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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)
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
ASSETS:
Interest bearing deposits $1,062 $30 2.79%
Investment securities:
Taxable 244,567 15,184 6.21%
Tax-exempt 129,409 11,285 8.72%
Net loans 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 103,872 10,077 9.70%
Net loans 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 91,447 9,603 10.50%
Net loans 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%
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.
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.
For purposes of this computation, nonaccruing loans are included in the
daily average loan amounts outstanding.
ITEM 1. BUSINESS (Continued)
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
Volume Rate Net
(In Thousands)
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
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.
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.
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)
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%
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.
LOAN PORTFOLIO
The following table shows the Company's loan distribution at the end of each of
the last five years:
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
ITEM 1. BUSINESS (Continued)
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)
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
The following table summarizes the nonaccrual, past due and restructured loans:
December 31
1995 1994 1993 1992 1991
(In Thousands)
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
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)
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)
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%
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)
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
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%
ITEM 1. BUSINESS (Continued)
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)
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
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)
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
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
ITEM 1. BUSINESS (Concluded)
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 Paper Borrowings Borrowings
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%
Federal funds purchased and securities sold under agreements to
repurchase generally mature within 1 to 30 days of the transaction date.
Commercial paper and other short-term borrowings generally mature
within 30 days.
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.