at March 31, 2001. 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 2001 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 March 31, 2001 was 11.95% and the total risk-based capital ratio was 13.21%. - 8 -
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 March 31, 2001, the consolidated statement of financial condition was rate sensitive by $238,579,000 more liabilities than assets scheduled to reprice within one year or 87.90%. Management adjusts the composition of its assets and liabilities to manage the interest rate sensitivity gap based upon its expectations of interest rate fluctuations. - 9 -
RESULTS OF OPERATIONS NET INCOME Net income for the three month period ended March 31, 2001, was $13,643,000 compared to $8,685,000 for the equivalent period in 2000. The primary reason for the increase was the gain on the sale of the $1.0 billion mortgage servicing rights in the first quarter, 2001, offset by an increased loan loss provision. Diluted net income per common share increased to $0.65 for the three month period ended March 31, 2001, from $0.41 in 2000. Return on average common shareholders' equity was 19.91% for the three months ended March 31, 2001, compared to 14.46% in 2000. The return on total average assets was 1.73% for the three months ended March 31, 2001, compared to 1.22% in 2000. NET INTEREST INCOME The taxable equivalent net interest income for the three month period ended March 31, 2001, was $27,990,000, an increase of 7.21% over the same period in 2000. The net interest margin on a fully taxable equivalent basis was 3.90% for the three month period ended March 31, 2001 compared to 4.05% for the three month period ended March 31, 2000 and 3.82% for the three month period ended December 31, 2000. The net interest margin has declined in the past year due to the costs of funds rising more than the yield on interest earning assets; in part, due to the greater reliance on brokered, negotiated rate deposits and jumbo certificates of deposits to meet funding needs. Total average earning assets increased 12.05% for the three month period ended March 31, 2001, over the comparative period in 2000. Total average investment securities increased 3.66% for the three month period over one year ago primarily due to an increase of investments in U.S. Government Securities. Average loans increased by 13.96% for the three month period, compared to the same period in 2000, due to growth in loan volume in commercial and agriculture, commercial loans secured by transportation and construction equipment and loans secured by real estate. The taxable equivalent yields on total average earning assets were 8.70% and 8.36% for the three month periods ended March 31, 2001, and 2000, respectively. Average deposits increased 11.05% for the three month period over the same period from 2000. The cost rate on average interest-bearing funds was 5.55% and 4.97% for the three months ended March 31, 2001, and 2000. The majority of the growth in deposits from last year has occurred in certificates of deposits with maturities greater than one year, brokered certificates of deposits and NOW accounts. The following table sets forth consolidated information regarding average balances and rates. - 10 -
<TABLE> <CAPTION> DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Dollars in thousands) Three Months Ended March 31 ------------------------------------ 2001 2000 -------------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ASSETS: <S> <C> <C> <C> <C> <C> <C> Investment securities: Taxable ................. $ 385,573 $ 5,842 6.15% $ 355,040 $ 5,060 5.73% Tax exempt (1)........... 151,827 2,507 6.70% 163,379 2,804 6.90% Net loans (2)(3)........... 2,358,805 53,904 9.27% 2,069,887 46,004 8.94% Other investments ......... 11,902 164 5.58% 7,175 90 5.02% ---------- -------- ----- ---------- -------- ----- Total earning assets 2,908,107 62,417 8.70% 2,595,481 53,958 8.36% Cash and due from banks ... 89,421 102,470 Reserve for loan losses ... (45,971) (40,027) Other assets .............. 237,678 204,977 ---------- ---------- Total ..................... $3,189,235 $2,862,901 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing deposits $2,142,886 $28,959 5.48% $1,916,483 $23,165 4.86% Short-term borrowings ... 359,721 5,250 5.92% 326,530 4,464 5.50% Long-term debt .......... 12,160 218 7.28% 12,188 221 7.30% ---------- ------- ----- ---------- ------- ----- Total interest bearing liabilities ............. 2,514,767 34,427 5.55% 2,255,201 27,850 4.97% Noninterest bearing deposits 289,542 273,887 Other liabilities ....... 107,058 92,206 Shareholders' equity .... 277,868 241,607 ---------- ---------- Total ..................... $3,189,235 $2,862,901 ========== ========== ------- ------- Net interest income ....... $27,990 $26,108 ======= ======= Net yield on earning assets on a taxable ----- ----- equivalent basis ........ 3.90% 4.05% ===== ===== (1) Interest income includes the effects of taxable equivalent adjustments, using a 35% rate. Tax equivalent adjustments were $755 in 2001 and $863 in 2000. (2) Loan income includes fees of $1,295 in 2001 and $1,479 in 2000. Loan income also includes the effects of taxable equivalent adjustments, using a 35% rate for 2001 and 2000. The tax equivalent adjustments were $65 in 2001 and $46 in 2000. (3) For purposes of this computation, non-accruing loans are included in the daily average loan amounts outstanding. </TABLE> - 11 -
PROVISION AND RESERVE FOR LOAN LOSSES The provision for loan losses for the first quarter of 2001 increased to $7,295,000 as compared to $3,918,000 for the first quarter of 2000. The increase is primarily due to increased charge-offs over the past two quarters and to an increase in loan delinquencies to 2.13% at March 31, 2001 as compared to 0.54% at March 31, 2000 and 1.03% at the end of 2000. Net Charge-offs of $3,065,000 have been recorded in the first quarter 2001, compared to Net Charge-offs of $3,348,000 in the first quarter 2000 and $2,204,000 in the fourth quarter of 2000. A summary of loan loss experience during the three months ended March 31, 2001 and 2000 and for year ended December 31, 2000 is provided below. <TABLE> <CAPTION> Summary of Reserve for Loan Losses ------------------------------------ (Dollars in Thousands) Three Months Ended Year Ended March 31 December 31 2001 2000 2000 --------- --------- --------- <S> <C> <C> <C> Reserve for loan losses - beginning balance $ 44,644 $ 40,210 $ 40,210 Charge-offs (3,218) (3,486) (9,075) Recoveries 153 138 1,673 --------- --------- --------- Net charge-offs (3,065) (3,348) (7,402) Provision for loan losses 7,295 3,918 14,877 Recaptured reserve due to loan securitizations (685) (870) (3,041) --------- --------- --------- Reserve for loan losses - ending balance $ 48,189 $ 39,910 $ 44,644 ========= ========= ========= Loans outstanding at end of period 2,413,433 2,146,444 2,309,062 Average loans outstanding during period 2,358,805 2,069,887 2,207,382 Reserve for loan losses as a percentage of loans outstanding at end of period 2.00% 1.86% 1.93% Ratio of net charge-offs during period to average loans outstanding 0.53% 0.65% 0.34% </TABLE> It is management's opinion that the reserve for loan losses is adequate to absorb losses inherent in the loan portfolio as of March 31, 2001. NONINTEREST INCOME Noninterest income for the three month periods ended March 31, 2001, and 2000 was $30,204,000 and $17,114,000, respectively, an increase of 76.49%. Trust fees increased 6.33%, service charges on deposit accounts increased 34.83%, loan servicing and sale income increased 170.20%, equipment rental income increased 26.50% and other income increased 45.95%. Service charges on deposits increased due to the implementation of an overdraft protection program during 2000. Servicing and sale income increased due to the $1 billion sale of mortgage servicing rights in the first quarter, 2001. The increase in equipment rental income was primarily due to growth in operating leases. Investment Security and other net gains for March 31, 2001, were $1,032,000 compared to net gains of $497,000 in 2000, an increase of 107.65%. The net gains for both years were primarily attributed to certain partnership and venture capital investments. - 12 -
NONINTEREST EXPENSE Noninterest expense for the three month period ended March 31, 2001, was $28,017,000, an increase of 15.36% over the same period in 2000 and 4.31% over the prior quarter ended December 31, 2000. Salaries and employee benefits increased 13.57% and 14.15% from the three month periods ended March 31, 2000 and December 31, 2000, respectively, primarily due to an increase in base salaries in the first quarter, 2001. Base salaries increased partially due to increased mortgage loan commissions and to fewer open positions within the organization. Net occupancy expense increased 12.95%, furniture and equipment expense increased 6.13%, depreciation on leased equipment increased 28.06%, supplies and communications expense increased 4.11%, business development and marketing expense increased 13.46%, and miscellaneous other expenses increased 24.19% over the same period in 2000. The increase in depreciation of leased equipment is due to a significant volume increase from the prior year. The miscellaneous other expense increase from one year ago is attributed primarily to an increase in professional fees. INCOME TAXES The provision for income taxes for the three month period ended March 31, 2001, was $7,818,000 compared to $4,845,000 for the comparable period in 2000. The provision for income taxes for the three months ended March 31, 2001, and 2000, is at a rate which management believes approximates the effective rate for the year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in market risk exposures that affect the "Quantitative and Qualitative Disclosures" presented in 1st Source's annual report on Form 10-K for the year ended December 31, 2000. See the discussion of interest rate sensitivity beginning on page 13 of the Annual Report to Shareholders. - 13 -
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 None ITEM 5. Other Information. None ITEM 6. Exhibits and Reports on Form 8-K. None - 14 -
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 5/10/01 /s/ Christopher J. Murphy III ---------- ---------------------------------------- (Signature) Christopher J. Murphy III Chairman of the Board, President and CEO DATE 5/10/01 /s/ Larry E. Lentych ---------- ---------------------------------------- (Signature) Larry E. Lentych Treasurer and Chief Financial Officer - 15 -